Here’s what you need to know today

• The news Australian mortgage holders were waiting for: the Reserve Bank has cut the cash rate to 4.1%. This 25 basis point move down from 4.35% is the first cut since 2020 and follows 13 interest rate rises in 2022 and 2023. (RBA Minutes)
  
  

• All four of Australia’s major banks have announced they will be passing on the rate cut to mortgage holders. Commonwealth Bank, NAB, Westpac and ANZ will cut mortgage rates by 25 basis points, which will save $90 a month or $1,080 per year on a $500,000 home loan. (AFR)
  
  

• BHP reported its first half earnings, with profit down 23% and an interim dividend of 50 cents - it’s lowest in 8 years. Iron ore earnings were down 26% on the back of lower global prices but were partially offset by copper earnings up 44%. (ABC News)
  
  

• Hub24 also reported half-year results, headlined by a 54% increase in profit to $33 million and a 30% increase in its interim dividend. The company enjoy a record-high inflow for the half of $9.5 billion, taking total funds under administration to $120.9 billion. (Investor Daily)
  
  

• European leaders met in Paris to debate sending troops to Ukraine. Germany and Spain were hard 'no’ while Britain said it was “prepared to consider” deploying forces. (Washington Post)
  
  

• Whether or not European countries send troops to Ukraine, they are expected to spend more on defence. European defence stocks were all up as a result: Rheinmetall was up 9.9% in Frankfurt, BAE Systems rose 7.3% in London and Thales climbed 7% in Paris. (FT)
  
  

• Meanwhile, US Secretary of State Marco Rubio is preparing to meet his Russian counterpart, Sergei Lavrov, in Saudi Arabia later this week. The US is sending mixed messages, with Rubio suggesting the US and Russia would negotiate bilaterally while America’s Ukraine envoy, Keith Kellogg, said Ukraine and Europe would be given a seat at the table. (Politico)
  
  

• A reminder of how China’s patronage system can impact businesses. President Xi Jinping this week met top tech executives including Alibaba’s Jack Ma and Huawei’s Ren Zhengfei. Baidu’s cofounder Robin Li was not invited and that snub saw the Chinese tech giant fall 7%. There is a certain irony to this story, as just 4 years ago it was Jack Ma on the outer and his companies Alibaba and Ant Financial that suffered. (Capital Brief)
  
  

• The proposal for Virgin Australia and Qatar Airways to sell flights between Australia and Doha under an integrated alliance looks set to get ACCC approval. (Capital Brief)

What the…?

National leaders continue to get swept up in memecoin mania. First, it was US President Trump launching $TRUMP. Then it was the Central African Republic launching $CAR.

This week it was Argentina’s President Javier Milei promoting $LIBRA on social media, which subsequently plummeted 95%. We may have just seen the first Presidential rug pull. (BBC)

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Investing is a lifelong journey

Here’s what you can learn today.

Private equity’s secret weapon: Leverage

This is an excerpt from our conversation with Sumit Gautam, founder of Scalar Gauge Fund (Listen on the full conversation on: Apple | Spotify | YouTube)

Question: Why has private equity had such outsized returns?

Sumit: At a very high level, the returns on private equity are driven by the capital structure they have - if you lever up a good quality investment and minimise losses, your equity returns are going to be very high.

Most retail investors see this in their primary house investment. If you buy a house for a million dollars and put in 10% down payment, the return on equity is going to be much higher.

Debt is a very interesting aspect of boosting returns as long as you don't turn it into a zero, because the downside of leverage is that if the asset is bad, your equity can go to zero.

The boom of private equity has happened because interest rates in the economy were very low. Your interest coverage ratio is low and you can have much higher leverage on your equity investments, and higher leverage means higher return on your equity.

Interested in hearing the whole conversation with Sumit? Remember you can watch it as well on the Equity Mates YouTube channel:

Today’s sponsor is Qualitas

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