Transcript

Paul O'Connor (POC): Welcome to the Netwealth Portfolio Construction Podcast series. My name is Paul O'Conner and I'm the head of investment management and research. Part of my role at Netwealth is to manage and govern the investments that we make available to you through the Netwealth investment platforms and today I'm... well, and I'm very fortunate to have a lot of ongoing interaction with the fund managers. Today we have Chris Joye, founder, chief investment officer and portfolio manager of Coolabah Investments, and Chris is also a contributing editor with the Australian Financial Review. Welcome Chris and we appreciate your time this morning.

Christopher Joye: (CJ): Thank you for having me on the show Paul.

POC: Coolabah have a number of managed funds available on our investment menus across super and IDPS covering various Australian fixed interest strategies. We're fortunate to have Chris with us today and given you manage Australian fixed interest strategies, thought we would focus on the Australian economy and the Australian fixed interest markets. I guess on their finding working from home almost business as usual, but how were you and the Coolabah team coping with working from home?

CJ: Yeah mate, we actually have a large team, 23 executives and that includes 11 analysts and four portfolio managers. And we have three offices, one in Melbourne, two in Sydney. So we've always actually been quite networked and disaggregated, and I've actively accommodated remote working capabilities. So this has not really been much of an adjustment for us. I work remotely quite a lot myself not withstanding that I might speak to the portfolio managers up to 15 to 20 times a day. So yeah mate, it's been fine.

POC: Maybe a bit more of adjustment process for our families I might add there. COVID-19 really is a human tragedy and foremost, but it's having a significant impact on the global economy. Coolabah have been very prominent in your views on the number of Australians infected by COVID-19, so what's your forecasting model indicating now in terms of infection rates across Australia?

CJ: Well, just taking a step back, Paul, in January when the outbreak first publicly emerged, we didn't have a strong emphatic view one way or another with it would become a global pandemic, and we've seen can counterfactuals around the world where countries have successfully contained the virus very effectively. We've seen that here in Australia, in New Zealand, in Taiwan, Hong Kong and some other nations. So we've always been very data driven and data dependent, and we built quite sophisticated data science systems that real time or automatically tracked every infection for every state, province and country in the world, and every fatality globally.

We then did a lot of analysis on those numbers to understand the evolution of the pandemic and form a view in February that this would go global. At that time, we also started building a very sophisticated COVID-19 forecasting models, and in March we published a very contrarian view that the number of new infections would peak in Europe, the US and Australia in early April.

Now this was at a time when epidemiologists were arguing that the peak in new infections might not occur until June or July. The prime minister was talking about a six month hibernation of businesses of at least half a year that is. And so the outlook was incredibly gloomy. That views that the infections would peak in early April also informed our portfolio decisioning. So we actually spent $900 million in March buying bonds in Australia and overseas when credit spreads were moving dramatically wider. And that's basically what's come to pass, Paul. So we have seen new infections peak here in Australia at the end of March, early April. In the US they peaked around the 10th or 11th of April. And in countries like Spain, Italy, the UK, France and Germany, we've seen peaks in early April. So the outlook is pretty promising in that context. Having said that, we're obviously worried about second waves, and we're focused on ascertaining in real time through those COVID-19 tracking systems, how effective governments are in really flattening the curves.

POC: So what countries have not peaked, or reached peak infection rates at the moment?

CJ: The obvious ones are specifically countries that didn't contain with hard lockdowns early on. So we have seen in nations like Japan and Singapore where they had very slow growth rates, consistent increases over time in those growth rates. So early on, Japan and Singapore and Hong Kong and Taiwan were held up as the exemplars of high efficacy containment strategies. So areas where we didn't have exponential growth. But what we have seen is that in Japan and Singapore particularly, where haven't actually looked down the population and sought to more or less eliminated the virus and get the reproduction rate or the so-called R0, or it's also known as the REFF, R-E-F-F, the reproduction number below one. If you get it below a one that means, Paul, if you're infected, you're going to transmit that infection in all likelihood to less than one other person. And one is the crucial threshold below which the virus will effectively die out. So the reproduction rates here in Australia is blow one, it's blow one in New Zealand. So again, the containment strategies have been pretty impressively effective in the antipodes.

So we're very conscious of where we may be picking up additional amount of exposure in our portfolios through some of our multinationals in those zones. And we've actually been taking action to change our portfolio to reduce our exposure in those zones. The only hope in those emerging markets is that they have younger populations, many are operating in milder climates, and they may be able to get to herd immunity quickly and possibly without a huge human tragedy. But again, we're just speculating about that. It's difficult to see, as they go through that, that there isn't going to be long-lasting economic damage.

But in Spain and Japan... sorry, Spain. In Singapore and Japan I think that we're head faked and lapsed into a false sense of security around the slow early growth profiles. But we are seeing ongoing growth and a lack of contaminant in those geographies.

POC: It's interesting I guess the veering oscillation rules that have been brought in by countries around the world. And I guess some of it in my mind has been questioning the social licence of the government and whether the people think that government have that ability to seriously impact on their lives. So it is interesting. But we are certainly seeing increases in some countries of the rates there. Do you believe that the isolation rules in Australia should be reduced given the full in the amount of COVID-19 cases?

CJ: Yeah, quite emphatically so. So in addition to arguing in March that the June, July peaks and the epidemiologists modelling and forecast was wrong, and then we'd have very, very early peaks which would be a positive for markets. So I probably didn't make that very clear, but we also hypothesise that once markets could see through the peak, we would get very favourable price action. And that's exactly what we've seen in April is, Paul, we've seen a strong rally in equities, but a particularly positive response in high grade, so A and AA and AAA rated bonds that are direct beneficiaries of QE. In relation to the Aussie containment strategies, we also wrote publicly in March that the prime minister's six months business hibernation plan was totally wrong, and that the prime minister needed to pivot away from that plan and adopt a one to two month aggressive lockdown of the kind that we have embraced, and then crucially transition to the economy back to a more normal growth path.

Our view was that the economic damage done by a six month business hibernation plan would be very, very far reaching and depressionary. It would put Australia into the worst recession we had seen since the great depression, and that it would give us double digit unemployment, and that the economic, social health and human costs of a depression would actually far outweigh the costs of a modest number of fatalities that would be incurred if we did a hard contaminant followed by a return to a new normal. So, we don't run around hugging and kissing and shaking hands. So, you still have those mitigating behaviours and we need to maintain those practises until we get widely available vaccines and/or effective antiviral drugs. And two examples of those are hydroxychloroquine and Remdesivir, which is the Gilead Science's drug that seems to be effective against the virus.

This was a fairly contrarian view in March. The good news is, Paul, that was the prime minister wrote to me and said he disagreed with our view in March. He has pivoted fairly dramatically. I think on the last count, he has not mentioned his six months business hibernation plan for three or four weeks. And he has said that we will basically be looking to exit containment in about two to three weeks. We've seen a relaxation of restrictions in Western Australia and other states. And I think in May, we will see a substantial normalisation of business activity, which is crucial to prevent permanent economic damage and permanent job losses.

And another hypothesis of ours related to this point has been that as markets see, firstly, the peak in new infections pass, but then, secondly, economies exit hard lock-downs and return to these new normals that will be a second trigger or a second regime change for some more positive price action.

POC: Yeah, it's interesting. I think we're going to have to be very cautious, aren't we, over the next couple of years at least until I vaccine is created to deal with COVID-19. And unfortunately, such simple things as the handshake, may be a thing of the past. In terms of the current damage that COVID-19's done to the Australian economy, what's your view on the current impact on GDP and company earnings?

Well, it's complicated, and we have hypothesised something called a VU-shaped recovery. By view, I mean VU. And what we believe will happen is we'll have that fast exit from containment, albeit still gradual, and it will be I think a long time, as you said, one or two years, before we're truly back to normal as we once knew it. 

The unemployment rate was around 5% prior to the emergence of the COVID-19 crisis. The RBA believes it will jump up to about 10%. That seems reasonable. So, I would probably say somewhere between eight and 10% initially, and then it should drop back down. But I think that there will remain significant structural unemployment for the foreseeable future. So, I don't see the jobless rate going back to 5%. I think it will stay in the six to 7% range for quite some time because I think many businesses are using this positively as a form of creative destruction. What I mean by that, Paul, is the idea is, in capitalism and markets, you have a big down-turns and they kill off unproductive firms or zombie businesses.

We've seen the virus unfortunately struck a multiple blow to very weak members of our community tragically. But also it is killing off weaker members of the economy. Virgin Airlines is one high-profile casualty. And I think you'll see more zombies like Virgin killed off. They won't be coming back, or if they do come back, they'll come back in a very different form. But equally, I think many businesses that were carrying excess labour or unproductive labour won't be necessarily rehiring all those positions.

I think you're going to see far-reaching consequences on a sectoral level. If you look at the commercial property market I think that's going to be a disaster. I think you'll see a huge structural downward shift in the demand for office property as this synchronised global experiment in working remotely has profoundly changed the approach of many small businesses to managing the affairs. They won't need those offices. I know my next door neighbours in our office building have called us and said, "Do you want to take our office space because we're going to work remote from now on.

And I think it's also a problem for fixed income investors who have bought the debt issued by zombie companies. A classic example is Virgin Airlines issued a $325 million senior bond on the ASX in November, and that bond is now been wiped out, issued only a few months ago. Sorry, my dog is barking in the background. And then, we have obviously also seen a lot of stress in the many bonds issued by GPT and other major commercial property players that face the risk of default.

I think for the economy though, more fundamentally, we have this really interesting dilemma. One of the corollaries of our argument that we don't need a six month hibernation, and therefore, we want to avoid an extreme depression, and that we want to get business back online quickly in May, June, is that the government's fiscal stimulus looks entirely inappropriate at this juncture. The fiscal package and the PM has done a brilliant job managing this, I should say. Not withstanding that I advised the PM in late February that we would see a liquidity and solvency crisis coming. I wrote about this in the AFR. I advised Josh Frydenberg the RBA, AHPRA. We warned them about all of this and it obviously came to pass in March.

And I think the PM has done a brilliant job managing COVID-19, but I think he was excessively conservative. The six month business hibernation plan was far too conservative and he underestimated the ability with which he would be able to contain the virus. The reason we knew that the peak would be in early April was, in our forecasting model, I asked my data scientist to build a model that conditioned off the experience of some of the leading countries, specifically off the experience of China and South Korea.

 

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And the experience with COVID-19 is that if you crack down aggressively and quickly, you can crush that reproduction rate. South Korea has been a particularly good example of that. And Australia's actually outperformed South Korea, interestingly, in terms of our experience. So, what that, in turn, means is that if you look at it from the PM's view, in March, was thinking we'll go into a depression, we're going to have huge unemployment, we're going to have to shut down the economy for half a year. And so, he announced what has been the biggest fiscal stimulus globally of any developed country on both revenue and expenditure basis. And because of that, he was proposing to provide enormous support.

But if you then come out of containment quickly, like we are now in May, then you don't need all that support. So, I think it's going to be important for the government so that they don't burden future generations of Australians with massive amounts of debt and huge tax liabilities to service. I think we're going to have to pair back on the fiscal stimulus.

In summary, what I would say is I am cautiously optimistic. I think the short-term growth will be much better than people expect. I think the housing market will perform better than people expect. Our view on housing is that house prices will not fall precipitously. CBA is saying 10 to 20%, AMP is saying 20%, Louis Christopher is saying 30%. Our view is that house prices will either flat-line or a worst for by up to 5% over the next six months.

But once the economy normalises over the next six to nine months, our view is that the current housing cycle, and the boom more precisely, will continue. So, house prices increase by 11% between June, 2019, and March, 2020. And we think this cycle will see total capital gains of 20 to 30%. And so, we think we have another 10 to 20% of capital appreciation to come once we get out of contaminant and move back to the new normal.

POC: You thinking there, Chris, that residential property will be the strongest area of the property market as opposed to office property? I think you've made a couple of comments there earlier.

CJ: Yeah, I think it's highly segmented. I think retail will be very difficult as we've moved to more and more digital shopping. I think office will be a disaster. I think Resi will be incredibly strong relatively, and in outright terms, I'm very, very Resi, and that's because in contrast to, for example, 2008, in 2008, Aussie Resi the only fell. So, national house prices only fell 8% peak to trough. And in 2009, they were up in double-digit terms in respect to the capital growth they delivered.

So, Aussie Resi actually performed really well in 2008, but in 2008, we did have fairly aggressive credit rationing by banks that were very worried about a big, big housing correction. This time around, that is not the case. This time around, the banks are being actively encouraged to lend, they are proposing to lend, we have much lower interest rates. Interest rates have been aggressively cut as they were in 2008. And crucially, I think you're going to see much more forbearance by banks for those borrowers who do want to avail themselves of interest rate holidays.

So, we have seen I think about 9% of NAB's financials were released yesterday, and about 9% of their Resi borrowers asked for six months for payment holidays. And so, those folks will get interest rate relief for six months and they're not going to be forced out of their homes. So, I think that's really important. If you marry that together, Paul, with us coming out of containment over May, June, economic activity normalising of the next three to six months, you look at the Australia's economy. Yes, tourism and travel have been hit very hard, but there are more Australians who travel overseas than those those who come to Australia each year. And so, I think what you will see is a huge substitution away from offshore travel.

Huge substitution away from offshore travel to domestic travel with staycations. And so I think tourism will be fine domestically. Education will be difficult as our borders remain closed for some time. But I think iron ore prices remain elevated and commodities have fared relatively well. We're going to have some big global spending programme that will support commodity prices in terms of our key exports. So I'm fairly sanguine, I'm not saying it's going to be a massive boom economically speaking. I think it will be a short sharp recovery, but thereafter we're going to have more debt, and the economy will look different, we'll have more unemployment, we'll have fewer zombies, and I think growth will actually be lower for a period of time as we kind of pay our way out of that debt.

 

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POC: Well we've seen a significant amount of volatility in the fixed interest markets. So how is the Australian fixed interest market holding up at present?

CJ: Yeah, it's been pretty interesting. Fixed income is such an important asset class to understand for investors and I think for folks listening to this podcast, so there's basically three or four different markets. So I'll take each in turn. The government bond market really struggled in March. So Aussie government bonds interim month were down 4%, AAA rated Aussie government bonds had suffered a four percent loss through about the middle of March and then were bailed out by the government bond QE that the RBA commenced on the 19th of March. So they ended up the month of that flat.

We saw what we call the financial credit market. So those are bonds issued by banks. So they can be senior bonds, subordinated bonds or hybrids. The credit spreads on those bonds blew out to the highest levels that have ever been seen. So to give you some hard numbers, the credit spread on a five year major bank hybrid in January was about 260 basis points over bank bills in March, it blew out to 840 basis points out of the bank bills. In the GFC in only to 590 of the bank bills. So we were very aggressively buying those securities in March, and that's paid big dividends. So we've seen hybrid spreads compress from 840 over bank bills to about 470 over bank bills today. And on those purchases in March, you're getting double digit capital gains.

Finally the corporate bond market, there's two parts, there's the high yield corporate bond market, and then there is the investment grade market, the BBB or a higher rated market. There has been zero liquidity in corporate bonds. This has created a huge problem. Very different to government bonds where liquidity has been wonderful, and also in financial bonds, so bank senior paper, and even the hybrid market liquidity was amazing in March. We saw daily turnover in hybrids jump about a hundred percent, in fact more than a hundred percent, so we saw individual days in March where we had more than 120 million a day of hybrids turning over. You contrast that with the investment grade corporate bond market pool here in Australia. Zero liquidity. You would be lucky to see, 10 to 20 million across the whole market trading in any given day. There just wasn't a bid, and that remains the case. Yeah, that remains the case. So the corporate bond market is still extremely liquid and that's why you've seen huge increases in exit spreads, which you know in many products cases remain in place.

So dramatic increases to one, two, 3% in exit spreads because there's no liquidity, and therefore nobody really knows what those assets are worth. And the likelihood is the real valuations are way below the reported NAVs. And that's been our experience when we've looked at other corporate bond ETFs for example. And we've asked those managers, where are you having to sell your corporate bonds at when you get an ETF redemption? And their feedback to us has been that typically it's about three percentage points below the official NAV. And then finally in the high yield bond market, we've seen massive losses. So globally high yield fell about 15% in March.

I should say the hybrid market set, if we can get the data just quickly, equities were down 21% in March. The high grade bank bond market was down about one to 2% in March, so relatively resilient. Hybrids were down about 6.3% in March. Our active hybrid ETF product that we run for B this year is HBRD, was down 4.5% net of fees, so we out-performed the net significantly. The high yield bond market was down 15% in March, and then the market that really got blown up badly was the high yield LIT or listed investment trust market on the ASX where products were down 20, 30, 40, 50% and still remain really deeply damaged because they're all trading at massive discounts to net tangible assets. So it's really a tale of many, many different stories in fixed income. I think the interesting thing is in April we've seen a massive rebound in financial credit.

So in pretty much every portfolio I run, and I run it at 20 portfolios across about $3.5 billion a fund, most of those are institutional accounts, Paul, we are having our best returns ever in history in March, and then is because credit spreads are normalising. So as I mentioned, hybrid spreads have come from 840 over down to 470 over. Still well wide at the 260 level in January, and so therefore still very appealing I believe. We're also seeing a big shift out of equities that used to pay high dividends like bank stocks into hybrids, because those dividends are disappearing. In senior bond spreads major bank senior bonds, we've seen spreads come in from 175 over bank bills to about 85 over bank bills. Subordinated bonds have been much more sluggish. So we still say some value there that is potentially interesting. But the corporate bond market we haven't really seen spreads in Australia move at all.

High yield offshore has performed a bit better. The US federal reserve has started buying high yield, so I think that has helped that market. The LIT market, as I mentioned, is still very much broken.

POC: Do you think we'll potentially see a spike in company defaults in the high yield space?

CJ: Absolutely. Yeah. So we don't run any corporate bonds in our portfolios. I had two calls and seek in January. I sold them both in January. We're a hundred percent government guaranteed banks for the reason that banks are government guaranteed, and I have been arguing for 12 months that the high yield market is going to be a massive problem and a huge source of risk. If you read my FR columns, I argued it could be the source of the next GFC, and obviously it's played a big role in the COVID-19 crisis. And the reason being is a high yield bond is basically a company that can't normally borrow from a bank that is paying a much higher interest rate to get a loan from a fund manager or a pension fund.

So these businesses tend to be smaller, they tend to be riskier and we believe there'll be probably two or three big issues in this market. The first is we think we're going to see a lot of downgrades of currently investment grade bonds that are rated BBB by Standard & Poor's and Moody's into the high yield bucket. And high yield is anything rated below BBB. So we think that there's going to be mass downgrades from the BBB bucket into the high yield bucket. What that means is you're going to have much more supply in high yield, and you're going to see a lot of managers forced to sell those high yield bonds because their mandates don't allow them to hold high yield. And the high yield guys are going to have a much bigger opportunities here, but that supply would generally reduce the prices. So that's the first negative.

The second negative is I think you're just going to see huge revenue shocks. So we're seeing it every day. You and I would know businesses where revenues have disappeared, that means they're likely to start defaulting on their debts. Now if you're a high yield bond issuer, you're not borrowing from a bank. Normally you're borrowing from a non bank lender, and so the risk is that you can't service that interest so you start breaching covenants, you're going to see restructurings. Now whether high yield managers actually disclose these defaults, I'm not sure. We don't actually run explicit high yield portfolios. We do have one fund that can invest in a little bit of high yield, but it's tradable and liquid high yield. But I think you're going to see defaults across the world in corporate high yield, and then I think you're going to see losses.

And Virgin Australia is again the exemplar. They were put into administration because they didn't have confidence that they could repay their debts, and the bond holders going to get completely walked out. And this was a bond that was only listed on the ASX in November last year. So a bit of a disaster, and I think you'll see more and more that. I think the final insight that we've had to offer on this front is that if you look at the reaction function from governments, they've had two key focuses from a policy perspective. One is to ensure that they protect systematically important banks and businesses. So I don't think the government would let Quantis fail, and obviously their guaranteeing the deposits of all the banks in Australia, so they're not going to fail.

The second focus for governments has been on mum's and dad's workers and SMEs. So I think that those two ends of the spectrum, you've got your too big to fail companies and main street, which are really being protected and vouchsafed by governments of the world. In between we have the mid market, and unfortunately for the mid market, which is normally the high yield market, these are firms that are neither too big to fail nor too small to matter to politicians. And so hence you have a situation where effectively the government has given the finger or the bird to Virgin and said, "Go and sort of your own mess." And I think you're going to see much, much more of that.

POC: It is. It's interesting. There's a bit of moral hazard there, isn't there in terms of who gets bailed out and who doesn't get bailed out potentially. Moving now to portfolio management. Can you give a touch on a short summary of some high level changes you've been implementing in your portfolios over the last sort of month or six weeks? And do you think you, you've got more of a bullish or bearish stance in your portfolio positioning?

CJ: Yeah. So I can tell you exactly what we've done. Basically in January we net sold 422 million in bonds. We bought up cash, we lifted our weighted average credit rating to its highest level ever, AA-, and any leverage strategies we ran we delivered those portfolios to their lowest levels ever. In February we were neutral because we were still trying to figure it out whether the pandemic would go global, but by the end of the February, we were convinced that we would have this liquidity and solvency crisis, and we were convince the crisis would necessitate extreme QE. Since April last year, I've been calling for QE in Australia.

Really, frankly, what I got slightly wrong in March was it was really obvious to us, Paul, that we would have the mother of all liquidity and solvency shops. The only solution for central banks and treasuries was to go to extreme unrestricted, unconditional, liquidity support in QE. We were telling the RBA, APRA, the prime minister, the Treasury, this in February. We were getting kind of lots of nods and acknowledgements but I don't think the RBA was on the same page. It took until the 19th of March for the RBA to actually start QE and by that time all the damage had been done. We were saying to them, "Listen, you can prevent damage preemptively or you can wait for the damage to happen and effectively see markets blow up," and that's what happened in the first half of March. So we expected QE in week one or two globally, from all the central banks synchronised, we got it emphatically, QE synchronised globally but it was probably weeks three, four, five.

So we bought aggressively through March. I spent about 900 million, as I mentioned, buying the wides in March and throughout March. So effectively we had the best because we were not focused on corporate bonds or high yield, we didn't have any exposures. And because actually the biggest moves were in financial spreads, so basically the bank's senior bonds, their subordinated bonds, and their hybrids, and we went limit long. So we bought as much as we could because the spreads on offer were the best levels we'd seen in human history, more or less. In recorded history.

Yeah, huge buying ... Basically once in a lifetime opportunity. In April we've just prudently taken profits. We probably net sold three, four hundred million in April. Spreads are still very attractive. We've had net inflows across our business over March and April, so we haven't seen substantial outflows. That includes, I should add, our in store mandates, so we went 20 portfolios. I think our retail funds have been fairly static, but we've had strong in store flows. Yeah, I'm still a buyer at these levels but equally, on positions that we put on in March, we've taken fairly aggressive profit. So I like the entry levels right now. Across most of our asset classes they're pretty attractive, but we're really focused on liquidity Paul.

We typically trade up to 50 times a day. We're typically doing 50 million dollars a day per trade ... Sorry, on average per day. We're trading up to 300 million dollars a day and we're focused on very high grade, typically A to AA rated paper, that's often repurchase eligible with the RBA, which means that it's eligible for the RBA's liquidity facilities. This is not liquid loans or corporate bonds, this is stuff that we can hold for three months and then move on.

We proved that in March. In March we stress tested our liquidity. So I would regularly go to ANZ and say, "Where's your bid for $500 million in my bonds?" They'd give us a bid every single time, on the darkest days of March. The transaction costs were absolutely acceptable, if we had chosen to exercise that, which we didn't obviously, we were buying.

So I'm bullish for my market. I'm not necessarily bullish global growth. I'm still worried about the risks, I'm worried about second waves, I'm worried about policy making error. In the main I'm nervous about vaccines, I'm nervous about immunity. But my central case is we can get immunity through antibodies. My central case is we do get effective vaccines within about 10 months, probably nine or 10 months now. My central case is we do get effective antiviral drugs. My central case is that the world comes out of contaminant much faster than people assumed a couple of months ago, which is a positive for global growth.

My central case is we'll be left with a lot more monetary and fiscal stimulus than we probably needed, which is positive in the short-term, but I'm worried about things like geopolitical risks between China and the US. I'm worried about Trump and [tape 00:37:08] bombs, and Trump just making mistakes. I'm worried about, yeah, policy making error, which is probably our biggest risk.

POC: Very interesting there Chris. Thanking you. We usually finish these podcasts with asking our guests for any personal investing tips you can share with the listeners, so do you have any words of advice or wisdom that you've applied in your own investment philosophy since you were young? And any specific thoughts that could assist listeners with navigating the current crisis we're dealing with?

CJ:  I mean the one thing that's served me really well for decades has been being contrarian. By being contrarian. You know there's lots of different-... types of contrarian. Yeah. Yeah. I think if I kind of think about this out loud, you know you've got guys who are contrarian who like just being contrarian, and they're posturing, and they want to be controversial. One good example of that is if we go to housing. Now Steve Cain is consistently a permabear on Aussie housing, it's always going to fall 40%. Whereas if you look at our track record we said there'd be a boom between 2012 and 2017. Before anyone else in the market, in early '17, when prices were rising we said we'd have the biggest correction in history, at 10% drop in prices. That's exactly ... We got 11% fall in house prices between '17 and '19. Well in April last year, when prices were still falling and no one had a positive forecast, we said we'd get a very quick rebound, a 10% increase in prices. That's what we've got.

We're contrarian, again, at this point in the stock. Where everyone thinks the housing market's going to collapse and we're saying it's going to flatline, but I think it's important to be contrarian on an evidentiary basis. So if you are a very empirical person, if you're highly analytical, if you're not emotional and I think ... So the key takeaways for me are be a contrarian if you can really, actually fade the rest of the world. What I mean by that is as an active manager every position I have is, more or less, me saying, "I'm right and the world's wrong." That requires conviction but it also requires the intellectual humility to understand when you've got it wrong and to be able to reverse that position, and cut the losses, and that's not easy to do.

In our business, you know I've got 23 staff. 11 analysts, four PMs, three PhDs, a lot of really, really smart talent. We are just constantly engaged in the search for the truth and so we are very data driven, very empirical, and then the data tells us that we're wrong we run for the hills. So I think be contrarian and then also stick ... Once you have the analysis, and the data, and the research to support your position, you've got to stick to your guns.

The other message I've ... Well, yeah, the message I would deliver and the lesson for me personally is, every single time in my life ... You always reach this certain crucible, this inflexion point where everyone in the world is saying, "Chris you're wrong. This is bullshit. COVID-19 is going to be ... 70% of all people in Australia are going to get infected, we're going to have tens of thousands of deaths. Markets are in free fall, credit spreads have gone to their highest levels ever recorded." As the data stacks up you've just got to stick to your conviction that you're right and the rest of the world's wrong, and it pays massive dividends. But that requires a lot of unique insight and a lot of unique research, so I don't think everyone's in a position to do that, is also my advice. In that respect you might want to delegate.

POC: No, great advice there Chris. Easier said than done, a lot of what you said there, but you certainly need to be brave, you certainly need to have evidence and know what you're doing. I think as you're talking there I'm thinking to myself, "It's really about sticking to your long-term investment strategy. Make sure that you have comfort in that and don't make knee-jerk decisions just based on what you've read in the news or seen in the newspapers today."

So Chris thank you again for your time this morning and very insightful comments, we really appreciate it. Wishing you and the Coolabah Team all the best during this difficult period.