WEBVTT - Tariffs or no tariffs: Don't give up on Wall Street 0:00:09.960 --> 0:00:13.160 Hello, and welcome to The Australian's Money Puzzle podcast. I'm 0:00:13.240 --> 0:00:16.720 James Kirby. Welcome aboard everybody on what has got to 0:00:16.720 --> 0:00:19.840 be one of the most interesting weeks, one of the 0:00:19.880 --> 0:00:25.360 most interesting periods for investors and investment markets in a 0:00:25.520 --> 0:00:31.320 long time, more intriguing, more perplexing. Occasionally I think more concerning, 0:00:31.680 --> 0:00:34.240 believe it or not, than the COVID downturn. And that's 0:00:34.240 --> 0:00:37.080 saying something. Now as we speak, we've had some relief, 0:00:37.159 --> 0:00:40.920 right We've had the first a bounce on Wall Street 0:00:41.120 --> 0:00:45.760 overnight ten percent, ten percent in a single session, basically 0:00:45.800 --> 0:00:48.560 going in on Wall Street and the Australians share market 0:00:48.640 --> 0:00:53.000 will no doubt copycat that today and as always it 0:00:53.040 --> 0:00:55.680 won't do as much. It'll do five or six percent 0:00:55.880 --> 0:00:59.040 and then we then it's at that point we'll see 0:00:59.040 --> 0:01:02.280 where we are well done on any of the investors 0:01:02.280 --> 0:01:04.120 who went in early in the week, and we had 0:01:04.160 --> 0:01:07.800 Jemma Dale on the show talking about how retail investors 0:01:07.840 --> 0:01:10.400 as opposed to big investors were in the market buying 0:01:10.400 --> 0:01:13.679 more than selling earlier in the week, so as a 0:01:13.720 --> 0:01:17.160 trade that was successful. The issue now is I think 0:01:17.160 --> 0:01:19.679 we have to take a deeper dive because this is 0:01:19.680 --> 0:01:23.600 not over by any stretch of the imagination I expect. 0:01:23.800 --> 0:01:27.640 My guest today is doctor Sam Wiley of the Windlestone 0:01:28.000 --> 0:01:31.800 Education Group, a principal fellow at Melbourne Business School, and 0:01:31.840 --> 0:01:34.720 I think it's worth saying something of an eminent name 0:01:34.760 --> 0:01:40.360 within investment markets who has lectured and mentored several of 0:01:40.520 --> 0:01:43.399 the people who are regular guests on this show. I 0:01:43.520 --> 0:01:45.960 found out after he was on the last time. How 0:01:46.000 --> 0:01:46.679 are you Sam? 0:01:47.360 --> 0:01:48.960 Very well, James, thanks for emboding me. 0:01:49.720 --> 0:01:51.200 Great to have you so here. 0:01:51.240 --> 0:01:51.600 We are. 0:01:51.960 --> 0:01:56.760 It's quite a remarkable period. And all the discussion in 0:01:56.800 --> 0:01:58.760 the last show, which you should listen to if you 0:01:58.760 --> 0:02:02.240 get a chance, was about the nature of the drop 0:02:02.360 --> 0:02:05.280 so far. That is, at the time markets were down 0:02:05.320 --> 0:02:08.120 about ten percent on the ASX and fifteen percent on 0:02:08.160 --> 0:02:11.240 the on Wall Street. But I suppose a million dollar 0:02:11.320 --> 0:02:17.639 question is whether this is a convention to share market 0:02:18.160 --> 0:02:20.360 drop or something different. 0:02:22.680 --> 0:02:26.240 Well, it's quite different to some of the previous crises 0:02:26.240 --> 0:02:29.280 we've had. So the dot com bubble that was a 0:02:29.320 --> 0:02:32.520 genuine bubble, mostly in the Nasdaq stocks NAZDAK went up 0:02:32.560 --> 0:02:35.680 from it from seven hundred and nineteen ninety six to 0:02:35.919 --> 0:02:38.600 five thousand, where it peaked in March of two thousand. 0:02:39.040 --> 0:02:40.760 That was a genuine bubble. Didn't go up as much 0:02:40.760 --> 0:02:42.520 in the S and P five hundred, but the Nasdaq 0:02:42.600 --> 0:02:46.400 stocks were people just got too excited. And then in 0:02:46.440 --> 0:02:50.040 the GFC, that was a banking crisis, and banking crisis 0:02:50.120 --> 0:02:52.000 are hard to reverse and that so that went on 0:02:52.040 --> 0:02:54.800 for a long time. The dot com bubble passed pretty quickly. 0:02:54.960 --> 0:02:57.440 GFC went on for a long time. COVID, of course, 0:02:57.600 --> 0:03:01.000 was a global pandemic that no one saw coming, and 0:03:02.160 --> 0:03:05.280 very dramatic action was taken by central banks and governments 0:03:05.320 --> 0:03:08.560 which reversed the fall in the stock market and then 0:03:08.639 --> 0:03:10.800 sent it a lot higher. And what we have at 0:03:10.840 --> 0:03:14.560 the moment is really a policy mistake, depending on your 0:03:14.560 --> 0:03:16.640 point of view on this, but maybe I shouldn't characterize 0:03:16.639 --> 0:03:19.560 it as a mistake, but it certainly the effects of 0:03:19.600 --> 0:03:23.400 the policy of President Trump in introducing the tariffs and 0:03:23.440 --> 0:03:27.399 the concerns that those tariffs will create stagflation, the inflation 0:03:27.600 --> 0:03:31.960 plus slower growth. So they're really four very different types 0:03:32.000 --> 0:03:34.920 of crises. No one of them is like the other ones, 0:03:34.960 --> 0:03:36.440 and the effects and how long it takes to go 0:03:36.520 --> 0:03:38.720 away are different. In those different crises. 0:03:41.200 --> 0:03:45.320 Is there any implication in what you're saying that in 0:03:45.360 --> 0:03:48.280 a way, it's become a sort of flashpoint of unknowns, 0:03:48.320 --> 0:03:51.320 don't they. So there's this issue where people just don't know, 0:03:51.920 --> 0:03:55.360 and so everyone reacts in a different way. The issue 0:03:55.920 --> 0:03:59.840 for our investors, i'm sure, is whether it should change 0:04:00.360 --> 0:04:04.240 the nature of their approach to markets, because in the 0:04:04.280 --> 0:04:07.280 immediate history, right we've had some very good years. We've 0:04:07.280 --> 0:04:11.040 had a string of double digit years on super fund returns, 0:04:11.080 --> 0:04:14.160 for instance, and SMSF investors whom many of who listened 0:04:14.160 --> 0:04:16.080 to the show, would have had some good years as well. 0:04:16.440 --> 0:04:19.360 And in some ways it was a relatively easy ride, 0:04:19.839 --> 0:04:23.200 and I think there was a surprise perhaps how well 0:04:23.240 --> 0:04:25.920 the markets came out of COVID, and then there was 0:04:25.960 --> 0:04:29.240 a run up to the positive anticipation, positive anticipation that 0:04:29.279 --> 0:04:32.240 Trump as a Republican president, would unleash all sorts of 0:04:32.279 --> 0:04:35.160 positives for the market, deregulation and tax cuts, et cetera. 0:04:36.360 --> 0:04:38.839 That's not the agenda right now, whatever is going on 0:04:38.880 --> 0:04:41.919 in terms of this sprinksmanship. As we talked this morning, 0:04:41.960 --> 0:04:45.320 there is absurd levels of tariff sitting in place between 0:04:45.480 --> 0:04:49.760 the two most important economies in the world. So what's 0:04:49.800 --> 0:04:54.400 the Does this mean investors should change their disposition? 0:04:56.400 --> 0:04:59.800 Well, look, here's here's how I say it, James, is 0:04:59.800 --> 0:05:02.920 that investors should be in the market for the long term. 0:05:02.920 --> 0:05:06.799 I should get invested, get fully invested, and stay fully invested, 0:05:07.120 --> 0:05:09.760 and not try to time the market. The ability to 0:05:09.839 --> 0:05:12.360 time the market, which is as you know called beta, 0:05:13.279 --> 0:05:15.560 is the ability to jump out of the market before 0:05:15.560 --> 0:05:17.920 it goes down and into cash, and jump back from 0:05:17.960 --> 0:05:20.839 cash into the market just before it goes up. Now, 0:05:21.040 --> 0:05:23.279 a lot of people think they've got that ability. Hardly 0:05:23.320 --> 0:05:26.400 anyone has, and that's been shown not just by academic 0:05:26.440 --> 0:05:31.600 research but by the practical circumstances and experience over and over. Alpha, 0:05:31.640 --> 0:05:35.279 which is the ability to choose between assets within an 0:05:35.320 --> 0:05:38.200 asset class, like to choose between BHP and Rio, or 0:05:38.279 --> 0:05:41.240 City Bank and Bank of America, or Tesla and Nvidia, 0:05:41.960 --> 0:05:45.520 choosing within the asset class of US shares or AUSI shares. 0:05:45.560 --> 0:05:46.080 That's alpha. 0:05:46.360 --> 0:05:48.520 There is a lot of alpha out there, and that's 0:05:48.560 --> 0:05:52.120 the value that savvy investors can create. But jumping in 0:05:52.160 --> 0:05:54.320 and out of the market is a great way to 0:05:54.440 --> 0:05:57.840 do two bad things. One to be underinvested over long 0:05:57.839 --> 0:06:01.400 periods of time, and two to realize capital gains early. 0:06:02.200 --> 0:06:04.919 So look, I think that the volatility in the market 0:06:04.920 --> 0:06:07.839 which will go on from here, President Trump's agenda is 0:06:07.960 --> 0:06:11.479 very radical and he'll only be constrained ultimately by the 0:06:11.520 --> 0:06:15.359 Supreme Court and buy the markets and by nothing else. 0:06:15.560 --> 0:06:18.200 And he really does have a radical agenda, and it 0:06:18.200 --> 0:06:21.640 didn't end last night, So everyone should buckle up. But 0:06:21.720 --> 0:06:25.600 that volatility gives people an opportunity. People who are out 0:06:25.680 --> 0:06:28.599 of the market, who are not fully invested, don't have 0:06:28.680 --> 0:06:31.400 as much invested in US shares, especially as they'd like 0:06:32.040 --> 0:06:35.760 to buy the dips to get ready for falls in 0:06:35.800 --> 0:06:39.440 the market, have in their mind trigger points at which 0:06:39.440 --> 0:06:42.200 they're going to buy in and then act on that. 0:06:42.480 --> 0:06:44.719 And you're talking about retail investors doing an amount of 0:06:44.720 --> 0:06:47.279 that recently, And so I think that's a good idea. 0:06:47.279 --> 0:06:49.960 That's the way to think about the volatility. Be fully invested. 0:06:50.360 --> 0:06:53.240 But if you're not fully invested, see the volatility as 0:06:53.240 --> 0:06:54.040 an opportunity. 0:06:54.080 --> 0:06:58.440 Can I throw a bare case? Can I throw the 0:06:58.520 --> 0:07:04.080 warriors scenario at you, which is we mentioned to a 0:07:04.080 --> 0:07:06.039 wait because a lot of our listeners are younger and 0:07:06.200 --> 0:07:11.440 didn't endure the difficulty of that period where this market 0:07:11.480 --> 0:07:14.200 felt by fifty percent, And as we mentioned on earlier 0:07:14.200 --> 0:07:16.120 in the week, it wasn't that it felt by fifty percent, 0:07:16.200 --> 0:07:17.440 but it was that it took a year and a 0:07:17.480 --> 0:07:20.320 half to do it, and it was even longer than 0:07:20.320 --> 0:07:23.400 that before realized, before people realized it was finally over. 0:07:23.920 --> 0:07:26.040 Now we can look at the news this morning and 0:07:26.080 --> 0:07:29.000 it's all very well, there's a big bounce and all that, 0:07:29.240 --> 0:07:32.800 and everyone is smiling that the market's gone up. But 0:07:33.360 --> 0:07:37.160 only twenty four hours ago there was some very people 0:07:37.200 --> 0:07:41.200 I would take very seriously, and they were deeply concerned 0:07:41.280 --> 0:07:45.480 about one thing, which is this that bond prices were 0:07:45.520 --> 0:07:48.280 falling at the same time as share prices were falling. 0:07:48.800 --> 0:07:51.600 And this is not supposed to happen, and it happens 0:07:51.640 --> 0:07:57.000 at times of extreme pressure on investment markets. And the 0:07:57.400 --> 0:08:03.120 particular fear, the big fear this time round, is that 0:08:04.400 --> 0:08:08.800 should the rest of the world, particularly China, withdraw its 0:08:08.800 --> 0:08:12.239 de facto support for the US through the bond markets 0:08:12.240 --> 0:08:17.280 where there are this gigantic holder of US treasuries. Is 0:08:17.320 --> 0:08:20.240 that a fringe concern or is it a concern that 0:08:20.240 --> 0:08:21.119 should be on the table. 0:08:23.200 --> 0:08:26.280 Well, in general, I would say if you take if 0:08:26.320 --> 0:08:29.120 we zoom out and take the longest view of the 0:08:30.240 --> 0:08:34.200 US market. I think that in ten or twenty years time, 0:08:34.480 --> 0:08:38.120 we'll look back on this period and we'll see the 0:08:38.320 --> 0:08:41.800 volatility of President Trump's radical agenda and even to a 0:08:41.840 --> 0:08:46.400 certain extent, COVID as the COVID pandemic, as things that 0:08:46.440 --> 0:08:50.960 were overlaid on something bigger. And that's something bigger is 0:08:51.040 --> 0:08:55.320 AI and US tech dominance. And I think that's really 0:08:55.840 --> 0:08:59.640 the long term picture investors should be thinking. Investors should 0:08:59.640 --> 0:09:02.600 be member. The biggest mistake that investors made in aggregate 0:09:02.880 --> 0:09:07.400 in the twentieth century was to be underweight US equities, 0:09:07.640 --> 0:09:11.439 and that was especially true of non US dollar investors. 0:09:11.760 --> 0:09:13.520 You know that. I know you know this, James. But 0:09:14.360 --> 0:09:18.840 in nineteen thirty a British pound was worth five dollars 0:09:19.559 --> 0:09:21.679 and now a British pound is worth about a dollar 0:09:21.720 --> 0:09:25.400 twenty So British investors, and this is true of Australian 0:09:25.400 --> 0:09:29.560 investors as well, not only got the benefit of the 0:09:29.679 --> 0:09:32.199 US markets doing so well, the US stock market doing 0:09:32.200 --> 0:09:34.400 so well in the twentieth century, but they got that 0:09:34.480 --> 0:09:38.400 fort four times uplift in the depreciation of the pound 0:09:38.840 --> 0:09:43.000 against the US dollar. And I think there's a danger 0:09:43.040 --> 0:09:46.040 that investors make the same mistake. The biggest mistake in 0:09:46.040 --> 0:09:49.120 the twentieth century was to be underweight US shares, and 0:09:49.200 --> 0:09:51.599 I think that's likely to be the biggest mistake in 0:09:51.640 --> 0:09:54.360 the twenty first century, because it's going to be about 0:09:54.440 --> 0:09:58.760 tech and US tech dominance is accelerating and getting deeper, 0:09:59.240 --> 0:10:02.200 rather than the opper so zooming out and taking the 0:10:02.240 --> 0:10:05.960 longest view. This episode with President Trump, which will go 0:10:06.040 --> 0:10:09.120 on probably for the whole of his four years, will 0:10:09.120 --> 0:10:13.679 be overlaid on top of something that is deeper, more enduring, 0:10:13.760 --> 0:10:16.880 and more important, and that is to have exposure to 0:10:17.679 --> 0:10:20.800 US tech dominance in the twenty first century. And you 0:10:20.880 --> 0:10:23.440 saw an amount of that last night. The reason the 0:10:23.440 --> 0:10:26.440 market bounced back so much, or a significant reason, is 0:10:26.480 --> 0:10:28.280 that people don't want to be out of the market. 0:10:28.760 --> 0:10:31.600 They've been forced out of the market by just the 0:10:31.640 --> 0:10:36.160 difficulty of President Trump's actions and the danger that if 0:10:36.200 --> 0:10:40.040 he would not if he wouldn't take a backward step, 0:10:40.400 --> 0:10:42.560 then the market would have to go down further. But 0:10:42.640 --> 0:10:44.520 as soon as they had an opportunity to pour back 0:10:44.520 --> 0:10:45.760 in the market, they were back in. 0:10:46.720 --> 0:10:52.000 You're not concerned that the US sort of imperial like 0:10:52.080 --> 0:10:56.800 dominance of the markets and it's how it has ruled 0:10:56.880 --> 0:11:00.360 up from being whatever it was, fifty percent of the 0:11:00.400 --> 0:11:03.560 global market to well over sixty percent of the global 0:11:03.600 --> 0:11:07.720 market now. And it's complete domination of guilts or bond 0:11:07.760 --> 0:11:11.800 markets as they are. You're not concerned that is on 0:11:11.840 --> 0:11:15.880 the way, or that the technology pre eminence that drives 0:11:15.920 --> 0:11:21.559 the entire US market is perhaps threatened by by deep 0:11:21.600 --> 0:11:26.000 seek for instance in AI, by byd in car technology. 0:11:28.520 --> 0:11:32.760 Yeah, I'm not basically, But what on the lies US 0:11:32.840 --> 0:11:37.240 tech dominance is the education system, you know, the fantastic 0:11:37.400 --> 0:11:42.200 university system, It's Silicon Valley, and the ability to raise 0:11:42.440 --> 0:11:48.400 huge amounts of capital for projects. It's the cultural inclination 0:11:48.760 --> 0:11:53.920 to have a go and to not fear failure. 0:11:54.000 --> 0:11:56.040 I mean, I have no problem what you're saying, and 0:11:56.080 --> 0:11:58.480 I think it's worth mentioning to listeners that this is 0:11:58.520 --> 0:12:01.880 not You are not just some in here from some distance. 0:12:01.920 --> 0:12:03.640 You were at the top business school. 0:12:03.679 --> 0:12:05.280 Weren't you at Dartmouth? Yep? 0:12:05.760 --> 0:12:08.679 Dartmouth actually was from from nine at ninety seven to 0:12:08.920 --> 0:12:09.880 two thousand and four. 0:12:10.240 --> 0:12:12.240 I was at Dartmouth And was it that period that 0:12:12.280 --> 0:12:13.840 formulated these views for you? 0:12:14.280 --> 0:12:17.360 It was, and you know, traveling in the States a 0:12:17.360 --> 0:12:19.480 lot at that time, and you know, going over to 0:12:19.520 --> 0:12:23.600 California into Silicon Valley a lot, and even seeing the 0:12:23.720 --> 0:12:27.320 US education system because you know, we had two young 0:12:27.400 --> 0:12:31.560 children just starting primary school at that time and they 0:12:31.920 --> 0:12:34.680 and just seeing the way that children are encouraged to 0:12:34.880 --> 0:12:38.120 have a go and do not fear failure. It really 0:12:38.160 --> 0:12:42.719 is quite a remarkable cultural thing. Not everything about US 0:12:42.760 --> 0:12:45.280 culture is fabulous, by the way, but I'll tell you 0:12:45.320 --> 0:12:48.680 working in the US is terrific. Like the confidence to 0:12:48.800 --> 0:12:52.319 be able to take on complex things. Working there really 0:12:52.360 --> 0:12:53.280 is the best thing. 0:12:53.720 --> 0:12:56.400 You weren't concerned that the move to tariff's was actually 0:12:56.440 --> 0:13:02.800 a contradiction on that that it was protectionist, defeat retrograde 0:13:02.840 --> 0:13:07.000 compared to the best aspects of the US that impressed 0:13:07.000 --> 0:13:08.559 you overall. 0:13:08.600 --> 0:13:12.320 I think it's foolish to introduce the tariffs and the 0:13:12.320 --> 0:13:16.600 way that it's been enacted by President Trump, that the 0:13:16.640 --> 0:13:19.320 backwards and forwards nature of it, and also the belligerent 0:13:19.400 --> 0:13:22.520 nature of it, I think is maybe foolish is too 0:13:22.520 --> 0:13:27.960 strong a word, but that's certainly not ideal, and the 0:13:28.480 --> 0:13:32.400 we shouldn't think that there isn't a coherent strategy here. 0:13:32.640 --> 0:13:35.559 I think the tariffs are really about these things. It's 0:13:35.559 --> 0:13:38.920 about raising revenue so that the president can cut taxes. 0:13:39.520 --> 0:13:43.400 It is about reassuring a US manufacturing and fulfilling a 0:13:43.440 --> 0:13:49.400 promise to the Magabase. And especially it's about isolating and 0:13:49.480 --> 0:13:52.920 constraining China. And look, we saw that overnight. So President 0:13:52.960 --> 0:13:55.040 Trump said that the ten percent based tariffs are going 0:13:55.040 --> 0:13:58.520 to remain, that the additional tariffs that were nounce on 0:13:58.559 --> 0:14:00.640 the second of April are going to be suspended for 0:14:00.679 --> 0:14:03.880 a period of time. But nothing changes with china one 0:14:03.920 --> 0:14:07.400 hundred and twenty five percent tariffs, And so a lot 0:14:07.440 --> 0:14:11.520 of it is really about China. In the US switched 0:14:11.520 --> 0:14:14.920 from a policy of engagement with China to containment of 0:14:15.000 --> 0:14:20.400 China during the President Obama's administration in twenty fourteen, and 0:14:20.440 --> 0:14:23.400 then President Trump won, and then President Biden and now 0:14:23.400 --> 0:14:27.800 President Trump two have continued that policy of containment. And 0:14:27.880 --> 0:14:31.400 this is President Trump's agender is very radical. It's been 0:14:31.800 --> 0:14:36.440 rolled out in the President's usual belligerent manner, but it's 0:14:36.480 --> 0:14:40.400 completely consistent with a policy that really started in twenty 0:14:40.560 --> 0:14:44.480 fourteen of containing China. So we shouldn't think look, I 0:14:44.520 --> 0:14:47.360 think overall it's foolish the policy, but we shouldn't think 0:14:47.360 --> 0:14:49.600 that it's not a coherent strategy. 0:14:49.840 --> 0:14:52.040 Okay, very interesting, We've take a short break of what 0:14:52.040 --> 0:14:53.800 we're going to do folks. In the next section is 0:14:53.840 --> 0:14:56.560 going to look how this affects you and in what 0:14:56.640 --> 0:15:01.880 way you may make moves around the basic principles that 0:15:02.000 --> 0:15:03.480 have been outlined by Sam. 0:15:03.520 --> 0:15:03.720 There. 0:15:03.760 --> 0:15:07.640 And interesting that notion of the consistency of the towers. 0:15:08.240 --> 0:15:11.000 It's not like they were never there. They've been there 0:15:11.040 --> 0:15:13.600 in place, particularly in relation to China for some time. 0:15:14.000 --> 0:15:16.840 It's the global globalization of them, if you like that. 0:15:16.920 --> 0:15:26.360 Pus the shock so far. Okay, back in a moment. Hello, 0:15:26.440 --> 0:15:29.320 Welcome back to The Australian's Money Puzzle. James Kirby here 0:15:29.320 --> 0:15:32.240 with doctor Sam Wiley. Now, Sam, the one thing you 0:15:32.240 --> 0:15:35.800 said there is interesting. I'm just thinking about allocation for 0:15:35.880 --> 0:15:38.520 our investors. Whether you know, people were coming up to 0:15:38.560 --> 0:15:41.360 me during the week asking about whether they should be 0:15:41.400 --> 0:15:44.280 in growth or conservative of balanced funds when they have 0:15:44.360 --> 0:15:47.680 been in big super and of course self managed super funds. 0:15:48.360 --> 0:15:52.320 Some are taking some were some were just going to cash, 0:15:52.560 --> 0:15:56.240 some were nibbling as they say, and some were making 0:15:56.280 --> 0:15:58.960 some really you know, structural moves like setting gold and 0:15:59.000 --> 0:16:02.320 buying ETA for instance. Now, one thing you said that 0:16:02.360 --> 0:16:04.840 I thought was really interesting about sticking with the US 0:16:04.880 --> 0:16:10.000 market the Australian super and the big super funds, but 0:16:10.040 --> 0:16:14.160 Australian Super in particular has come out in the thick 0:16:14.200 --> 0:16:17.000 of this crisis and the darkest well, the first what 0:16:17.120 --> 0:16:19.240 might be the first phase of dark days a few 0:16:19.320 --> 0:16:21.000 days ago when the markets were falling and they said 0:16:21.000 --> 0:16:23.800 we're sticking with the US whatever. Mark Delaney, head of 0:16:23.800 --> 0:16:26.240 Australian Super, it's got literally got news around the world 0:16:26.280 --> 0:16:29.840 because there was very few, very prominent managers saying we're 0:16:29.880 --> 0:16:34.040 sticking with the US. So that's a point I think 0:16:34.080 --> 0:16:36.400 that I need to drive home. Should every day in 0:16:36.480 --> 0:16:39.320 versitors look deeper in the US in terms of single 0:16:39.360 --> 0:16:42.280 stocks or is it more like an index approach? 0:16:44.080 --> 0:16:49.000 Look, I think in thinking about allocation of shares across 0:16:49.480 --> 0:16:52.480 US shares global shares, let's think of global shares as big. 0:16:52.520 --> 0:16:55.800 Any thing that's not US and Australia and Australian shares, 0:16:56.120 --> 0:16:58.920 then the largest part should be in US shares and 0:16:58.960 --> 0:17:01.440 in Australian chairs and the US For the reasons I 0:17:01.440 --> 0:17:04.000 was talking about before, it's a big mistake to not 0:17:04.400 --> 0:17:07.760 participate in the tech surge in the twenty first century, 0:17:07.960 --> 0:17:09.880 much of the value of which is going to be 0:17:10.000 --> 0:17:13.159 expressed in the US public markets. Created and expressing the 0:17:13.240 --> 0:17:16.159 US public markets. It's a mistake not to have a 0:17:16.200 --> 0:17:19.800 significant allocation to Ossie shares, and the reason for that 0:17:20.000 --> 0:17:25.439 is that the Australian resident, Australian tax residents like you 0:17:25.480 --> 0:17:28.080 and me, James and most of your listeners get the 0:17:28.119 --> 0:17:32.680 benefit of franking credits. So foreign investors own slightly more 0:17:32.680 --> 0:17:35.119 than fifty percent of the whole of the Australian stock market. 0:17:35.280 --> 0:17:38.200 They're happy to own Australian shares when they could buy 0:17:38.280 --> 0:17:40.560 shares from anywhere in the world. They're happy to own 0:17:40.560 --> 0:17:43.800 Australian shares, but they don't get franking credits. So when 0:17:43.800 --> 0:17:47.679 we own, when we own Australian shares, we get what 0:17:47.840 --> 0:17:51.360 they get, plus the extra gravy of the franking credits. 0:17:51.400 --> 0:17:54.440 So it makes perfectly good sense to have a significant 0:17:54.440 --> 0:17:58.439 allocation to Australian shares and then to the rest of 0:17:58.480 --> 0:18:01.680 the world. Europe is looking up a bit. Emerging markets 0:18:01.680 --> 0:18:05.560 haven't done very well in the current crisis. Isn't helping them? 0:18:05.880 --> 0:18:08.840 Isn't helping them so much? But I think Mark Delaney 0:18:08.920 --> 0:18:11.520 is making the right call and he is getting He 0:18:11.600 --> 0:18:16.160 is getting investors ready for the possibility that Ossie Super 0:18:16.840 --> 0:18:19.760 won't be one of the two or three highest performing 0:18:19.840 --> 0:18:23.800 funds in this particular year like it usually is because 0:18:24.000 --> 0:18:26.320 of their high exposure in their balance funded, in their 0:18:26.320 --> 0:18:28.520 growth fund to US shares. But he's saying, we're going 0:18:28.600 --> 0:18:30.960 to ride through that and we're going to take the 0:18:31.000 --> 0:18:34.960 long term view. One thing that Ossie Super doesn't do, 0:18:35.560 --> 0:18:38.440 or does do that it is unfortunate, is that they 0:18:38.480 --> 0:18:43.480 hedge out the foreign currency risk. They hedge out the 0:18:43.520 --> 0:18:46.920 effect of the Aussie dollar going down. Now that's unfortunate 0:18:47.240 --> 0:18:50.800 because it's better to be unheedged. One of the reasons 0:18:50.800 --> 0:18:53.359 that you want to own foreign assets is that you 0:18:53.400 --> 0:18:56.280 want protection against the Aussie dollar going down. When the 0:18:56.280 --> 0:18:59.359 assiegolar goes down, if nothing happens to your US shares, 0:18:59.440 --> 0:19:02.119 the new us as are just worth more, and it'd 0:19:02.119 --> 0:19:05.320 be better if they didn't hedge out the Ossie dollar exposure. 0:19:05.480 --> 0:19:08.280 And most of your listeners should not be hedged for 0:19:08.359 --> 0:19:09.320 Ossie dollar exposures. 0:19:09.320 --> 0:19:11.159 They probably aren't edged, but if they were given the 0:19:11.240 --> 0:19:13.400 choice between two funds and one was hedged and one 0:19:13.440 --> 0:19:16.120 was unhedged. You're saying God for the unhedged every time? 0:19:16.160 --> 0:19:18.679 Are you go for the unhedged every time? 0:19:19.200 --> 0:19:21.280 It's okay, very interesting. 0:19:21.520 --> 0:19:24.080 You want some exposure to most of your exposure is 0:19:24.119 --> 0:19:26.800 to the Aussie dollars in your income here I'm speaking 0:19:26.880 --> 0:19:29.080 to our listeners, of course, in your income and in 0:19:29.119 --> 0:19:31.760 the ownership of your assets, most of your exposure is 0:19:31.760 --> 0:19:34.520 to the Aussie dollar. You want some exposure to other 0:19:34.600 --> 0:19:38.720 currencies and especially to the US dollars. Simple diversification. And 0:19:38.800 --> 0:19:42.359 if you hedge, you are unwinding that diversification and it 0:19:42.400 --> 0:19:42.960 won't help you. 0:19:43.080 --> 0:19:43.920 It's very straightforward. 0:19:43.920 --> 0:19:47.080 Look, the super funds do it because they're compared to 0:19:47.160 --> 0:19:51.160 each other. It's just an unfortunate equilibrium where they all 0:19:51.280 --> 0:19:54.600 hedge and none of them will break away from that 0:19:55.080 --> 0:19:59.320 because of the danger that they'll underperform. Free thing for 0:19:59.359 --> 0:20:00.880 them to do is to do what all the other 0:20:00.920 --> 0:20:01.840 super funds. 0:20:01.520 --> 0:20:04.479 Do and do there fully hedge sam like fully. 0:20:05.840 --> 0:20:08.960 It varies across the big funds. Ossie Super is fifty 0:20:09.000 --> 0:20:14.000 to sixty percent hedged, and but other funds, some other 0:20:14.000 --> 0:20:15.399 funds are one hundred percent hedged. 0:20:15.760 --> 0:20:19.359 Yeah, okay, very interesting. Well, we're going to bolt around now, folks, 0:20:19.359 --> 0:20:21.400 because I've got some on the show. It's an amazing week. 0:20:21.440 --> 0:20:22.560 I want to talk to you about a couple of 0:20:22.560 --> 0:20:25.120 things and it'll be busily quickfire. But there what doing. 0:20:26.280 --> 0:20:29.920 Gold has been great. We all know there's no yield 0:20:29.920 --> 0:20:33.800 off gold, but hey, it's been great this last few months. 0:20:34.200 --> 0:20:35.280 Where do you stand on gold? 0:20:36.880 --> 0:20:39.760 Weok, it's been awesome, especially in Australian dollar times. It's 0:20:39.800 --> 0:20:42.640 gone through five thousand Ossie dollars. It was in two 0:20:42.640 --> 0:20:45.720 thousand and four it was five hundred Australian dollars and 0:20:45.760 --> 0:20:49.320 now in twenty twenty five it's five thousand Australian dollars. 0:20:49.359 --> 0:20:54.040 So it's been absolutely awesome. The gold has been mostly 0:20:54.160 --> 0:20:55.760 in the last couple of years, and this is true 0:20:55.760 --> 0:20:58.600 a bitcoin as well, and why people sort of group 0:20:58.680 --> 0:21:02.520 them together. Now there's been an alternative to the US dollar, 0:21:02.600 --> 0:21:05.920 and especially people who are concerned about burgeoning US debt. 0:21:06.400 --> 0:21:10.359 There's definitely a debt time bomb in the US, and 0:21:10.480 --> 0:21:13.480 people who are concerned that, or a lot of investors 0:21:13.520 --> 0:21:16.480 want to have some exposure to gold maybe bitcoin as well, 0:21:16.920 --> 0:21:20.760 because when that bomb finally explodes at some stage and 0:21:20.800 --> 0:21:25.240 the markets revolt against the growing US federal debt. Then 0:21:25.240 --> 0:21:28.320 they'll be glad that they had a safe haven away 0:21:28.320 --> 0:21:30.840 from that. Now do I mean to say that you 0:21:30.840 --> 0:21:33.000 shouldn't be invested in US shares because that would be 0:21:33.040 --> 0:21:35.639 contradict but I said earlier I don't mean that. But 0:21:35.680 --> 0:21:37.800 what I mean is that at some stage it's going 0:21:37.880 --> 0:21:40.040 to be a big problem with US debt. The US 0:21:40.119 --> 0:21:42.560 will get through it. We should all be confident of that. 0:21:43.240 --> 0:21:45.760 But in the process, people are going to be glad 0:21:45.840 --> 0:21:49.439 that they had exposure to something alternative to gold and 0:21:49.480 --> 0:21:53.680 to bitcoin. So and then look at the moment. Gold 0:21:53.720 --> 0:21:56.960 and bitcoin both went down in the current crisis, which 0:21:57.000 --> 0:21:59.360 is kind of surprising in it, and bombs went down 0:21:59.400 --> 0:21:59.879 as well. 0:21:59.760 --> 0:22:01.119 Which the last few days. 0:22:01.359 --> 0:22:02.360 Yeah, You're earlier. 0:22:02.080 --> 0:22:05.160 Point was that everything went down, even treasury bonds went down, 0:22:05.400 --> 0:22:07.760 gold and bitcoin went down. It was a sell everything 0:22:07.840 --> 0:22:10.920 moment and go to cash. People's concern about the president's 0:22:11.000 --> 0:22:15.040 radical agenda. Yeah, and this is bitcoin and gold exhibit 0:22:15.080 --> 0:22:15.520 that as well. 0:22:16.720 --> 0:22:20.960 But you don't worry that the BONDDUS bawn market could 0:22:21.000 --> 0:22:23.280 have a major outflow. 0:22:25.119 --> 0:22:28.480