1 00:00:09,960 --> 00:00:13,160 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:13,240 --> 00:00:16,720 Speaker 1: James Kirby. Welcome aboard everybody on what has got to 3 00:00:16,720 --> 00:00:19,840 Speaker 1: be one of the most interesting weeks, one of the 4 00:00:19,880 --> 00:00:25,360 Speaker 1: most interesting periods for investors and investment markets in a 5 00:00:25,520 --> 00:00:31,320 Speaker 1: long time, more intriguing, more perplexing. Occasionally I think more concerning, 6 00:00:31,680 --> 00:00:34,240 Speaker 1: believe it or not, than the COVID downturn. And that's 7 00:00:34,240 --> 00:00:37,080 Speaker 1: saying something. Now as we speak, we've had some relief, 8 00:00:37,159 --> 00:00:40,920 Speaker 1: right We've had the first a bounce on Wall Street 9 00:00:41,120 --> 00:00:45,760 Speaker 1: overnight ten percent, ten percent in a single session, basically 10 00:00:45,800 --> 00:00:48,560 Speaker 1: going in on Wall Street and the Australians share market 11 00:00:48,640 --> 00:00:53,000 Speaker 1: will no doubt copycat that today and as always it 12 00:00:53,040 --> 00:00:55,680 Speaker 1: won't do as much. It'll do five or six percent 13 00:00:55,880 --> 00:00:59,040 Speaker 1: and then we then it's at that point we'll see 14 00:00:59,040 --> 00:01:02,280 Speaker 1: where we are well done on any of the investors 15 00:01:02,280 --> 00:01:04,120 Speaker 1: who went in early in the week, and we had 16 00:01:04,160 --> 00:01:07,800 Speaker 1: Jemma Dale on the show talking about how retail investors 17 00:01:07,840 --> 00:01:10,400 Speaker 1: as opposed to big investors were in the market buying 18 00:01:10,400 --> 00:01:13,679 Speaker 1: more than selling earlier in the week, so as a 19 00:01:13,720 --> 00:01:17,160 Speaker 1: trade that was successful. The issue now is I think 20 00:01:17,160 --> 00:01:19,679 Speaker 1: we have to take a deeper dive because this is 21 00:01:19,680 --> 00:01:23,600 Speaker 1: not over by any stretch of the imagination I expect. 22 00:01:23,800 --> 00:01:27,640 Speaker 1: My guest today is doctor Sam Wiley of the Windlestone 23 00:01:28,000 --> 00:01:31,800 Speaker 1: Education Group, a principal fellow at Melbourne Business School, and 24 00:01:31,840 --> 00:01:34,720 Speaker 1: I think it's worth saying something of an eminent name 25 00:01:34,760 --> 00:01:40,360 Speaker 1: within investment markets who has lectured and mentored several of 26 00:01:40,520 --> 00:01:43,399 Speaker 1: the people who are regular guests on this show. I 27 00:01:43,520 --> 00:01:45,960 Speaker 1: found out after he was on the last time. How 28 00:01:46,000 --> 00:01:46,679 Speaker 1: are you Sam? 29 00:01:47,360 --> 00:01:48,960 Speaker 2: Very well, James, thanks for emboding me. 30 00:01:49,720 --> 00:01:51,200 Speaker 1: Great to have you so here. 31 00:01:51,240 --> 00:01:51,600 Speaker 2: We are. 32 00:01:51,960 --> 00:01:56,760 Speaker 1: It's quite a remarkable period. And all the discussion in 33 00:01:56,800 --> 00:01:58,760 Speaker 1: the last show, which you should listen to if you 34 00:01:58,760 --> 00:02:02,240 Speaker 1: get a chance, was about the nature of the drop 35 00:02:02,360 --> 00:02:05,280 Speaker 1: so far. That is, at the time markets were down 36 00:02:05,320 --> 00:02:08,120 Speaker 1: about ten percent on the ASX and fifteen percent on 37 00:02:08,160 --> 00:02:11,240 Speaker 1: the on Wall Street. But I suppose a million dollar 38 00:02:11,320 --> 00:02:17,639 Speaker 1: question is whether this is a convention to share market 39 00:02:18,160 --> 00:02:20,360 Speaker 1: drop or something different. 40 00:02:22,680 --> 00:02:26,240 Speaker 3: Well, it's quite different to some of the previous crises 41 00:02:26,240 --> 00:02:29,280 Speaker 3: we've had. So the dot com bubble that was a 42 00:02:29,320 --> 00:02:32,520 Speaker 3: genuine bubble, mostly in the Nasdaq stocks NAZDAK went up 43 00:02:32,560 --> 00:02:35,680 Speaker 3: from it from seven hundred and nineteen ninety six to 44 00:02:35,919 --> 00:02:38,600 Speaker 3: five thousand, where it peaked in March of two thousand. 45 00:02:39,040 --> 00:02:40,760 Speaker 3: That was a genuine bubble. Didn't go up as much 46 00:02:40,760 --> 00:02:42,520 Speaker 3: in the S and P five hundred, but the Nasdaq 47 00:02:42,600 --> 00:02:46,400 Speaker 3: stocks were people just got too excited. And then in 48 00:02:46,440 --> 00:02:50,040 Speaker 3: the GFC, that was a banking crisis, and banking crisis 49 00:02:50,120 --> 00:02:52,000 Speaker 3: are hard to reverse and that so that went on 50 00:02:52,040 --> 00:02:54,800 Speaker 3: for a long time. The dot com bubble passed pretty quickly. 51 00:02:54,960 --> 00:02:57,440 Speaker 3: GFC went on for a long time. COVID, of course, 52 00:02:57,600 --> 00:03:01,000 Speaker 3: was a global pandemic that no one saw coming, and 53 00:03:02,160 --> 00:03:05,280 Speaker 3: very dramatic action was taken by central banks and governments 54 00:03:05,320 --> 00:03:08,560 Speaker 3: which reversed the fall in the stock market and then 55 00:03:08,639 --> 00:03:10,800 Speaker 3: sent it a lot higher. And what we have at 56 00:03:10,840 --> 00:03:14,560 Speaker 3: the moment is really a policy mistake, depending on your 57 00:03:14,560 --> 00:03:16,640 Speaker 3: point of view on this, but maybe I shouldn't characterize 58 00:03:16,639 --> 00:03:19,560 Speaker 3: it as a mistake, but it certainly the effects of 59 00:03:19,600 --> 00:03:23,400 Speaker 3: the policy of President Trump in introducing the tariffs and 60 00:03:23,440 --> 00:03:27,399 Speaker 3: the concerns that those tariffs will create stagflation, the inflation 61 00:03:27,600 --> 00:03:31,960 Speaker 3: plus slower growth. So they're really four very different types 62 00:03:32,000 --> 00:03:34,920 Speaker 3: of crises. No one of them is like the other ones, 63 00:03:34,960 --> 00:03:36,440 Speaker 3: and the effects and how long it takes to go 64 00:03:36,520 --> 00:03:38,720 Speaker 3: away are different. In those different crises. 65 00:03:41,200 --> 00:03:45,320 Speaker 1: Is there any implication in what you're saying that in 66 00:03:45,360 --> 00:03:48,280 Speaker 1: a way, it's become a sort of flashpoint of unknowns, 67 00:03:48,320 --> 00:03:51,320 Speaker 1: don't they. So there's this issue where people just don't know, 68 00:03:51,920 --> 00:03:55,360 Speaker 1: and so everyone reacts in a different way. The issue 69 00:03:55,920 --> 00:03:59,840 Speaker 1: for our investors, i'm sure, is whether it should change 70 00:04:00,360 --> 00:04:04,240 Speaker 1: the nature of their approach to markets, because in the 71 00:04:04,280 --> 00:04:07,280 Speaker 1: immediate history, right we've had some very good years. We've 72 00:04:07,280 --> 00:04:11,040 Speaker 1: had a string of double digit years on super fund returns, 73 00:04:11,080 --> 00:04:14,160 Speaker 1: for instance, and SMSF investors whom many of who listened 74 00:04:14,160 --> 00:04:16,080 Speaker 1: to the show, would have had some good years as well. 75 00:04:16,440 --> 00:04:19,360 Speaker 1: And in some ways it was a relatively easy ride, 76 00:04:19,839 --> 00:04:23,200 Speaker 1: and I think there was a surprise perhaps how well 77 00:04:23,240 --> 00:04:25,920 Speaker 1: the markets came out of COVID, and then there was 78 00:04:25,960 --> 00:04:29,240 Speaker 1: a run up to the positive anticipation, positive anticipation that 79 00:04:29,279 --> 00:04:32,240 Speaker 1: Trump as a Republican president, would unleash all sorts of 80 00:04:32,279 --> 00:04:35,160 Speaker 1: positives for the market, deregulation and tax cuts, et cetera. 81 00:04:36,360 --> 00:04:38,839 Speaker 1: That's not the agenda right now, whatever is going on 82 00:04:38,880 --> 00:04:41,919 Speaker 1: in terms of this sprinksmanship. As we talked this morning, 83 00:04:41,960 --> 00:04:45,320 Speaker 1: there is absurd levels of tariff sitting in place between 84 00:04:45,480 --> 00:04:49,760 Speaker 1: the two most important economies in the world. So what's 85 00:04:49,800 --> 00:04:54,400 Speaker 1: the Does this mean investors should change their disposition? 86 00:04:56,400 --> 00:04:59,800 Speaker 3: Well, look, here's here's how I say it, James, is 87 00:04:59,800 --> 00:05:02,920 Speaker 3: that investors should be in the market for the long term. 88 00:05:02,920 --> 00:05:06,799 Speaker 3: I should get invested, get fully invested, and stay fully invested, 89 00:05:07,120 --> 00:05:09,760 Speaker 3: and not try to time the market. The ability to 90 00:05:09,839 --> 00:05:12,360 Speaker 3: time the market, which is as you know called beta, 91 00:05:13,279 --> 00:05:15,560 Speaker 3: is the ability to jump out of the market before 92 00:05:15,560 --> 00:05:17,920 Speaker 3: it goes down and into cash, and jump back from 93 00:05:17,960 --> 00:05:20,839 Speaker 3: cash into the market just before it goes up. Now, 94 00:05:21,040 --> 00:05:23,279 Speaker 3: a lot of people think they've got that ability. Hardly 95 00:05:23,320 --> 00:05:26,400 Speaker 3: anyone has, and that's been shown not just by academic 96 00:05:26,440 --> 00:05:31,600 Speaker 3: research but by the practical circumstances and experience over and over. Alpha, 97 00:05:31,640 --> 00:05:35,279 Speaker 3: which is the ability to choose between assets within an 98 00:05:35,320 --> 00:05:38,200 Speaker 3: asset class, like to choose between BHP and Rio, or 99 00:05:38,279 --> 00:05:41,240 Speaker 3: City Bank and Bank of America, or Tesla and Nvidia, 100 00:05:41,960 --> 00:05:45,520 Speaker 3: choosing within the asset class of US shares or AUSI shares. 101 00:05:45,560 --> 00:05:46,080 Speaker 2: That's alpha. 102 00:05:46,360 --> 00:05:48,520 Speaker 3: There is a lot of alpha out there, and that's 103 00:05:48,560 --> 00:05:52,120 Speaker 3: the value that savvy investors can create. But jumping in 104 00:05:52,160 --> 00:05:54,320 Speaker 3: and out of the market is a great way to 105 00:05:54,440 --> 00:05:57,840 Speaker 3: do two bad things. One to be underinvested over long 106 00:05:57,839 --> 00:06:01,400 Speaker 3: periods of time, and two to realize capital gains early. 107 00:06:02,200 --> 00:06:04,919 Speaker 3: So look, I think that the volatility in the market 108 00:06:04,920 --> 00:06:07,839 Speaker 3: which will go on from here, President Trump's agenda is 109 00:06:07,960 --> 00:06:11,479 Speaker 3: very radical and he'll only be constrained ultimately by the 110 00:06:11,520 --> 00:06:15,359 Speaker 3: Supreme Court and buy the markets and by nothing else. 111 00:06:15,560 --> 00:06:18,200 Speaker 3: And he really does have a radical agenda, and it 112 00:06:18,200 --> 00:06:21,640 Speaker 3: didn't end last night, So everyone should buckle up. But 113 00:06:21,720 --> 00:06:25,600 Speaker 3: that volatility gives people an opportunity. People who are out 114 00:06:25,680 --> 00:06:28,599 Speaker 3: of the market, who are not fully invested, don't have 115 00:06:28,680 --> 00:06:31,400 Speaker 3: as much invested in US shares, especially as they'd like 116 00:06:32,040 --> 00:06:35,760 Speaker 3: to buy the dips to get ready for falls in 117 00:06:35,800 --> 00:06:39,440 Speaker 3: the market, have in their mind trigger points at which 118 00:06:39,440 --> 00:06:42,200 Speaker 3: they're going to buy in and then act on that. 119 00:06:42,480 --> 00:06:44,719 Speaker 3: And you're talking about retail investors doing an amount of 120 00:06:44,720 --> 00:06:47,279 Speaker 3: that recently, And so I think that's a good idea. 121 00:06:47,279 --> 00:06:49,960 Speaker 3: That's the way to think about the volatility. Be fully invested. 122 00:06:50,360 --> 00:06:53,240 Speaker 3: But if you're not fully invested, see the volatility as 123 00:06:53,240 --> 00:06:54,040 Speaker 3: an opportunity. 124 00:06:54,080 --> 00:06:58,440 Speaker 1: Can I throw a bare case? Can I throw the 125 00:06:58,520 --> 00:07:04,080 Speaker 1: warriors scenario at you, which is we mentioned to a 126 00:07:04,080 --> 00:07:06,039 Speaker 1: wait because a lot of our listeners are younger and 127 00:07:06,200 --> 00:07:11,440 Speaker 1: didn't endure the difficulty of that period where this market 128 00:07:11,480 --> 00:07:14,200 Speaker 1: felt by fifty percent, And as we mentioned on earlier 129 00:07:14,200 --> 00:07:16,120 Speaker 1: in the week, it wasn't that it felt by fifty percent, 130 00:07:16,200 --> 00:07:17,440 Speaker 1: but it was that it took a year and a 131 00:07:17,480 --> 00:07:20,320 Speaker 1: half to do it, and it was even longer than 132 00:07:20,320 --> 00:07:23,400 Speaker 1: that before realized, before people realized it was finally over. 133 00:07:23,920 --> 00:07:26,040 Speaker 1: Now we can look at the news this morning and 134 00:07:26,080 --> 00:07:29,000 Speaker 1: it's all very well, there's a big bounce and all that, 135 00:07:29,240 --> 00:07:32,800 Speaker 1: and everyone is smiling that the market's gone up. But 136 00:07:33,360 --> 00:07:37,160 Speaker 1: only twenty four hours ago there was some very people 137 00:07:37,200 --> 00:07:41,200 Speaker 1: I would take very seriously, and they were deeply concerned 138 00:07:41,280 --> 00:07:45,480 Speaker 1: about one thing, which is this that bond prices were 139 00:07:45,520 --> 00:07:48,280 Speaker 1: falling at the same time as share prices were falling. 140 00:07:48,800 --> 00:07:51,600 Speaker 1: And this is not supposed to happen, and it happens 141 00:07:51,640 --> 00:07:57,000 Speaker 1: at times of extreme pressure on investment markets. And the 142 00:07:57,400 --> 00:08:03,120 Speaker 1: particular fear, the big fear this time round, is that 143 00:08:04,400 --> 00:08:08,800 Speaker 1: should the rest of the world, particularly China, withdraw its 144 00:08:08,800 --> 00:08:12,239 Speaker 1: de facto support for the US through the bond markets 145 00:08:12,240 --> 00:08:17,280 Speaker 1: where there are this gigantic holder of US treasuries. Is 146 00:08:17,320 --> 00:08:20,240 Speaker 1: that a fringe concern or is it a concern that 147 00:08:20,240 --> 00:08:21,119 Speaker 1: should be on the table. 148 00:08:23,200 --> 00:08:26,280 Speaker 3: Well, in general, I would say if you take if 149 00:08:26,320 --> 00:08:29,120 Speaker 3: we zoom out and take the longest view of the 150 00:08:30,240 --> 00:08:34,200 Speaker 3: US market. I think that in ten or twenty years time, 151 00:08:34,480 --> 00:08:38,120 Speaker 3: we'll look back on this period and we'll see the 152 00:08:38,320 --> 00:08:41,800 Speaker 3: volatility of President Trump's radical agenda and even to a 153 00:08:41,840 --> 00:08:46,400 Speaker 3: certain extent, COVID as the COVID pandemic, as things that 154 00:08:46,440 --> 00:08:50,960 Speaker 3: were overlaid on something bigger. And that's something bigger is 155 00:08:51,040 --> 00:08:55,320 Speaker 3: AI and US tech dominance. And I think that's really 156 00:08:55,840 --> 00:08:59,640 Speaker 3: the long term picture investors should be thinking. Investors should 157 00:08:59,640 --> 00:09:02,600 Speaker 3: be member. The biggest mistake that investors made in aggregate 158 00:09:02,880 --> 00:09:07,400 Speaker 3: in the twentieth century was to be underweight US equities, 159 00:09:07,640 --> 00:09:11,439 Speaker 3: and that was especially true of non US dollar investors. 160 00:09:11,760 --> 00:09:13,520 Speaker 3: You know that. I know you know this, James. But 161 00:09:14,360 --> 00:09:18,840 Speaker 3: in nineteen thirty a British pound was worth five dollars 162 00:09:19,559 --> 00:09:21,679 Speaker 3: and now a British pound is worth about a dollar 163 00:09:21,720 --> 00:09:25,400 Speaker 3: twenty So British investors, and this is true of Australian 164 00:09:25,400 --> 00:09:29,560 Speaker 3: investors as well, not only got the benefit of the 165 00:09:29,679 --> 00:09:32,199 Speaker 3: US markets doing so well, the US stock market doing 166 00:09:32,200 --> 00:09:34,400 Speaker 3: so well in the twentieth century, but they got that 167 00:09:34,480 --> 00:09:38,400 Speaker 3: fort four times uplift in the depreciation of the pound 168 00:09:38,840 --> 00:09:43,000 Speaker 3: against the US dollar. And I think there's a danger 169 00:09:43,040 --> 00:09:46,040 Speaker 3: that investors make the same mistake. The biggest mistake in 170 00:09:46,040 --> 00:09:49,120 Speaker 3: the twentieth century was to be underweight US shares, and 171 00:09:49,200 --> 00:09:51,599 Speaker 3: I think that's likely to be the biggest mistake in 172 00:09:51,640 --> 00:09:54,360 Speaker 3: the twenty first century, because it's going to be about 173 00:09:54,440 --> 00:09:58,760 Speaker 3: tech and US tech dominance is accelerating and getting deeper, 174 00:09:59,240 --> 00:10:02,200 Speaker 3: rather than the opper so zooming out and taking the 175 00:10:02,240 --> 00:10:05,960 Speaker 3: longest view. This episode with President Trump, which will go 176 00:10:06,040 --> 00:10:09,120 Speaker 3: on probably for the whole of his four years, will 177 00:10:09,120 --> 00:10:13,679 Speaker 3: be overlaid on top of something that is deeper, more enduring, 178 00:10:13,760 --> 00:10:16,880 Speaker 3: and more important, and that is to have exposure to 179 00:10:17,679 --> 00:10:20,800 Speaker 3: US tech dominance in the twenty first century. And you 180 00:10:20,880 --> 00:10:23,440 Speaker 3: saw an amount of that last night. The reason the 181 00:10:23,440 --> 00:10:26,440 Speaker 3: market bounced back so much, or a significant reason, is 182 00:10:26,480 --> 00:10:28,280 Speaker 3: that people don't want to be out of the market. 183 00:10:28,760 --> 00:10:31,600 Speaker 3: They've been forced out of the market by just the 184 00:10:31,640 --> 00:10:36,160 Speaker 3: difficulty of President Trump's actions and the danger that if 185 00:10:36,200 --> 00:10:40,040 Speaker 3: he would not if he wouldn't take a backward step, 186 00:10:40,400 --> 00:10:42,560 Speaker 3: then the market would have to go down further. But 187 00:10:42,640 --> 00:10:44,520 Speaker 3: as soon as they had an opportunity to pour back 188 00:10:44,520 --> 00:10:45,760 Speaker 3: in the market, they were back in. 189 00:10:46,720 --> 00:10:52,000 Speaker 1: You're not concerned that the US sort of imperial like 190 00:10:52,080 --> 00:10:56,800 Speaker 1: dominance of the markets and it's how it has ruled 191 00:10:56,880 --> 00:11:00,360 Speaker 1: up from being whatever it was, fifty percent of the 192 00:11:00,400 --> 00:11:03,560 Speaker 1: global market to well over sixty percent of the global 193 00:11:03,600 --> 00:11:07,720 Speaker 1: market now. And it's complete domination of guilts or bond 194 00:11:07,760 --> 00:11:11,800 Speaker 1: markets as they are. You're not concerned that is on 195 00:11:11,840 --> 00:11:15,880 Speaker 1: the way, or that the technology pre eminence that drives 196 00:11:15,920 --> 00:11:21,559 Speaker 1: the entire US market is perhaps threatened by by deep 197 00:11:21,600 --> 00:11:26,000 Speaker 1: seek for instance in AI, by byd in car technology. 198 00:11:28,520 --> 00:11:32,760 Speaker 3: Yeah, I'm not basically, But what on the lies US 199 00:11:32,840 --> 00:11:37,240 Speaker 3: tech dominance is the education system, you know, the fantastic 200 00:11:37,400 --> 00:11:42,200 Speaker 3: university system, It's Silicon Valley, and the ability to raise 201 00:11:42,440 --> 00:11:48,400 Speaker 3: huge amounts of capital for projects. It's the cultural inclination 202 00:11:48,760 --> 00:11:53,920 Speaker 3: to have a go and to not fear failure. 203 00:11:54,000 --> 00:11:56,040 Speaker 1: I mean, I have no problem what you're saying, and 204 00:11:56,080 --> 00:11:58,480 Speaker 1: I think it's worth mentioning to listeners that this is 205 00:11:58,520 --> 00:12:01,880 Speaker 1: not You are not just some in here from some distance. 206 00:12:01,920 --> 00:12:03,640 Speaker 1: You were at the top business school. 207 00:12:03,679 --> 00:12:05,280 Speaker 2: Weren't you at Dartmouth? Yep? 208 00:12:05,760 --> 00:12:08,679 Speaker 3: Dartmouth actually was from from nine at ninety seven to 209 00:12:08,920 --> 00:12:09,880 Speaker 3: two thousand and four. 210 00:12:10,240 --> 00:12:12,240 Speaker 1: I was at Dartmouth And was it that period that 211 00:12:12,280 --> 00:12:13,840 Speaker 1: formulated these views for you? 212 00:12:14,280 --> 00:12:17,360 Speaker 3: It was, and you know, traveling in the States a 213 00:12:17,360 --> 00:12:19,480 Speaker 3: lot at that time, and you know, going over to 214 00:12:19,520 --> 00:12:23,600 Speaker 3: California into Silicon Valley a lot, and even seeing the 215 00:12:23,720 --> 00:12:27,320 Speaker 3: US education system because you know, we had two young 216 00:12:27,400 --> 00:12:31,560 Speaker 3: children just starting primary school at that time and they 217 00:12:31,920 --> 00:12:34,680 Speaker 3: and just seeing the way that children are encouraged to 218 00:12:34,880 --> 00:12:38,120 Speaker 3: have a go and do not fear failure. It really 219 00:12:38,160 --> 00:12:42,719 Speaker 3: is quite a remarkable cultural thing. Not everything about US 220 00:12:42,760 --> 00:12:45,280 Speaker 3: culture is fabulous, by the way, but I'll tell you 221 00:12:45,320 --> 00:12:48,680 Speaker 3: working in the US is terrific. Like the confidence to 222 00:12:48,800 --> 00:12:52,319 Speaker 3: be able to take on complex things. Working there really 223 00:12:52,360 --> 00:12:53,280 Speaker 3: is the best thing. 224 00:12:53,720 --> 00:12:56,400 Speaker 1: You weren't concerned that the move to tariff's was actually 225 00:12:56,440 --> 00:13:02,800 Speaker 1: a contradiction on that that it was protectionist, defeat retrograde 226 00:13:02,840 --> 00:13:07,000 Speaker 1: compared to the best aspects of the US that impressed 227 00:13:07,000 --> 00:13:08,559 Speaker 1: you overall. 228 00:13:08,600 --> 00:13:12,320 Speaker 3: I think it's foolish to introduce the tariffs and the 229 00:13:12,320 --> 00:13:16,600 Speaker 3: way that it's been enacted by President Trump, that the 230 00:13:16,640 --> 00:13:19,320 Speaker 3: backwards and forwards nature of it, and also the belligerent 231 00:13:19,400 --> 00:13:22,520 Speaker 3: nature of it, I think is maybe foolish is too 232 00:13:22,520 --> 00:13:27,960 Speaker 3: strong a word, but that's certainly not ideal, and the 233 00:13:28,480 --> 00:13:32,400 Speaker 3: we shouldn't think that there isn't a coherent strategy here. 234 00:13:32,640 --> 00:13:35,559 Speaker 3: I think the tariffs are really about these things. It's 235 00:13:35,559 --> 00:13:38,920 Speaker 3: about raising revenue so that the president can cut taxes. 236 00:13:39,520 --> 00:13:43,400 Speaker 3: It is about reassuring a US manufacturing and fulfilling a 237 00:13:43,440 --> 00:13:49,400 Speaker 3: promise to the Magabase. And especially it's about isolating and 238 00:13:49,480 --> 00:13:52,920 Speaker 3: constraining China. And look, we saw that overnight. So President 239 00:13:52,960 --> 00:13:55,040 Speaker 3: Trump said that the ten percent based tariffs are going 240 00:13:55,040 --> 00:13:58,520 Speaker 3: to remain, that the additional tariffs that were nounce on 241 00:13:58,559 --> 00:14:00,640 Speaker 3: the second of April are going to be suspended for 242 00:14:00,679 --> 00:14:03,880 Speaker 3: a period of time. But nothing changes with china one 243 00:14:03,920 --> 00:14:07,400 Speaker 3: hundred and twenty five percent tariffs, And so a lot 244 00:14:07,440 --> 00:14:11,520 Speaker 3: of it is really about China. In the US switched 245 00:14:11,520 --> 00:14:14,920 Speaker 3: from a policy of engagement with China to containment of 246 00:14:15,000 --> 00:14:20,400 Speaker 3: China during the President Obama's administration in twenty fourteen, and 247 00:14:20,440 --> 00:14:23,400 Speaker 3: then President Trump won, and then President Biden and now 248 00:14:23,400 --> 00:14:27,800 Speaker 3: President Trump two have continued that policy of containment. And 249 00:14:27,880 --> 00:14:31,400 Speaker 3: this is President Trump's agender is very radical. It's been 250 00:14:31,800 --> 00:14:36,440 Speaker 3: rolled out in the President's usual belligerent manner, but it's 251 00:14:36,480 --> 00:14:40,400 Speaker 3: completely consistent with a policy that really started in twenty 252 00:14:40,560 --> 00:14:44,480 Speaker 3: fourteen of containing China. So we shouldn't think look, I 253 00:14:44,520 --> 00:14:47,360 Speaker 3: think overall it's foolish the policy, but we shouldn't think 254 00:14:47,360 --> 00:14:49,600 Speaker 3: that it's not a coherent strategy. 255 00:14:49,840 --> 00:14:52,040 Speaker 1: Okay, very interesting, We've take a short break of what 256 00:14:52,040 --> 00:14:53,800 Speaker 1: we're going to do folks. In the next section is 257 00:14:53,840 --> 00:14:56,560 Speaker 1: going to look how this affects you and in what 258 00:14:56,640 --> 00:15:01,880 Speaker 1: way you may make moves around the basic principles that 259 00:15:02,000 --> 00:15:03,480 Speaker 1: have been outlined by Sam. 260 00:15:03,520 --> 00:15:03,720 Speaker 2: There. 261 00:15:03,760 --> 00:15:07,640 Speaker 1: And interesting that notion of the consistency of the towers. 262 00:15:08,240 --> 00:15:11,000 Speaker 1: It's not like they were never there. They've been there 263 00:15:11,040 --> 00:15:13,600 Speaker 1: in place, particularly in relation to China for some time. 264 00:15:14,000 --> 00:15:16,840 Speaker 1: It's the global globalization of them, if you like that. 265 00:15:16,920 --> 00:15:26,360 Speaker 1: Pus the shock so far. Okay, back in a moment. Hello, 266 00:15:26,440 --> 00:15:29,320 Speaker 1: Welcome back to The Australian's Money Puzzle. James Kirby here 267 00:15:29,320 --> 00:15:32,240 Speaker 1: with doctor Sam Wiley. Now, Sam, the one thing you 268 00:15:32,240 --> 00:15:35,800 Speaker 1: said there is interesting. I'm just thinking about allocation for 269 00:15:35,880 --> 00:15:38,520 Speaker 1: our investors. Whether you know, people were coming up to 270 00:15:38,560 --> 00:15:41,360 Speaker 1: me during the week asking about whether they should be 271 00:15:41,400 --> 00:15:44,280 Speaker 1: in growth or conservative of balanced funds when they have 272 00:15:44,360 --> 00:15:47,680 Speaker 1: been in big super and of course self managed super funds. 273 00:15:48,360 --> 00:15:52,320 Speaker 1: Some are taking some were some were just going to cash, 274 00:15:52,560 --> 00:15:56,240 Speaker 1: some were nibbling as they say, and some were making 275 00:15:56,280 --> 00:15:58,960 Speaker 1: some really you know, structural moves like setting gold and 276 00:15:59,000 --> 00:16:02,320 Speaker 1: buying ETA for instance. Now, one thing you said that 277 00:16:02,360 --> 00:16:04,840 Speaker 1: I thought was really interesting about sticking with the US 278 00:16:04,880 --> 00:16:10,000 Speaker 1: market the Australian super and the big super funds, but 279 00:16:10,040 --> 00:16:14,160 Speaker 1: Australian Super in particular has come out in the thick 280 00:16:14,200 --> 00:16:17,000 Speaker 1: of this crisis and the darkest well, the first what 281 00:16:17,120 --> 00:16:19,240 Speaker 1: might be the first phase of dark days a few 282 00:16:19,320 --> 00:16:21,000 Speaker 1: days ago when the markets were falling and they said 283 00:16:21,000 --> 00:16:23,800 Speaker 1: we're sticking with the US whatever. Mark Delaney, head of 284 00:16:23,800 --> 00:16:26,240 Speaker 1: Australian Super, it's got literally got news around the world 285 00:16:26,280 --> 00:16:29,840 Speaker 1: because there was very few, very prominent managers saying we're 286 00:16:29,880 --> 00:16:34,040 Speaker 1: sticking with the US. So that's a point I think 287 00:16:34,080 --> 00:16:36,400 Speaker 1: that I need to drive home. Should every day in 288 00:16:36,480 --> 00:16:39,320 Speaker 1: versitors look deeper in the US in terms of single 289 00:16:39,360 --> 00:16:42,280 Speaker 1: stocks or is it more like an index approach? 290 00:16:44,080 --> 00:16:49,000 Speaker 3: Look, I think in thinking about allocation of shares across 291 00:16:49,480 --> 00:16:52,480 Speaker 3: US shares global shares, let's think of global shares as big. 292 00:16:52,520 --> 00:16:55,800 Speaker 3: Any thing that's not US and Australia and Australian shares, 293 00:16:56,120 --> 00:16:58,920 Speaker 3: then the largest part should be in US shares and 294 00:16:58,960 --> 00:17:01,440 Speaker 3: in Australian chairs and the US For the reasons I 295 00:17:01,440 --> 00:17:04,000 Speaker 3: was talking about before, it's a big mistake to not 296 00:17:04,400 --> 00:17:07,760 Speaker 3: participate in the tech surge in the twenty first century, 297 00:17:07,960 --> 00:17:09,880 Speaker 3: much of the value of which is going to be 298 00:17:10,000 --> 00:17:13,159 Speaker 3: expressed in the US public markets. Created and expressing the 299 00:17:13,240 --> 00:17:16,159 Speaker 3: US public markets. It's a mistake not to have a 300 00:17:16,200 --> 00:17:19,800 Speaker 3: significant allocation to Ossie shares, and the reason for that 301 00:17:20,000 --> 00:17:25,439 Speaker 3: is that the Australian resident, Australian tax residents like you 302 00:17:25,480 --> 00:17:28,080 Speaker 3: and me, James and most of your listeners get the 303 00:17:28,119 --> 00:17:32,680 Speaker 3: benefit of franking credits. So foreign investors own slightly more 304 00:17:32,680 --> 00:17:35,119 Speaker 3: than fifty percent of the whole of the Australian stock market. 305 00:17:35,280 --> 00:17:38,200 Speaker 3: They're happy to own Australian shares when they could buy 306 00:17:38,280 --> 00:17:40,560 Speaker 3: shares from anywhere in the world. They're happy to own 307 00:17:40,560 --> 00:17:43,800 Speaker 3: Australian shares, but they don't get franking credits. So when 308 00:17:43,800 --> 00:17:47,679 Speaker 3: we own, when we own Australian shares, we get what 309 00:17:47,840 --> 00:17:51,360 Speaker 3: they get, plus the extra gravy of the franking credits. 310 00:17:51,400 --> 00:17:54,440 Speaker 3: So it makes perfectly good sense to have a significant 311 00:17:54,440 --> 00:17:58,439 Speaker 3: allocation to Australian shares and then to the rest of 312 00:17:58,480 --> 00:18:01,680 Speaker 3: the world. Europe is looking up a bit. Emerging markets 313 00:18:01,680 --> 00:18:05,560 Speaker 3: haven't done very well in the current crisis. Isn't helping them? 314 00:18:05,880 --> 00:18:08,840 Speaker 3: Isn't helping them so much? But I think Mark Delaney 315 00:18:08,920 --> 00:18:11,520 Speaker 3: is making the right call and he is getting He 316 00:18:11,600 --> 00:18:16,160 Speaker 3: is getting investors ready for the possibility that Ossie Super 317 00:18:16,840 --> 00:18:19,760 Speaker 3: won't be one of the two or three highest performing 318 00:18:19,840 --> 00:18:23,800 Speaker 3: funds in this particular year like it usually is because 319 00:18:24,000 --> 00:18:26,320 Speaker 3: of their high exposure in their balance funded, in their 320 00:18:26,320 --> 00:18:28,520 Speaker 3: growth fund to US shares. But he's saying, we're going 321 00:18:28,600 --> 00:18:30,960 Speaker 3: to ride through that and we're going to take the 322 00:18:31,000 --> 00:18:34,960 Speaker 3: long term view. One thing that Ossie Super doesn't do, 323 00:18:35,560 --> 00:18:38,440 Speaker 3: or does do that it is unfortunate, is that they 324 00:18:38,480 --> 00:18:43,480 Speaker 3: hedge out the foreign currency risk. They hedge out the 325 00:18:43,520 --> 00:18:46,920 Speaker 3: effect of the Aussie dollar going down. Now that's unfortunate 326 00:18:47,240 --> 00:18:50,800 Speaker 3: because it's better to be unheedged. One of the reasons 327 00:18:50,800 --> 00:18:53,359 Speaker 3: that you want to own foreign assets is that you 328 00:18:53,400 --> 00:18:56,280 Speaker 3: want protection against the Aussie dollar going down. When the 329 00:18:56,280 --> 00:18:59,359 Speaker 3: assiegolar goes down, if nothing happens to your US shares, 330 00:18:59,440 --> 00:19:02,119 Speaker 3: the new us as are just worth more, and it'd 331 00:19:02,119 --> 00:19:05,320 Speaker 3: be better if they didn't hedge out the Ossie dollar exposure. 332 00:19:05,480 --> 00:19:08,280 Speaker 3: And most of your listeners should not be hedged for 333 00:19:08,359 --> 00:19:09,320 Speaker 3: Ossie dollar exposures. 334 00:19:09,320 --> 00:19:11,159 Speaker 1: They probably aren't edged, but if they were given the 335 00:19:11,240 --> 00:19:13,400 Speaker 1: choice between two funds and one was hedged and one 336 00:19:13,440 --> 00:19:16,120 Speaker 1: was unhedged. You're saying God for the unhedged every time? 337 00:19:16,160 --> 00:19:18,679 Speaker 3: Are you go for the unhedged every time? 338 00:19:19,200 --> 00:19:21,280 Speaker 1: It's okay, very interesting. 339 00:19:21,520 --> 00:19:24,080 Speaker 3: You want some exposure to most of your exposure is 340 00:19:24,119 --> 00:19:26,800 Speaker 3: to the Aussie dollars in your income here I'm speaking 341 00:19:26,880 --> 00:19:29,080 Speaker 3: to our listeners, of course, in your income and in 342 00:19:29,119 --> 00:19:31,760 Speaker 3: the ownership of your assets, most of your exposure is 343 00:19:31,760 --> 00:19:34,520 Speaker 3: to the Aussie dollar. You want some exposure to other 344 00:19:34,600 --> 00:19:38,720 Speaker 3: currencies and especially to the US dollars. Simple diversification. And 345 00:19:38,800 --> 00:19:42,359 Speaker 3: if you hedge, you are unwinding that diversification and it 346 00:19:42,400 --> 00:19:42,960 Speaker 3: won't help you. 347 00:19:43,080 --> 00:19:43,920 Speaker 2: It's very straightforward. 348 00:19:43,920 --> 00:19:47,080 Speaker 3: Look, the super funds do it because they're compared to 349 00:19:47,160 --> 00:19:51,160 Speaker 3: each other. It's just an unfortunate equilibrium where they all 350 00:19:51,280 --> 00:19:54,600 Speaker 3: hedge and none of them will break away from that 351 00:19:55,080 --> 00:19:59,320 Speaker 3: because of the danger that they'll underperform. Free thing for 352 00:19:59,359 --> 00:20:00,880 Speaker 3: them to do is to do what all the other 353 00:20:00,920 --> 00:20:01,840 Speaker 3: super funds. 354 00:20:01,520 --> 00:20:04,479 Speaker 1: Do and do there fully hedge sam like fully. 355 00:20:05,840 --> 00:20:08,960 Speaker 3: It varies across the big funds. Ossie Super is fifty 356 00:20:09,000 --> 00:20:14,000 Speaker 3: to sixty percent hedged, and but other funds, some other 357 00:20:14,000 --> 00:20:15,399 Speaker 3: funds are one hundred percent hedged. 358 00:20:15,760 --> 00:20:19,359 Speaker 1: Yeah, okay, very interesting. Well, we're going to bolt around now, folks, 359 00:20:19,359 --> 00:20:21,400 Speaker 1: because I've got some on the show. It's an amazing week. 360 00:20:21,440 --> 00:20:22,560 Speaker 1: I want to talk to you about a couple of 361 00:20:22,560 --> 00:20:25,120 Speaker 1: things and it'll be busily quickfire. But there what doing. 362 00:20:26,280 --> 00:20:29,920 Speaker 1: Gold has been great. We all know there's no yield 363 00:20:29,920 --> 00:20:33,800 Speaker 1: off gold, but hey, it's been great this last few months. 364 00:20:34,200 --> 00:20:35,280 Speaker 1: Where do you stand on gold? 365 00:20:36,880 --> 00:20:39,760 Speaker 3: Weok, it's been awesome, especially in Australian dollar times. It's 366 00:20:39,800 --> 00:20:42,640 Speaker 3: gone through five thousand Ossie dollars. It was in two 367 00:20:42,640 --> 00:20:45,720 Speaker 3: thousand and four it was five hundred Australian dollars and 368 00:20:45,760 --> 00:20:49,320 Speaker 3: now in twenty twenty five it's five thousand Australian dollars. 369 00:20:49,359 --> 00:20:54,040 Speaker 3: So it's been absolutely awesome. The gold has been mostly 370 00:20:54,160 --> 00:20:55,760 Speaker 3: in the last couple of years, and this is true 371 00:20:55,760 --> 00:20:58,600 Speaker 3: a bitcoin as well, and why people sort of group 372 00:20:58,680 --> 00:21:02,520 Speaker 3: them together. Now there's been an alternative to the US dollar, 373 00:21:02,600 --> 00:21:05,920 Speaker 3: and especially people who are concerned about burgeoning US debt. 374 00:21:06,400 --> 00:21:10,359 Speaker 3: There's definitely a debt time bomb in the US, and 375 00:21:10,480 --> 00:21:13,480 Speaker 3: people who are concerned that, or a lot of investors 376 00:21:13,520 --> 00:21:16,480 Speaker 3: want to have some exposure to gold maybe bitcoin as well, 377 00:21:16,920 --> 00:21:20,760 Speaker 3: because when that bomb finally explodes at some stage and 378 00:21:20,800 --> 00:21:25,240 Speaker 3: the markets revolt against the growing US federal debt. Then 379 00:21:25,240 --> 00:21:28,320 Speaker 3: they'll be glad that they had a safe haven away 380 00:21:28,320 --> 00:21:30,840 Speaker 3: from that. Now do I mean to say that you 381 00:21:30,840 --> 00:21:33,000 Speaker 3: shouldn't be invested in US shares because that would be 382 00:21:33,040 --> 00:21:35,639 Speaker 3: contradict but I said earlier I don't mean that. But 383 00:21:35,680 --> 00:21:37,800 Speaker 3: what I mean is that at some stage it's going 384 00:21:37,880 --> 00:21:40,040 Speaker 3: to be a big problem with US debt. The US 385 00:21:40,119 --> 00:21:42,560 Speaker 3: will get through it. We should all be confident of that. 386 00:21:43,240 --> 00:21:45,760 Speaker 3: But in the process, people are going to be glad 387 00:21:45,840 --> 00:21:49,439 Speaker 3: that they had exposure to something alternative to gold and 388 00:21:49,480 --> 00:21:53,680 Speaker 3: to bitcoin. So and then look at the moment. Gold 389 00:21:53,720 --> 00:21:56,960 Speaker 3: and bitcoin both went down in the current crisis, which 390 00:21:57,000 --> 00:21:59,360 Speaker 3: is kind of surprising in it, and bombs went down 391 00:21:59,400 --> 00:21:59,879 Speaker 3: as well. 392 00:21:59,760 --> 00:22:01,119 Speaker 1: Which the last few days. 393 00:22:01,359 --> 00:22:02,360 Speaker 2: Yeah, You're earlier. 394 00:22:02,080 --> 00:22:05,160 Speaker 3: Point was that everything went down, even treasury bonds went down, 395 00:22:05,400 --> 00:22:07,760 Speaker 3: gold and bitcoin went down. It was a sell everything 396 00:22:07,840 --> 00:22:10,920 Speaker 3: moment and go to cash. People's concern about the president's 397 00:22:11,000 --> 00:22:15,040 Speaker 3: radical agenda. Yeah, and this is bitcoin and gold exhibit 398 00:22:15,080 --> 00:22:15,520 Speaker 3: that as well. 399 00:22:16,720 --> 00:22:20,960 Speaker 1: But you don't worry that the BONDDUS bawn market could 400 00:22:21,000 --> 00:22:23,280 Speaker 1: have a major outflow. 401 00:22:25,119 --> 00:22:28,480 Speaker 3: I don't think that's going to happen anytime soon. It's 402 00:22:28,520 --> 00:22:31,240 Speaker 3: just too large and too much the safe port in 403 00:22:31,320 --> 00:22:33,879 Speaker 3: a storm, ultimately too much of the risk free asset 404 00:22:34,600 --> 00:22:37,320 Speaker 3: for global investors. I don't worry that's going to happen 405 00:22:37,480 --> 00:22:40,760 Speaker 3: anytime soon. Look, I actually think James, that what's going 406 00:22:40,800 --> 00:22:43,480 Speaker 3: to happen. What we don't know is, I'll just be 407 00:22:43,600 --> 00:22:45,879 Speaker 3: very brief here. What we don't know is whether we 408 00:22:45,920 --> 00:22:48,679 Speaker 3: go back in the post COVID world, whether we go 409 00:22:48,760 --> 00:22:54,360 Speaker 3: back to the pre COVID world of powerful deflationary forces 410 00:22:54,760 --> 00:22:58,480 Speaker 3: where interest rates get cut close to zero, where central 411 00:22:58,480 --> 00:23:03,439 Speaker 3: banks introduce quantitative easing to try and fight deflationary forces, 412 00:23:03,480 --> 00:23:05,879 Speaker 3: trying to fight inflation falling too low. That was the 413 00:23:05,920 --> 00:23:10,399 Speaker 3: pre COVID world, whereas the pre GFC world was one 414 00:23:10,760 --> 00:23:13,840 Speaker 3: of trying to fight inflation and of higher interest rates. 415 00:23:14,560 --> 00:23:16,800 Speaker 3: And we don't know yet, and maybe we can talk 416 00:23:16,840 --> 00:23:19,159 Speaker 3: about this another time. We don't know whether we're going 417 00:23:19,200 --> 00:23:23,000 Speaker 3: to go back to pre COVID of low interest rates 418 00:23:23,400 --> 00:23:27,560 Speaker 3: and fighting deflation or pre GFC of higher interest rates 419 00:23:28,000 --> 00:23:31,479 Speaker 3: and fighting inflation rather than deflation. It's a very large 420 00:23:32,160 --> 00:23:36,920 Speaker 3: open question. Sorry I didn't answer it. Who were trying 421 00:23:36,920 --> 00:23:37,480 Speaker 3: to big brief? 422 00:23:39,760 --> 00:23:42,080 Speaker 1: Be nice if you could answer it. But you're talking 423 00:23:42,119 --> 00:23:46,200 Speaker 1: about US rates there. We'll put Australian Australian's particular local 424 00:23:46,240 --> 00:23:49,199 Speaker 1: issues to one side for the moment. You're talking global 425 00:23:49,280 --> 00:23:50,919 Speaker 1: rates led by the Fed Reserve. 426 00:23:51,720 --> 00:23:55,320 Speaker 3: I am, but deflate deflationary forces, which you know from 427 00:23:55,359 --> 00:23:59,560 Speaker 3: the GFC to to COVID. Interest rates were down, you know, 428 00:23:59,600 --> 00:24:03,679 Speaker 3: before COVID came along. This is in September, on the 429 00:24:03,680 --> 00:24:07,120 Speaker 3: first of October twenty nineteen, three months before anyone knew 430 00:24:07,200 --> 00:24:10,800 Speaker 3: the COVID even existed, the cash rate in Australia was 431 00:24:10,880 --> 00:24:12,320 Speaker 3: zero point seventy five percent. 432 00:24:12,640 --> 00:24:16,600 Speaker 1: People forget that the opsode I expect is at this 433 00:24:16,720 --> 00:24:20,159 Speaker 1: time there is at least the capacity to cut rates 434 00:24:20,520 --> 00:24:22,200 Speaker 1: should rates need to be caught. 435 00:24:24,200 --> 00:24:25,120 Speaker 2: That's absolutely right. 436 00:24:25,160 --> 00:24:27,879 Speaker 3: And it's also true that there's capacity for quantitative easing, 437 00:24:28,000 --> 00:24:31,200 Speaker 3: because not only has the Fed put interest rates up, 438 00:24:32,160 --> 00:24:35,960 Speaker 3: but it has unwound the quantitative easing that was undertaken 439 00:24:35,960 --> 00:24:38,679 Speaker 3: in COVID. So it really does have a couple of 440 00:24:38,680 --> 00:24:40,639 Speaker 3: shots in the locker, so to speak. 441 00:24:40,680 --> 00:24:42,760 Speaker 2: It has sort of reloaded. 442 00:24:42,240 --> 00:24:46,159 Speaker 3: Its ammunition to fight to fight these things, which that is. 443 00:24:46,160 --> 00:24:48,680 Speaker 2: A healthy state of affairs, without a doubt. 444 00:24:49,440 --> 00:24:53,320 Speaker 1: But as you say, it is only a scenario in 445 00:24:53,359 --> 00:24:55,920 Speaker 1: which that might be needed, all right, okay, well take 446 00:24:55,960 --> 00:24:58,080 Speaker 1: a break. A couple of questions I do want to 447 00:24:58,080 --> 00:25:00,240 Speaker 1: put in front of some which i've sort of killed 448 00:25:00,440 --> 00:25:09,640 Speaker 1: specifically for him back in a moment. Hello, Welcome back 449 00:25:09,640 --> 00:25:13,320 Speaker 1: to The Australian's Money Puzzle. James Kirby with doctor Sam Wiley. 450 00:25:13,400 --> 00:25:15,720 Speaker 1: He's been on the show before. You might remember Melbourne 451 00:25:15,720 --> 00:25:19,160 Speaker 1: Business School and the windle Stone Education Group. 452 00:25:19,400 --> 00:25:19,680 Speaker 2: Sam. 453 00:25:19,720 --> 00:25:22,680 Speaker 1: I wanted to ask you before I talk to listeners questions. 454 00:25:24,760 --> 00:25:27,640 Speaker 1: Have you any concerns about big super funds, about how 455 00:25:28,800 --> 00:25:34,280 Speaker 1: they're too big, that they are perhaps not as sophisticated 456 00:25:34,359 --> 00:25:38,480 Speaker 1: in their ability to deliver pensions to have a cybersecurity 457 00:25:38,480 --> 00:25:42,320 Speaker 1: of top notch. Basically, they became very big, they were 458 00:25:42,400 --> 00:25:45,560 Speaker 1: very good at accumulation and they are to some extent 459 00:25:45,720 --> 00:25:48,880 Speaker 1: at a moment of concern where they're not as complete 460 00:25:49,080 --> 00:25:51,040 Speaker 1: as we need them to be. At this point in time, 461 00:25:51,080 --> 00:25:52,640 Speaker 1: they've become so enormous. 462 00:25:53,280 --> 00:25:56,600 Speaker 3: Look, there is a problem. Just to go first, James 463 00:25:56,640 --> 00:26:00,000 Speaker 3: to the size issue. They are consolidating and I think 464 00:26:00,040 --> 00:26:01,840 Speaker 3: that'll go on. We'll get down to seven or eight 465 00:26:02,480 --> 00:26:03,840 Speaker 3: very large super funds. 466 00:26:04,119 --> 00:26:04,520 Speaker 2: These too. 467 00:26:04,560 --> 00:26:06,680 Speaker 3: Can here about the industry funds, there's still about thirty 468 00:26:06,720 --> 00:26:09,760 Speaker 3: industry funds. There used to be about one hundred and fifty, 469 00:26:09,760 --> 00:26:11,159 Speaker 3: but I think we'll get down to seven or eight 470 00:26:11,280 --> 00:26:13,840 Speaker 3: very large ones within the next ten to fifteen year. 471 00:26:13,960 --> 00:26:18,120 Speaker 3: Size works for them in two ways. One, it allows 472 00:26:18,160 --> 00:26:23,040 Speaker 3: them to make better investments into private assets, or we 473 00:26:23,080 --> 00:26:27,000 Speaker 3: could call them alternative assets. Infrastructure, private equity, venture capital, 474 00:26:27,400 --> 00:26:30,919 Speaker 3: hedge funds, private credit. All of those are private assets. 475 00:26:30,960 --> 00:26:33,840 Speaker 3: Sometimes people call them alternative assets, but I mean you 476 00:26:33,880 --> 00:26:36,920 Speaker 3: take infrastructure for instance, so Ossie Super with a couple 477 00:26:36,920 --> 00:26:41,440 Speaker 3: of other super funds bought Sydney Airport for twenty two 478 00:26:41,520 --> 00:26:44,320 Speaker 3: billion dollars. Now you can only do that kind of thing. 479 00:26:44,359 --> 00:26:48,160 Speaker 3: You can only buy those buy into those large infrastructure 480 00:26:48,200 --> 00:26:51,640 Speaker 3: projects if you've got scale and in the industry funds. 481 00:26:51,680 --> 00:26:53,480 Speaker 3: One of the best reasons for being in an industry 482 00:26:53,520 --> 00:26:56,720 Speaker 3: fund is because you get access to very high quality 483 00:26:57,200 --> 00:27:01,199 Speaker 3: private assets infrastructure, private equity, venture capitalist. Another thing is 484 00:27:01,680 --> 00:27:05,080 Speaker 3: it's allowed them to internalize their investment teams. So Mark 485 00:27:05,119 --> 00:27:10,639 Speaker 3: Delaney manages about sixty percent of their money now internally 486 00:27:10,920 --> 00:27:13,720 Speaker 3: with his investment teams. And Ozzi Souper has opened a 487 00:27:13,760 --> 00:27:16,320 Speaker 3: big office in London, a big office in New York, 488 00:27:16,760 --> 00:27:20,520 Speaker 3: an office in Shanghai. They didn't office open one in Mumbai, interestingly, 489 00:27:21,160 --> 00:27:24,639 Speaker 3: but they now have a global footprint, very good, very 490 00:27:24,720 --> 00:27:29,320 Speaker 3: high quality private assets and internalized investment teams which cuts costs. 491 00:27:29,840 --> 00:27:32,840 Speaker 3: What they don't have is good tech. You know, if 492 00:27:32,880 --> 00:27:34,639 Speaker 3: you were to compare the tech, I don't mean to 493 00:27:34,640 --> 00:27:37,080 Speaker 3: single out Ossie Superhare any of them, it would be 494 00:27:37,119 --> 00:27:41,680 Speaker 3: true if you compare the tech that Ossi super has 495 00:27:41,760 --> 00:27:44,920 Speaker 3: to the tech that the Commonwealth Bank has, I think 496 00:27:44,920 --> 00:27:48,600 Speaker 3: it's you know, the light years behind. And a lot 497 00:27:48,600 --> 00:27:51,159 Speaker 3: of that is because they just have very skinny fees. 498 00:27:51,320 --> 00:27:53,679 Speaker 3: They don't have enough money to spend on tech, and 499 00:27:53,760 --> 00:27:56,760 Speaker 3: tech is really letting them down. It's letting them down 500 00:27:56,800 --> 00:27:59,920 Speaker 3: in customer service and they've been in trouble with Appera 501 00:28:00,040 --> 00:28:02,480 Speaker 3: an Assic because of that and be fine because of it. 502 00:28:02,560 --> 00:28:04,480 Speaker 3: And again I don't mean to single out Aussie suber 503 00:28:04,520 --> 00:28:06,680 Speaker 3: this is two of all of the big industry funds 504 00:28:06,720 --> 00:28:09,360 Speaker 3: and it's let them down with cybersecurity. 505 00:28:09,040 --> 00:28:12,360 Speaker 1: Or at least their choose to not invest to keep 506 00:28:12,359 --> 00:28:14,920 Speaker 1: their fees little. It would seem that's correct. 507 00:28:15,359 --> 00:28:18,800 Speaker 3: Yeah, okay, And now that is that decision is proving 508 00:28:18,840 --> 00:28:21,560 Speaker 3: quite difficult and can get and it'll get worse of 509 00:28:21,600 --> 00:28:24,160 Speaker 3: course because we'll become more and more reliant on tech. 510 00:28:24,760 --> 00:28:28,120 Speaker 3: The cyber attacks that they suffered the other day, it's 511 00:28:28,160 --> 00:28:32,160 Speaker 3: partly understandable because the cyber attacks went to people who 512 00:28:32,160 --> 00:28:34,800 Speaker 3: are retired, you know, people who are And of course 513 00:28:34,800 --> 00:28:38,080 Speaker 3: there's two factor authentication. You go to change your password 514 00:28:38,640 --> 00:28:41,200 Speaker 3: and you get a text or an email or a 515 00:28:41,240 --> 00:28:44,520 Speaker 3: phone call saying, you know, can you authenticate that it's 516 00:28:44,600 --> 00:28:47,520 Speaker 3: you who's making the change. But someone who's eighty three 517 00:28:47,600 --> 00:28:51,160 Speaker 3: years old gets a text they're not paying attention, right, 518 00:28:51,200 --> 00:28:53,239 Speaker 3: or they get an email and they don't and they 519 00:28:53,280 --> 00:28:55,720 Speaker 3: look at their email once every three months when their 520 00:28:55,720 --> 00:28:57,880 Speaker 3: grandkids come around and do it for them. And that's 521 00:28:57,920 --> 00:29:00,600 Speaker 3: the So it's kind of understandable. You're dealing with people 522 00:29:00,600 --> 00:29:04,160 Speaker 3: who are not very tech savvy and using tech solutions. 523 00:29:04,560 --> 00:29:07,360 Speaker 3: Then two fact authentication it is tricky for them. But 524 00:29:07,400 --> 00:29:09,720 Speaker 3: the main issue is under investment in tech. 525 00:29:10,360 --> 00:29:13,280 Speaker 1: Okay, all right, I think folks, in terms of the questions, 526 00:29:13,480 --> 00:29:16,320 Speaker 1: Lucas and many others I'm sure wanted to ask about 527 00:29:16,600 --> 00:29:18,560 Speaker 1: how to be prepared for downturn on what to do? 528 00:29:18,640 --> 00:29:20,440 Speaker 1: I think we cover that in the first part of 529 00:29:20,480 --> 00:29:23,080 Speaker 1: the show. I also want them how Luke has made 530 00:29:23,080 --> 00:29:25,640 Speaker 1: the point that he thinks to him that I had 531 00:29:25,800 --> 00:29:29,120 Speaker 1: inferred in print and elsewhere about that if you if 532 00:29:29,160 --> 00:29:31,560 Speaker 1: you were unhappy with Big Super, that you know the 533 00:29:31,600 --> 00:29:35,160 Speaker 1: SMSF option is there. Luke is saying the SMSF is 534 00:29:35,240 --> 00:29:39,200 Speaker 1: unnecessary for listed assets and that many people have said 535 00:29:39,200 --> 00:29:42,240 Speaker 1: that they would prefer the security of a big fund 536 00:29:42,840 --> 00:29:45,520 Speaker 1: to an SMSF if in the event of sort of 537 00:29:45,680 --> 00:29:49,360 Speaker 1: a tech nightmare will leave. I think that's an open question, 538 00:29:49,440 --> 00:29:51,880 Speaker 1: except to say, to bring everyone up to speed, oz 539 00:29:51,960 --> 00:29:57,000 Speaker 1: Super has said to the unfortunate woman pensioner who lost 540 00:29:57,000 --> 00:29:59,840 Speaker 1: four hundred thousands that cyber attack, that they will ref 541 00:30:00,280 --> 00:30:04,240 Speaker 1: her completely. All right now, So we're getting one more question, 542 00:30:04,280 --> 00:30:07,560 Speaker 1: which is from Tom. I believe, says Tom, that the 543 00:30:07,760 --> 00:30:11,560 Speaker 1: US Treasury has recently bought two thousand tons of gold 544 00:30:11,720 --> 00:30:14,480 Speaker 1: Australian gold for delivery. I've been trying to work out 545 00:30:14,800 --> 00:30:19,840 Speaker 1: what they are hoping to achieve reduce US federal interest desk. 546 00:30:19,920 --> 00:30:23,160 Speaker 1: He says, could you help me understand this? So central 547 00:30:23,240 --> 00:30:28,120 Speaker 1: banks by gold all the time, First of all, you 548 00:30:28,200 --> 00:30:31,120 Speaker 1: might explain why they do that and whether it supports 549 00:30:31,160 --> 00:30:33,760 Speaker 1: the gold price. And maybe in terms of Tom's question, 550 00:30:33,840 --> 00:30:36,480 Speaker 1: there was that strange bout of activity where they were 551 00:30:36,520 --> 00:30:38,440 Speaker 1: rushing the gold over to the US because they thought 552 00:30:38,440 --> 00:30:41,040 Speaker 1: the gold might be hit with tariffs, I think, but 553 00:30:41,360 --> 00:30:42,720 Speaker 1: what was your understanding of it? 554 00:30:42,840 --> 00:30:44,760 Speaker 3: Well, if we take the IRBA, the Reserve Bank of 555 00:30:44,800 --> 00:30:49,160 Speaker 3: Australia for instance, the ABA holds gold, an amount of 556 00:30:49,200 --> 00:30:52,480 Speaker 3: gold on its balance sheet, and it holds foreign currencies 557 00:30:52,600 --> 00:30:55,880 Speaker 3: as well. And that's because the ABA, as well as 558 00:30:55,920 --> 00:31:01,640 Speaker 3: being charged with maintaining stable inflation and employment, as well 559 00:31:01,640 --> 00:31:04,840 Speaker 3: as having that as it's remet, it's also required to 560 00:31:04,880 --> 00:31:08,560 Speaker 3: stabilize the Aussie dollar. And so to stabilize the Aussie 561 00:31:08,600 --> 00:31:10,800 Speaker 3: dollar to buy when it's falling and to sell when 562 00:31:10,840 --> 00:31:13,720 Speaker 3: it's rising, which it will have been doing recently. It 563 00:31:13,760 --> 00:31:16,120 Speaker 3: would have been buying into the Aussie dollar falling from 564 00:31:16,160 --> 00:31:19,120 Speaker 3: sixty three to sixty cents and then selling in it 565 00:31:19,200 --> 00:31:23,520 Speaker 3: rising again last night. As well as having a foreign 566 00:31:23,560 --> 00:31:26,360 Speaker 3: currency to do that, it helps to have gold to 567 00:31:26,440 --> 00:31:29,480 Speaker 3: do that. So the RBA and most central banks own 568 00:31:29,520 --> 00:31:32,280 Speaker 3: an amount of gold to help to stabilize their currencies. Now, 569 00:31:32,320 --> 00:31:37,000 Speaker 3: the US has the privilege of being the world reserve currency, 570 00:31:37,160 --> 00:31:39,760 Speaker 3: so it's the thing that everyone wants to stabilize against, 571 00:31:40,120 --> 00:31:43,200 Speaker 3: and so they don't really need to hold gold for 572 00:31:43,240 --> 00:31:45,760 Speaker 3: that purpose. They have a lot of gold left over 573 00:31:46,120 --> 00:31:49,320 Speaker 3: from the US dollar being pegged to gold and the 574 00:31:49,400 --> 00:31:52,000 Speaker 3: unwinding of the pegging of the US dollar. The ability 575 00:31:52,000 --> 00:31:55,480 Speaker 3: to convert US dollars into gold started in the nineteen 576 00:31:55,560 --> 00:31:58,680 Speaker 3: thirties and ended in nineteen seventy two, when in ninety 577 00:31:58,680 --> 00:31:59,960 Speaker 3: seventy one when President. 578 00:31:59,720 --> 00:32:01,760 Speaker 2: Nixon put a complete end to it. 579 00:32:02,160 --> 00:32:05,120 Speaker 3: But they still have a lot of gold left over 580 00:32:05,160 --> 00:32:09,320 Speaker 3: from that. Otherwise they wouldn't own unigold at all. Why, 581 00:32:09,680 --> 00:32:12,120 Speaker 3: and some of that is held by the Treasury. It's unusual. 582 00:32:12,160 --> 00:32:14,800 Speaker 3: It is very unusual for the treasury to hold gold 583 00:32:14,800 --> 00:32:17,760 Speaker 3: as opposed to the central bank to hold gold. 584 00:32:18,160 --> 00:32:21,000 Speaker 1: US Treasury, Yeah, the US Treasury, Yeah, But why is that? 585 00:32:21,080 --> 00:32:22,000 Speaker 1: Why is it unusual? 586 00:32:23,600 --> 00:32:26,280 Speaker 3: Well, usually it would be a central bank function to 587 00:32:26,360 --> 00:32:30,120 Speaker 3: do that. The Treasury's responsibility is to raise money for 588 00:32:30,200 --> 00:32:32,000 Speaker 3: the government, and that to help the government to spend 589 00:32:32,040 --> 00:32:35,000 Speaker 3: the money and not to stabilize the currency. But there's 590 00:32:35,000 --> 00:32:38,200 Speaker 3: been periods of time in the US where the US 591 00:32:38,280 --> 00:32:41,200 Speaker 3: dollar was pegged to gold, but there was no central bank, 592 00:32:41,840 --> 00:32:44,000 Speaker 3: you know, the FED only came into existence in nineteen 593 00:32:44,080 --> 00:32:48,480 Speaker 3: thirty eight, and so the Treasury was responsible for managing 594 00:32:48,480 --> 00:32:51,360 Speaker 3: the pegging of gold to the US dollar before the 595 00:32:51,400 --> 00:32:56,040 Speaker 3: FED even came into existence. So it's a strange historical artifact. 596 00:32:56,320 --> 00:32:57,960 Speaker 3: You got plenty of them in the US. 597 00:32:58,080 --> 00:33:00,640 Speaker 1: And just one lasting for the every day listener who's 598 00:33:00,640 --> 00:33:03,560 Speaker 1: not a cross how it all works, Sake, What do 599 00:33:03,600 --> 00:33:07,240 Speaker 1: you mean by central banks need gold to stabilize their currencies? 600 00:33:07,720 --> 00:33:10,280 Speaker 1: What does that meaning is it? Why did they do that? 601 00:33:10,360 --> 00:33:13,120 Speaker 1: And does it give us assurance that gold really is 602 00:33:13,840 --> 00:33:16,320 Speaker 1: a stabilizer for our own portfolios? 603 00:33:17,400 --> 00:33:21,000 Speaker 3: Yeah, they look, they probably don't need it, James. Nowadays 604 00:33:21,040 --> 00:33:24,479 Speaker 3: they have much more sophisticated instruments. They have swap lines 605 00:33:24,720 --> 00:33:27,600 Speaker 3: with the FED. So in a crisis like COVID, the 606 00:33:27,680 --> 00:33:31,400 Speaker 3: FED and the RBA open up a swap line, which 607 00:33:31,440 --> 00:33:34,520 Speaker 3: says that the FED can borrow Ossie dollars from the RBA, 608 00:33:34,800 --> 00:33:38,320 Speaker 3: and the RBA, more importantly, can borrow US dollars from 609 00:33:38,360 --> 00:33:41,480 Speaker 3: the FED, and that bilateral ability to borrow each other's 610 00:33:41,480 --> 00:33:44,840 Speaker 3: currency at a fixed rate is referred to as a 611 00:33:44,880 --> 00:33:47,840 Speaker 3: swap line. And that's a much more. But swaps are 612 00:33:47,840 --> 00:33:50,280 Speaker 3: a very modern thing, right. They only came into existence 613 00:33:50,440 --> 00:33:54,120 Speaker 3: in the nineteen eighties and nineteen nineties and so look, 614 00:33:54,400 --> 00:33:57,520 Speaker 3: with the modern instruments that reserve banks have, they really 615 00:33:57,600 --> 00:33:59,680 Speaker 3: don't need gold. But it goes on and that's the 616 00:33:59,720 --> 00:34:01,680 Speaker 3: reason why I was there in the first place. 617 00:34:02,080 --> 00:34:05,240 Speaker 1: Terrific to talk to you, Sam, Doctor Sam Wiley, Windlestone 618 00:34:05,440 --> 00:34:07,720 Speaker 1: Education Group in Melbourne Business School. Great have you on 619 00:34:07,760 --> 00:34:09,919 Speaker 1: the show, Sam, and I love the week we chose 620 00:34:09,960 --> 00:34:11,600 Speaker 1: to have you. I mean that was a bit of luck. 621 00:34:12,160 --> 00:34:14,400 Speaker 1: So we got you today. Thanks a lot for coming on. 622 00:34:14,760 --> 00:34:16,440 Speaker 2: Thanks, James really enjoyed it. 623 00:34:17,080 --> 00:34:21,319 Speaker 1: That was doctor Sam Wiley. Okay, folks, now obviously keep 624 00:34:21,360 --> 00:34:24,480 Speaker 1: your eyes wide open in the days ahead. As I say, 625 00:34:24,480 --> 00:34:28,759 Speaker 1: it's an extraordinary period, highly volatile and highly volatile by 626 00:34:28,800 --> 00:34:31,960 Speaker 1: the way. It means share markets fly up and down. Okay, 627 00:34:32,000 --> 00:34:34,200 Speaker 1: so they flew up this week, they flew down this week. 628 00:34:34,680 --> 00:34:37,480 Speaker 1: Let's see what happens next. Keep those emails rolling the 629 00:34:37,520 --> 00:34:41,520 Speaker 1: money puzzle at the Australian dot com dot a you. 630 00:34:41,960 --> 00:34:44,560 Speaker 1: Today's show was produced by Leah Samaglue.