Pendulum Piccolo

01 / Global perspective

World

Investors want to be paid

Elections bring economic choices into focus. From the approaching US midterms to Brazil’s presidential contest and political shifts across Europe, investors are weighing what changing policies could mean for spending, trade and growth. Brazil held its first round of voting on Sunday.

Meanwhile, the US 10-year Treasury yield—a benchmark for borrowing costs and investment valuations—is near its highest level in two decades. Inflation matters, but so do government borrowing and uncertainty about the future. Investors are demanding more compensation for lending their money.

My view: this is understandable, rather than automatically a cause for alarm. If you lent money for ten years, you would want a return that adequately rewarded you after inflation. Higher yields do, however, raise the hurdle for other investments.

Conflict adds another layer of uncertainty. The US is sending a third aircraft carrier towards the Middle East, increasing the risk of escalation around Iran. For investors, energy prices remain a key connection between geopolitics and inflation.

02 / Closer to home

Australia

Relief today, productivity tomorrow

The RBA’s latest rate increase is another reminder that inflation remains difficult to contain. Treasurer Jim Chalmers has highlighted global energy pressures and the investment boom, while acknowledging that external forces are not the whole explanation.

That leaves an important question: is government spending helping Australia produce more, or adding demand to an economy already facing constraints?

Healthcare and support services can provide meaningful relief to households. But lasting improvements in living standards also require productivity: producing more value from the people, capital and resources we have. Budget discipline and the quality of spending both matter.

My expectation is that pressure will push the government towards a stronger focus on these priorities. That remains an expectation, rather than an announced change.

Chalmers’ visit to Japan offers another avenue for growth. The countries are strengthening cooperation on investment, energy security and critical minerals. Australia’s role as a major gas supplier provides a strong foundation; the opportunity is to turn that relationship into additional productive investment.

03 / A closer look

Opportunity

Banks, and getting paid to wait

Australian financials are an area I’m watching closely. Banks keep money moving through the economy, financing homes, businesses and investment. Their importance makes them worth studying, although a strong business still needs an attractive purchase price.

Higher interest rates create competing pressures. Banks must protect their net interest margin—the gap between what they earn on loans and pay for funding—while managing deposit competition and borrowers under strain.

One approach worth understanding is a cash-secured put. An investor receives a premium in exchange for accepting an obligation to buy shares at an agreed price if assigned, while keeping enough cash available to fund the purchase.

The appeal is getting paid while waiting for a price you are comfortable paying. The trade-off matters: shares can fall well below that price, and the premium only cushions part of the loss. If shares rise instead, the investor may miss the rally.

For me, the starting point is valuation and willingness to own the bank. The options strategy comes second.