Red Light, Green Light

21.04.2026

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder discuss the ongoing tensions in the Middle East, with the Strait of Hormuz closed, then opened, only to be closed again. They discuss the rebound in markets with US equities hitting record highs while uncertainty remains over whether the ceasefire and US-Iran negotiations may end this week or be extended. Attention then turns to likely central bank moves in coming weeks and when the next Chair of the US Federal Reserve may start in the role. They finish by discussing the recent gating of semi-liquid private credit funds, and whether this represents a “shoot first ask questions later” response to media headlines about the disruption of software companies by artificial intelligence tools, or the early stages of a credit default cycle.

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Transcript

Vincent: Welcome to SB Talks. Today is Tuesday, April 21st. I am Vincent O’Neill, and I am joined by our Chief Investment Officer, Nick Ryder. Welcome Nick.

Nick: Thank you, Vincent.

Vincent: Now today Nick and I will discuss ongoing developments in the Middle East and ramifications for markets and investments, the outlook for central banks with the Fed and the RBA meeting over the next fortnight, as well as private credit back in the headlines.

Welcome to all our listeners. Nick, it’s been just under three weeks since we last recorded. That was just before the Easter long weekend. That weekend was obviously marked by some significant true social posts that raised tensions in the Iran conflict. But quickly after that, we had the ceasefire and, off the back of that, we’ve certainly had some market relief.

For example, we saw the s and p 500 breach 7,000 for the first time, hit a new high mark. Obviously oil prices sliding back, but amidst all of that, the deadline on that ceasefire is rolling around. Believe Wednesday night, US time. We still have significant flash points in the Middle East. The Strait of Hormuz does not really appear to be open.

In fact, it’s probably increasingly tension and conflict in that regard. What has changed? Dare I ask. With all that has happened, what has changed?

Nick: Not too much really. Mm-hmm. I mean, I think they’re talking, and—

Vincent: That’s a big positive.

Nick: Yeah, that is a positive. And they’ve stopped fighting for the time being. How long that lasts remains to be seen.

But I think, clearly the US is looking to deescalate and try and get the Strait of Hormuz reopened, and the Iranians are looking for some kind of lasting piece and potentially some money out of this.

Vincent: Reparations, potentially.

Nick: Reparations. So there’s reported to be talks starting again in Islamabad tomorrow. It’s not clear whether Iran will send a delegation. There’s sort of humming and high at the moment, but it looks like it might go ahead.

Vincent: So the last round of talks went on for about as much as a day.

Vincent: Before US delegation headed by JD Vance sort of declared, well, we haven’t achieved our objectives, we’re out.

Vincent: Which is not typical, let’s say, for how those negotiations usually would progress. Albeit, that’s not unusual from what we’ve unfortunately seen in how the broader conflict has been handled.

What I guess I would reiterate your point before, where I think we do have confidence that the US is trying to find potentially an off ramp, but Iran aren’t going to necessarily make it easy for them.

Nick: No. They know they have the upper hand. I mean, to put it in context, the JC POA, which was the Obama era deal with Iran over its nuclear enrichment program, took 20 months to negotiate.

I think it’s probably a bit unrealistic to think everything can be nicely wrapped up with a bow in a day or two. These things will probably take time.

Vincent: And I guess what you’d hope for is there’s just a commitment to the ongoing discussions and with that – A deescalation in the conflict and ideally the trip being reopened, albeit Iran are probably smart enough to know that that is their real ace.

And they’re not going play that too easily.

Nick: I think the other thing that’s complex is it’s not clear who’s calling the shots in Iran over the weekend. We’ve had the foreign minister say that the Strait of Hormuz was open, only for the IRGC to say it’s not, and to start attacking a few boats trying to pass through.

So it’s not clear who’s sort of calling the shots. After the decapitation of the former leadership team there, could be some internal conflict going on and it makes it very difficult for the US then to work out who they’re negotiating with and whether that’s the correct team.

Vincent: And I think that’s a really good call out because, you know, as you said, when you have such a large scale wipe out of the previous sort of leadership, and we know that the IRGC is probably the real power within Iran, and certainly that’s what the regime had put in place to try and defend itself.

And we’re seeing, I guess, them trying to continue to assert their dominance over Iran, but some cracks, which probably makes the whole process all the more complicated.

Nick: Yeah. But I mean, it’s amazing the market turnaround.

Vincent: Yeah, it really is because we sort of sit here and we’re telling not a particularly good news story necessarily. There’s been some developments, but the market is almost like deal done.

Nick: So we’ve had, up until last night, 13 consecutive sessions with the NASDAQ going up. That’s the first time that’s happened since 1992 and the 17, 18% gain in the NASDAQ over that period, which is the strongest since April 2020, sort of coming out of COVID. The market’s working really hard to not be distressed by this. Yeah. It’s almost surprising.

I think I mentioned a couple of podcasts back, this is typical. Often you get this sort of shock, the markets sell off, and then a few weeks later it bottoms and kind of recovers. And that seems to have played out exactly this time.

Whether that’s the last we see of the selloff remains to be seen. But for now, markets are taking it all in its stride. It’s in a bit of a holding pattern and there is a renewed focus on the underlying economics, which I’ve discussed before, have been pretty good.

Corporate earnings season in the US has been pretty good. So people are now sort of turning their attention back to those things. We entered the year with a pretty good tailwind story with obviously this whole AI and the AI infrastructure piece behind it, so that hasn’t gone away.

And I guess worth calling out that the US is less energy dependent than other parts of the world and are essentially energy neutral.

Vincent: So they’re probably not necessarily feeling that while it is probably hitting their gas prices and is potentially hitting their consumer sentiment somewhat, it’s not necessarily spooking their market as much?

Nick: No. I mean, you mentioned consumer sentiment. We had the University of Michigan consumer sentiment survey. It’s the lowest on record since the survey began. Which I think was in the 1960s or something like that. So it’s very low, very weak. So yes, the consumer’s definitely feeling it.

Vincent: That’s really interesting. And I wonder how much of that is influenced by just the broader uncertainty in which they potentially are living in that country at the minute, with just the erratic, for want of a better phrase, sort of leadership.

Nick: And of course price pressures have been a recurrent theme with the US consumer over the past few years, and it’s now just got worse.

Vincent: It’s almost like they’ve somewhat given up on that as a priority to try and—the consumers are probably feeling it. Now we do have, staying in the US, we’ve talked about Kevin Warsh’s nomination to be the Fed chair, and we’re expecting those hearings I think this week. And we’ve got a Fed meeting coming up next week as well, so a bit of action on that front.

Nick: Yeah, it’ll be interesting. There’s a hearing into Kevin Warsh’s nomination at the Senate Banking Committee. But we’ve had one of the Republican senators from North Carolina, Tom Tillis, who said that he won’t approve of Kevin Warsh until the Justice Department drops its investigation into Chair Powell. And all the overspend on the Fed building. So this is maybe all a bit moot. I mean, they’ll still ask him his views on Fed independence, on the direction of interest rates, on the conflict in Iran and what that might mean for monetary policy, and his plan to reform some aspects of the Fed.

So there’ll still be all of that. And of course, he has a substantial portfolio that’s reported to be over a hundred million dollars, and there’s not a lot of transparency as to what’s actually in that portfolio. So the Democrats will probably be probing into that as well. So it’ll be interesting to see what comes out of that.

Vincent: But it’s sort of a theme though, and we are seeing some of the Republicans breaking ranks as things begin to get more chaotic.

Nick: Well, Senator Tillis is not up for re-election, so he can be a thorn in the side of the Trump administration on his way out. And he’s definitely trying to use his position to preserve Fed independence.

So it’s possible that Kevin Warsh mightn’t find himself at the Fed until maybe even later this year. It just depends on when the Justice Department drops those investigations into Powell, if they do.

Vincent: Now, with a few of the things we touched on in terms of the US economy and obviously the ongoing conflict in the Middle East, what’s your read on next week’s Fed meeting?

Nick: That’ll be nothing to see here. They’ve made it pretty clear that they’re waiting just to see what happens with prices, inflation, and unemployment.

So they’re in a bit of a holding pattern. There’s nothing priced for the full year. To the end of December there’s 14 basis points of cuts priced. So a modest chance of a rate cut later in the year, but there’s not a lot of conviction around that.

Vincent: It’s wheeled back in quite a bit from where it would’ve been several months ago. I guess the price pressures are taking a toll in that regard too. We’ve got the RBA closer to home the following week, early May meeting. A different agenda and that’s the likelihood of rate increases. What are you seeing there?

Nick: Yeah, so we’re about 75% priced for a rate hike on the 5th of May. So that’ll be the third rate hike in a row if that gets delivered.

Before then, we’ll get on the 28th of April the first quarter inflation print, so the official quarterly one. It’s expected to be another shocker, possibly another 0.9. So it was 0.9 last quarter, maybe another 0.9 this quarter for trim mean inflation.

Vincent: Annualising into the high threes.

Nick: Yeah. So that’s not where the RBA want it to be, and they want to have more conviction that it’s going to return to the midpoint of their two to 3% target range over a reasonable timeframe.

I think at the moment it’s in 27 or 28, it’ll take another couple of years to get back there. So I think there’s a good chance that they’ll follow up with a rate hike.

That said, there’s obviously the conflict, what that’s done to energy prices, what that will do to the consumer as a form of tax. Consumer sentiment in Australia is also very weak. Business sentiment’s weak.

So there was a degree of economic momentum coming into this year, probably a bit strong, which was what was causing some of those inflation pressures. Whether we see cracks in that later in the year will be interesting.

But for now, unemployment’s still pretty steady at 4.3%, so the RBA probably will have to act, is my guess.

Vincent: Yeah. So watch this space. Potentially another move incoming there.

Nick: Yeah. And then possibly another one after that.

Vincent: So not a lot of great news for certain parts of the Australian economy.

Nick: No. And then a budget that we’ll get in May as well. Big talking point around that is what they potentially do on capital gains tax.

They’re in a difficult position because if they hand out subsidies to help cost of living, then that’s fuelling the inflation fire, so they don’t really want to be doing that.

And then there’s a lot of people calling for more longer term structural reforms around things like capital gains tax and the tax structure more broadly.

So yeah, I’m not sure what we’ll see out of that.

Vincent: The Government in a bit of a tight position there.

I’d like us to come back to a topic that we’ve discussed a few times on the podcast, but it’s certainly in the headlines, and that is private credit. We’ve talked about it previously, particularly with concerns around AI and the impact of AI on software and software business models that might have once existed, and whether the margins are still there where they previously were.

This appears to have particularly caught the attention of private credit investors more than private equity. What’s your take?

Nick: I think it is a culmination of things. So there was that whole scare around Jamie Diamond’s cockroaches comment late last year with a few fraud related bankruptcies that weren’t necessarily in private credit portfolios, but it did scare people to think that maybe there’s some hidden skeletons in the credit market more broadly.

And then we had that SAS apocalypse which we discussed previously, where some AI tools scared people into thinking that a lot of the business models of software related businesses were under threat and could be disrupted.

Private equity has been a big buyer of software related businesses, and private credit has also been a reasonably big lender into that space. So I think all of those things spooked investors who tended to shoot first and ask questions later.

And so we got elevated redemptions across the whole US private credit sector, particularly in those evergreen funds that allow investors to pull as much as 5% of the fund out per quarter. In many cases, more than 5% was requested to be redeemed from those funds, and they had to be trimmed back.

That’s what they call gating of those funds. I think, in our view, we’ve spoken to a lot of the managers that we deal with, there is no systematic problem. They’re pretty relaxed with their software exposure.

They’ve, in many cases, brought in third party consultants to review all the names and make sure that there’s not a lot of disruption risk. So I think there’s no fire there. People are sort of saying, oh there’s smoke, there must be a fire. I don’t think there is a fire.

And if there is, it’s probably more relevant to the equity owners of those businesses rather than the lenders. So I think we’re reasonably relaxed, but we are probably likely to see elevated redemptions for a lot of those products for the several quarters ahead.

But as an asset class, again, it’s a very broad asset class, and let’s not lump it all into one bucket. When you are being selective and in terms of some of the managers that you endorse, you remain comfortable in terms of their investment thesis?

Nick: I do, yes. And in many cases they’re very diversified. They have hundreds or even as much as a thousand different borrowers in their portfolio, across different sectors, across different geographies. Software is maybe 20% of some portfolios, but not all those businesses will be disrupted.

And if they are, it will take years, in my view and the view of the managers.

Vincent: Alright. That’s an excellent summary as always. Thank you very much, Nick. And thank you to all our listeners.

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