1 00:00:03,430 --> 00:00:06,350 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,780 --> 00:00:10,690 Sean Aylmer: The biggest unknown for financial markets continues to be inflation 3 00:00:10,750 --> 00:00:13,450 Sean Aylmer: and what that means for interest rates. I wanted to 4 00:00:13,450 --> 00:00:16,530 Sean Aylmer: simplify the issue today, look at why inflation is so important, 5 00:00:16,760 --> 00:00:19,440 Sean Aylmer: what's causing the current situation and what it all means 6 00:00:19,440 --> 00:00:23,820 Sean Aylmer: for everyday investors. Roger Montgomery is the founder and Chief Investment Officer 7 00:00:23,820 --> 00:00:26,779 Sean Aylmer: of Montgomery Investment Management. Roger, welcome back to Fear and Greed. 8 00:00:26,780 --> 00:00:28,420 Roger Montgomery: Good to be with you, Sean. 9 00:00:29,040 --> 00:00:32,559 Sean Aylmer: Now, recently you wrote an article about inflation and explained 10 00:00:32,650 --> 00:00:35,500 Sean Aylmer: some of the background to the supply chain bottlenecks. And 11 00:00:35,500 --> 00:00:39,240 Sean Aylmer: particularly you talked about the aluminium and energy crisis in China. 12 00:00:39,540 --> 00:00:41,500 Sean Aylmer: Can you just run through that again for us? 13 00:00:41,979 --> 00:00:55,080 Roger Montgomery: So what's happened is when the pandemic hit, everything was shut 14 00:00:55,090 --> 00:00:57,890 Roger Montgomery: down because there was really no expectation that demand would 15 00:00:57,890 --> 00:01:01,930 Roger Montgomery: be picking up. In fact, we were heading towards a recession, 16 00:01:01,930 --> 00:01:05,060 Roger Montgomery: a very severe recession. Everyone was locked down, no one 17 00:01:05,060 --> 00:01:07,850 Roger Montgomery: was spending. You might remember all the images being projected 18 00:01:07,850 --> 00:01:11,929 Roger Montgomery: around the world of empty streets and empty cities. But 19 00:01:11,930 --> 00:01:15,179 Roger Montgomery: what actually happened is while people were locked at home, 20 00:01:15,620 --> 00:01:18,600 Roger Montgomery: they were buying stuff and ordering stuff at a much 21 00:01:18,600 --> 00:01:21,320 Roger Montgomery: greater rate than they had been prior to the pandemic. 22 00:01:22,090 --> 00:01:26,770 Roger Montgomery: So that caught the entire supply chain for goods off guard. 23 00:01:27,410 --> 00:01:31,440 Roger Montgomery: And let's not forget that because people couldn't spend money 24 00:01:31,440 --> 00:01:34,650 Roger Montgomery: on services, they couldn't spend money on going to the 25 00:01:34,650 --> 00:01:38,480 Roger Montgomery: cinema or a concert and so forth or restaurants. So 26 00:01:38,480 --> 00:01:41,560 Roger Montgomery: even more money was directed to spending on goods than 27 00:01:41,560 --> 00:01:44,690 Roger Montgomery: would normally be spent on goods. And so there was 28 00:01:44,690 --> 00:01:49,300 Roger Montgomery: this enormous mix shift towards goods, and there was a 29 00:01:49,300 --> 00:01:52,930 Roger Montgomery: shortage of not only some of the raw materials because 30 00:01:53,520 --> 00:01:57,110 Roger Montgomery: production was shut down, but there was also, I guess, 31 00:01:57,500 --> 00:02:01,150 Roger Montgomery: mothballed logistics in part of the supply chain. And so consequently, 32 00:02:01,310 --> 00:02:04,110 Roger Montgomery: everyone was caught off guard in the supply chain. And 33 00:02:04,180 --> 00:02:08,180 Roger Montgomery: on top of all of that, you mentioned aluminium, but when 34 00:02:08,180 --> 00:02:12,639 Roger Montgomery: you look at semiconductor memory chips, we've had enormous demand 35 00:02:12,639 --> 00:02:16,919 Roger Montgomery: of those chips from Bitcoin miners. As there are fewer 36 00:02:16,919 --> 00:02:22,430 Roger Montgomery: and fewer Bitcoins left to mine, the algorithm required to 37 00:02:22,430 --> 00:02:25,840 Roger Montgomery: be solved in order to earn that extra Bitcoin is 38 00:02:25,840 --> 00:02:29,519 Roger Montgomery: much more complex and so more computing power is required 39 00:02:29,520 --> 00:02:35,150 Roger Montgomery: to do it. And so consequently, more computer chips are required. 40 00:02:35,510 --> 00:02:38,700 Roger Montgomery: And so the demand for those chips went through the roof. 41 00:02:38,700 --> 00:02:43,290 Roger Montgomery: And that of course really affected supply for manufacturers of 42 00:02:43,290 --> 00:02:47,010 Roger Montgomery: other products that use those chips, for example, modern vehicles, 43 00:02:47,630 --> 00:02:50,160 Roger Montgomery: laptop computers, smartphones, and so on. 44 00:02:50,580 --> 00:02:54,090 Sean Aylmer: Okay. It's really easy to understand the electronics and that, 45 00:02:54,090 --> 00:02:57,630 Sean Aylmer: but I was listening to an Adidas investor call, this 46 00:02:57,630 --> 00:02:59,220 Sean Aylmer: is probably a couple of months ago, and they get 47 00:02:59,220 --> 00:03:01,200 Sean Aylmer: a lot of their shoes out of Vietnam. What happened 48 00:03:01,400 --> 00:03:03,940 Sean Aylmer: there was that they just couldn't get supply out of Vietnam because Vietnam 49 00:03:03,940 --> 00:03:06,070 Sean Aylmer: had closed down. So if you bought a pair of 50 00:03:06,070 --> 00:03:08,790 Sean Aylmer: shoes, you couldn't actually get them. So it hit all 51 00:03:08,790 --> 00:03:11,230 Sean Aylmer: parts of the economy it seems. 52 00:03:11,680 --> 00:03:15,760 Roger Montgomery: Yes. And so prices of products went up. So if 53 00:03:15,760 --> 00:03:20,570 Roger Montgomery: you reduce supply of anything and competition for the purchase 54 00:03:20,570 --> 00:03:24,950 Roger Montgomery: of those things increases, then what gives way is price. 55 00:03:24,950 --> 00:03:29,870 Roger Montgomery: And so suppliers increase the price and that feeds into 56 00:03:29,870 --> 00:03:31,940 Roger Montgomery: CPI. It feeds into inflation. 57 00:03:32,360 --> 00:03:34,750 Sean Aylmer: So before we get onto kind of what happens next, 58 00:03:34,950 --> 00:03:37,360 Sean Aylmer: something else that you wrote recently, you talked about just- in- 59 00:03:37,360 --> 00:03:42,440 Sean Aylmer: time inventory management. It may not be a Japanese construct, 60 00:03:42,440 --> 00:03:45,240 Sean Aylmer: but they certainly made it famous. When I read that 61 00:03:45,240 --> 00:03:47,930 Sean Aylmer: I thought, ah, I totally get it now. Just explain that. 62 00:03:48,290 --> 00:03:52,680 Roger Montgomery: So in the late eighties, the Western world's business schools 63 00:03:53,000 --> 00:03:56,960 Roger Montgomery: got really excited about JIT, or just- in- time inventory 64 00:03:56,960 --> 00:04:01,730 Roger Montgomery: systems. And it's the idea that you don't manufacture for 65 00:04:01,730 --> 00:04:05,860 Roger Montgomery: warehouse storage, which is expensive, takes up space, it costs 66 00:04:05,860 --> 00:04:10,480 Roger Montgomery: money. You manufacture to demand as it's demanded. And in 67 00:04:10,480 --> 00:04:14,640 Roger Montgomery: an ideal world, in a perfect scenario, someone orders a 68 00:04:14,640 --> 00:04:18,289 Roger Montgomery: product and it doesn't exist when they order it and 69 00:04:18,290 --> 00:04:22,170 Roger Montgomery: you are manufacturing it to order. It was actually introduced 70 00:04:22,170 --> 00:04:25,890 Roger Montgomery: in the furniture industry in Australia by Anthony Scali, Nick 71 00:04:25,890 --> 00:04:29,470 Roger Montgomery: Scali's son. In the old days, you would walk into 72 00:04:30,170 --> 00:04:34,190 Roger Montgomery: a furniture store, you'd see a couch and you'd take 73 00:04:34,190 --> 00:04:37,320 Roger Montgomery: it home. And now you see a couch or a 74 00:04:37,320 --> 00:04:40,390 Roger Montgomery: sofa, you order it and you might get it in 75 00:04:40,390 --> 00:04:43,910 Roger Montgomery: 12 weeks time or 16 weeks time. And so that's 76 00:04:43,910 --> 00:04:47,680 Roger Montgomery: the just- in- time inventory system at an extreme where 77 00:04:47,680 --> 00:04:50,080 Roger Montgomery: it's not actually being made just- in- time for the 78 00:04:50,080 --> 00:04:53,839 Roger Montgomery: order, you have to wait for it. And so it's 79 00:04:53,839 --> 00:04:58,219 Roger Montgomery: the other end of the spectrum. But that meant that 80 00:04:58,290 --> 00:05:01,350 Roger Montgomery: we didn't have the product ready to go to service 81 00:05:01,350 --> 00:05:05,989 Roger Montgomery: the demand. And so everyone has to wait for the 82 00:05:05,990 --> 00:05:09,290 Roger Montgomery: production to ramp up again in order to deliver those products, 83 00:05:09,700 --> 00:05:11,340 Sean Aylmer: Stay with me Roger, we'll be back in a minute. 84 00:05:16,540 --> 00:05:19,080 Sean Aylmer: My guest this morning is Roger Montgomery, founder and Chief 85 00:05:19,080 --> 00:05:23,210 Sean Aylmer: Investment Officer of Montgomery Investment Management. Okay, so where are 86 00:05:23,210 --> 00:05:26,010 Sean Aylmer: we now in terms of inflation? And then what I 87 00:05:26,010 --> 00:05:28,010 Sean Aylmer: think people are calling just in case, but let's go 88 00:05:28,060 --> 00:05:30,360 Sean Aylmer: to inflation first. What's happening there? 89 00:05:30,830 --> 00:05:33,839 Roger Montgomery: So in the United States, what happened at the end 90 00:05:33,839 --> 00:05:39,099 Roger Montgomery: of October, the US reported inflation of 6.2% year on year. 91 00:05:39,100 --> 00:05:42,960 Roger Montgomery: That's the headline rate, not the core rate. The core 92 00:05:42,960 --> 00:05:47,050 Roger Montgomery: rate is just under 5%, about 4.6% or there abouts. 93 00:05:47,600 --> 00:05:53,380 Roger Montgomery: But the 6.2% inflation rate that was reported was much, 94 00:05:53,380 --> 00:05:58,280 Roger Montgomery: much higher than what the Fed had forecast back in March. 95 00:05:58,690 --> 00:06:02,289 Roger Montgomery: So prior to Jerome Powell's statement on the 28th of April, the 96 00:06:02,290 --> 00:06:07,570 Roger Montgomery: Fed had forecast calendar year 2021 inflation of about, call it 97 00:06:07,570 --> 00:06:10,710 Roger Montgomery: two and a half per cent. And then in September, they 98 00:06:10,710 --> 00:06:14,960 Roger Montgomery: upgraded their forecast to 4.2%, and it's now come in 99 00:06:15,029 --> 00:06:18,880 Roger Montgomery: at 6. 2%. So it wouldn't be a problem but 100 00:06:18,880 --> 00:06:21,500 Roger Montgomery: for the fact that there are a lot of commentators 101 00:06:21,500 --> 00:06:25,550 Roger Montgomery: and investors who fear that the US Federal Reserve has 102 00:06:25,550 --> 00:06:29,330 Roger Montgomery: got it wrong because that forecast is so far out 103 00:06:29,330 --> 00:06:33,270 Roger Montgomery: from what's actually transpiring. It's accelerating at a faster rate 104 00:06:33,270 --> 00:06:36,560 Roger Montgomery: and its absolute value is higher than what was anticipated. 105 00:06:37,160 --> 00:06:39,359 Roger Montgomery: And so if the Fed's wrong about that, what else 106 00:06:39,360 --> 00:06:42,490 Roger Montgomery: are they wrong about? That's the fear the market has. And 107 00:06:42,490 --> 00:06:46,219 Roger Montgomery: so the market is concerned that the Fed is not only 108 00:06:46,220 --> 00:06:49,979 Roger Montgomery: behind the curve, so to speak, but is actually asleep 109 00:06:49,980 --> 00:06:53,980 Roger Montgomery: at the wheel. And so you are reading some commentators, 110 00:06:53,980 --> 00:06:57,750 Roger Montgomery: even in Australia, saying that the Fed is unqualified to 111 00:06:57,750 --> 00:07:01,770 Roger Montgomery: be managing monetary policy. They really should be stopping all 112 00:07:01,770 --> 00:07:05,700 Roger Montgomery: quantitative easing now and interest rates shouldn't be at zero, 113 00:07:05,700 --> 00:07:09,220 Roger Montgomery: they should be at 2% or 3%. And so I 114 00:07:09,220 --> 00:07:11,840 Roger Montgomery: think personally that's ridiculous. And the reason why I say 115 00:07:12,000 --> 00:07:15,300 Roger Montgomery: that's ridiculous is because I do believe that the Fed is 116 00:07:15,300 --> 00:07:18,450 Roger Montgomery: right to say that this current bout of inflation is transitory, 117 00:07:19,040 --> 00:07:21,850 Roger Montgomery: that it will in fact pass, it won't be persistent. 118 00:07:22,290 --> 00:07:24,310 Roger Montgomery: And just the base effect alone, which we can talk 119 00:07:24,310 --> 00:07:29,090 Roger Montgomery: about in a moment, will next year cause fear, uncertainty, 120 00:07:29,090 --> 00:07:32,580 Roger Montgomery: and doubt, or what we call FUD, about inflation. It 121 00:07:32,580 --> 00:07:34,740 Roger Montgomery: will turn into a celebration of disinflation. 122 00:07:35,110 --> 00:07:38,480 Sean Aylmer: Right. Why is it transitory? Is it because things are back online, 123 00:07:38,480 --> 00:07:39,760 Sean Aylmer: people are starting to produce again? 124 00:07:40,290 --> 00:07:43,440 Roger Montgomery: Yes. So for example, if we take the Baltic Dry 125 00:07:43,440 --> 00:07:47,989 Roger Montgomery: Index for shipping, which admittedly doesn't affect the cost of 126 00:07:47,990 --> 00:07:50,440 Roger Montgomery: shipping an iPhone, but it does affect the cost of 127 00:07:50,440 --> 00:07:54,440 Roger Montgomery: shipping coal or iron ore for example, that has already 128 00:07:54,440 --> 00:07:56,610 Roger Montgomery: fallen. And that's a big part of the supply chain, 129 00:07:56,790 --> 00:08:01,010 Roger Montgomery: shipping. That's already fallen 50%. So even as commentators in 130 00:08:01,530 --> 00:08:04,900 Roger Montgomery: the press are writing about the inflation scare, some of 131 00:08:04,900 --> 00:08:08,360 Roger Montgomery: the inputs into that inflation or some of the indicators 132 00:08:08,680 --> 00:08:13,100 Roger Montgomery: that suggest the supply chain is tight, are already easing. 133 00:08:13,490 --> 00:08:17,070 Roger Montgomery: And so that tells me that we're already seeing capitalism 134 00:08:17,070 --> 00:08:19,770 Roger Montgomery: work. And when I say capitalism work, what I'm mean 135 00:08:19,770 --> 00:08:24,170 Roger Montgomery: by that is we're already seeing that economics 101 response 136 00:08:24,520 --> 00:08:28,300 Roger Montgomery: to higher prices. So you get higher prices, people produce 137 00:08:28,300 --> 00:08:31,140 Roger Montgomery: more, they do everything they can to start producing more 138 00:08:31,140 --> 00:08:33,740 Roger Montgomery: of that particular product because they can generate a higher 139 00:08:33,740 --> 00:08:36,400 Roger Montgomery: margin, and so they do, and that pushes the price 140 00:08:36,400 --> 00:08:37,140 Roger Montgomery: back down again. 141 00:08:37,490 --> 00:08:39,170 Sean Aylmer: If I bring this back to the just- in- time 142 00:08:39,170 --> 00:08:41,520 Sean Aylmer: argument, now there's all sorts of talk about just in 143 00:08:41,520 --> 00:08:44,100 Sean Aylmer: case, the idea that you actually start filling up those 144 00:08:44,100 --> 00:08:48,340 Sean Aylmer: warehouses rather than doing a just- in- time style process. 145 00:08:48,730 --> 00:08:51,370 Sean Aylmer: Is there a chance that that though will keep prices 146 00:08:51,370 --> 00:08:53,969 Sean Aylmer: high because it might be slightly artificial, but if people 147 00:08:53,970 --> 00:08:55,860 Sean Aylmer: are trying to fill warehouses for the next couple of 148 00:08:55,860 --> 00:08:59,209 Sean Aylmer: years so this doesn't happen again, that there will be price 149 00:08:59,210 --> 00:08:59,870 Sean Aylmer: pressure still? 150 00:09:00,270 --> 00:09:03,179 Roger Montgomery: I think it's a nice idea. But if you think 151 00:09:03,179 --> 00:09:06,920 Roger Montgomery: about the way business works, why would business want to 152 00:09:06,920 --> 00:09:09,689 Roger Montgomery: buy more of the product that they may or may 153 00:09:09,690 --> 00:09:13,949 Roger Montgomery: not need and potentially take a hit to margins? Especially 154 00:09:14,230 --> 00:09:18,580 Roger Montgomery: listed companies where stock markets are not patient, stock markets 155 00:09:18,590 --> 00:09:22,780 Roger Montgomery: aren't willing to wait for that asset turnover to improve. 156 00:09:23,210 --> 00:09:27,650 Roger Montgomery: And so consequently, I just don't see that happening. I 157 00:09:27,650 --> 00:09:29,410 Roger Montgomery: see business saying, you know what? We're going to get 158 00:09:30,160 --> 00:09:33,020 Roger Montgomery: enough to meet current demand, but we're certainly not going 159 00:09:33,020 --> 00:09:35,750 Roger Montgomery: to be a squirrel and store away for the winter 160 00:09:36,120 --> 00:09:38,960 Roger Montgomery: because it is expensive. It does affect margins and it 161 00:09:38,960 --> 00:09:41,979 Roger Montgomery: will affect stock prices because the stock market isn't patient. 162 00:09:42,470 --> 00:09:44,469 Sean Aylmer: Okay. So let's bring it all back to investors. So 163 00:09:44,650 --> 00:09:48,890 Sean Aylmer: if inflation is more transitory than permanent and things start 164 00:09:48,890 --> 00:09:53,480 Sean Aylmer: getting back online, what should I as an investor be 165 00:09:53,480 --> 00:09:55,740 Sean Aylmer: thinking about? What's the key message I need to take away? 166 00:09:56,450 --> 00:09:59,730 Roger Montgomery: Well, let's just explain why it will be transitory. So 167 00:10:00,120 --> 00:10:03,250 Roger Montgomery: the reason why it's 6. 2% today is because 12 168 00:10:03,250 --> 00:10:06,890 Roger Montgomery: months ago it was virtually zero. And so any number 169 00:10:06,890 --> 00:10:10,500 Roger Montgomery: above zero looks like a big jump. But next year, 170 00:10:10,500 --> 00:10:13,740 Roger Montgomery: even if prices continue to go up, and they will, 171 00:10:14,040 --> 00:10:16,679 Roger Montgomery: but they will go up at a slower rate relative 172 00:10:16,679 --> 00:10:21,270 Roger Montgomery: to the current 6.2%. And so next year we'll see 4% 173 00:10:21,270 --> 00:10:26,150 Roger Montgomery: or 5% or 3%. And so when you've got consecutively 174 00:10:26,150 --> 00:10:29,720 Roger Montgomery: lower rates of rising prices, so this year 6. 2%, 175 00:10:30,490 --> 00:10:33,000 Roger Montgomery: next year's let's say four or four and a half, 176 00:10:33,400 --> 00:10:37,949 Roger Montgomery: then you've got disinflation. And this is the message for investors, 177 00:10:38,600 --> 00:10:43,270 Roger Montgomery: ever since 1978 when (inaudible) research published a framework for 178 00:10:43,270 --> 00:10:47,030 Roger Montgomery: thinking about inflation and economic growth. What we know is 179 00:10:47,030 --> 00:10:51,589 Roger Montgomery: that in an environment of disinflationary economic growth, so where 180 00:10:51,590 --> 00:10:56,439 Roger Montgomery: you've got the economy growing positively and you've got disinflation, 181 00:10:56,440 --> 00:10:59,730 Roger Montgomery: which is what I've described, consecutive rates of lower inflation, 182 00:11:00,190 --> 00:11:05,450 Roger Montgomery: in that environment, innovative growth companies with pricing power do very, 183 00:11:05,450 --> 00:11:10,370 Roger Montgomery: very well. So there's every possibility that next year we 184 00:11:10,370 --> 00:11:12,580 Roger Montgomery: will not only see the equity market do well, but 185 00:11:12,580 --> 00:11:16,120 Roger Montgomery: we could see some sectors of the equity market, innovative 186 00:11:16,120 --> 00:11:19,809 Roger Montgomery: growth companies, for example, do exceptionally well. And what we 187 00:11:19,809 --> 00:11:23,780 Roger Montgomery: haven't talked about is we haven't talked about wages as well. 188 00:11:24,000 --> 00:11:27,319 Roger Montgomery: One of the other criticisms is wages are rising around 189 00:11:27,320 --> 00:11:30,950 Roger Montgomery: the world and we're seeing pockets of very high wages growth. Well, 190 00:11:30,950 --> 00:11:34,380 Roger Montgomery: in actual fact, in Australia, the Reserve Bank of Australia 191 00:11:34,630 --> 00:11:38,449 Roger Montgomery: has said, Philip Lowe has actually said, we need 3% 192 00:11:38,929 --> 00:11:43,910 Roger Montgomery: wage growth before we see 3% inflation sustainably. And we don't 193 00:11:43,910 --> 00:11:46,790 Roger Montgomery: have that. In fact, it's only in the construction sector and in 194 00:11:46,790 --> 00:11:51,550 Roger Montgomery: the services sector that wage growth is approaching 3%. Everywhere 195 00:11:51,550 --> 00:11:54,410 Roger Montgomery: else it's nowhere near it. So we don't have that. 196 00:11:54,690 --> 00:11:58,450 Roger Montgomery: And any wage pressures that we are currently seeing are going to very quickly, 197 00:11:58,450 --> 00:12:00,020 Roger Montgomery: and this is true in the United States as well, are going 198 00:12:00,640 --> 00:12:03,860 Roger Montgomery: to be very quickly relieved by the opening of international 199 00:12:03,860 --> 00:12:08,030 Roger Montgomery: borders and the return of immigration. And Scott Morrison just 200 00:12:08,030 --> 00:12:11,300 Roger Montgomery: on the weekend was talking about getting skilled and unskilled 201 00:12:11,300 --> 00:12:14,319 Roger Montgomery: workers back into the country as soon as possible and getting 750, 202 00:12:14,320 --> 00:12:18,910 Roger Montgomery: 000 foreign students back into our universities, which by the way, 203 00:12:18,910 --> 00:12:23,160 Roger Montgomery: will generate about 250,000 jobs. So we're going to see those 204 00:12:23,160 --> 00:12:26,670 Roger Montgomery: pressures on wages relieved as well. And then longer term, 205 00:12:26,670 --> 00:12:30,070 Roger Montgomery: we are going to return to the environment that existed prior 206 00:12:30,070 --> 00:12:33,730 Roger Montgomery: to the pandemic. And that is where we have disinflation 207 00:12:34,040 --> 00:12:38,870 Roger Montgomery: and lower wage growth structurally. And the reason why, it's 208 00:12:38,870 --> 00:12:44,300 Roger Montgomery: very simple, we have something like 30% of the union 209 00:12:44,300 --> 00:12:47,740 Roger Montgomery: membership that we had 30 years ago. So we've had a 70% 210 00:12:47,740 --> 00:12:51,309 Roger Montgomery: decline in union membership. So that means we just don't 211 00:12:51,309 --> 00:12:54,880 Roger Montgomery: have those big annual wage increases that we had. And 212 00:12:54,880 --> 00:12:58,780 Roger Montgomery: that's true in the UK, in the United States and 213 00:12:58,780 --> 00:13:03,319 Roger Montgomery: in Australia. So union membership has declined by about 70% 214 00:13:03,320 --> 00:13:05,770 Roger Montgomery: in all that time. And the other thing that was 215 00:13:05,770 --> 00:13:08,760 Roger Montgomery: happening prior to the pandemic and actually accelerated during the 216 00:13:08,760 --> 00:13:14,520 Roger Montgomery: pandemic was investment in automation, investment in the technology that 217 00:13:14,520 --> 00:13:17,929 Roger Montgomery: displaces labour that puts people out of a job. And 218 00:13:17,929 --> 00:13:20,510 Roger Montgomery: that is going to continue to accelerate. In fact, McKinsey 219 00:13:20,510 --> 00:13:25,530 Roger Montgomery: estimate that something like half of the jobs that people 220 00:13:25,530 --> 00:13:30,160 Roger Montgomery: do and are paid for, could be automated in time 221 00:13:30,460 --> 00:13:34,059 Roger Montgomery: and that something like 15 trillion US dollars of wages 222 00:13:34,059 --> 00:13:36,640 Roger Montgomery: that could be displaced. So that trend is in place. 223 00:13:36,640 --> 00:13:39,190 Roger Montgomery: That is structural and it's not going away. And it 224 00:13:39,190 --> 00:13:41,860 Roger Montgomery: means that we're going to see structurally lower wage growth, 225 00:13:42,160 --> 00:13:46,130 Roger Montgomery: structurally lower inflation and therefore structurally lower interest rates. And 226 00:13:46,130 --> 00:13:47,810 Roger Montgomery: that's really positive for equities. 227 00:13:48,110 --> 00:13:52,359 Sean Aylmer: So the take home, innovative price making growth companies. 228 00:13:52,530 --> 00:13:53,550 Roger Montgomery: Yes. Correct. 229 00:13:53,980 --> 00:13:56,059 Sean Aylmer: Fantastic. Roger, thank you very much for talking to Fear 230 00:13:56,059 --> 00:13:56,500 Sean Aylmer: and Greed. 231 00:13:56,900 --> 00:13:57,440 Roger Montgomery: A pleasure, Sean. 232 00:13:57,700 --> 00:14:00,520 Sean Aylmer: That was Roger Montgomery, the founder and Chief Investment Officer 233 00:14:00,520 --> 00:14:04,170 Sean Aylmer: of Montgomery Investment Management. This is the Fear and Greed Daily Interview. 234 00:14:04,170 --> 00:14:06,380 Sean Aylmer: Join me every morning for the full Fear and Greed 235 00:14:06,380 --> 00:14:08,660 Sean Aylmer: podcast with all the business news you need to know. 236 00:14:08,890 --> 00:14:10,580 Sean Aylmer: I'm Sean Aylmer, enjoy your day.