1 00:00:03,330 --> 00:00:06,000 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,690 --> 00:00:09,150 Sean Aylmer: This was always going to be a big week, with 3 00:00:09,150 --> 00:00:12,330 Sean Aylmer: the Reserve Bank board meeting yesterday amid the economic disruption 4 00:00:12,330 --> 00:00:15,420 Sean Aylmer: of two cities, Sydney and Brisbane in lockdown and Melbourne, 5 00:00:15,420 --> 00:00:18,540 Sean Aylmer: emerging from one too. Then and into the mix Afterpay 6 00:00:18,540 --> 00:00:21,540 Sean Aylmer: and the biggest deal in Australian corporate history and this 7 00:00:21,540 --> 00:00:24,780 Sean Aylmer: week's become a monster. And it's only Wednesday. To make sense of 8 00:00:24,780 --> 00:00:27,930 Sean Aylmer: it all, I'm joined this morning by David Bassanese, Chief 9 00:00:27,930 --> 00:00:30,480 Sean Aylmer: Economist at BetaShares. David, welcome back to Fear and Greed. 10 00:00:31,230 --> 00:00:32,310 David Bassanese: Great to be with you, Sean. 11 00:00:32,670 --> 00:00:35,130 Sean Aylmer: So what do you make of the Reserve Bank's announcement yesterday? 12 00:00:35,130 --> 00:00:38,560 Sean Aylmer: Kept rates on hold, but it is slightly tightening policy? 13 00:00:39,180 --> 00:00:42,330 David Bassanese: Look, it is interesting. I mean, look, effectively, what they've 14 00:00:42,330 --> 00:00:46,480 David Bassanese: done is just proceed with their planned tapering of bond purchases. 15 00:00:46,500 --> 00:00:49,590 David Bassanese: I mean, there was some suggestion that maybe they might 16 00:00:49,590 --> 00:00:52,680 David Bassanese: actually increase bond purchases at the meeting because of the 17 00:00:52,680 --> 00:00:56,070 David Bassanese: lockdown and, if not that, at least delay the time 18 00:00:56,070 --> 00:00:58,350 David Bassanese: in which they will reduce their bond purchase. But they've 19 00:00:58,350 --> 00:01:00,570 David Bassanese: done none of that. They've actually gone ahead with their 20 00:01:00,570 --> 00:01:04,530 David Bassanese: pre-existing plan, which is to scale it back to, you know, 21 00:01:04,530 --> 00:01:07,410 David Bassanese: I think is around about four billion a month from 22 00:01:07,410 --> 00:01:11,100 David Bassanese: late September. So like the share market itself, the RBA 23 00:01:11,459 --> 00:01:15,690 David Bassanese: is looking through the lockdowns and focusing on the longer-term outlook. 24 00:01:16,050 --> 00:01:19,380 Sean Aylmer: So, in effect, what does that mean for me as 25 00:01:19,410 --> 00:01:22,650 Sean Aylmer: a person with a home loan? Is it that fixed-term 26 00:01:22,980 --> 00:01:25,949 Sean Aylmer: rates potentially will rise at the longer end? 27 00:01:26,520 --> 00:01:29,970 David Bassanese: Look, it's very marginal. I mean, many economists I think 28 00:01:29,970 --> 00:01:31,770 David Bassanese: a lot of what the RBA is doing in terms 29 00:01:31,770 --> 00:01:34,890 David Bassanese: of quantitative easing, certainly with the marginal adjustments that it's 30 00:01:34,890 --> 00:01:38,130 David Bassanese: proposing now, you know, one billion less a week or not, 31 00:01:38,790 --> 00:01:41,640 David Bassanese: the impact on long term bond yields especially is not 32 00:01:41,640 --> 00:01:44,010 David Bassanese: that great. I mean, I think the RBA zone estimates 33 00:01:44,010 --> 00:01:47,220 David Bassanese: say it's about 0.3 per cent for their bond-buying . 34 00:01:47,220 --> 00:01:49,680 David Bassanese: And long term rates are really still driven by what's 35 00:01:49,680 --> 00:01:53,910 David Bassanese: happening globally, particularly in the US. So not to downplay 36 00:01:53,910 --> 00:01:56,610 David Bassanese: it too much, but a lot of this quantitative easing 37 00:01:56,610 --> 00:01:59,250 David Bassanese: bond buying is almost presentational in a way. It's like 38 00:01:59,250 --> 00:02:01,590 David Bassanese: the as I say, it's like the RBA trying to 39 00:02:01,590 --> 00:02:04,260 David Bassanese: be seen to be doing something when basically the cash 40 00:02:04,260 --> 00:02:06,090 David Bassanese: rate is already at zero and they can't do much 41 00:02:06,090 --> 00:02:07,680 David Bassanese: more on that front. 42 00:02:08,040 --> 00:02:11,139 Sean Aylmer: One thing about the bank, it's a stubborn organisation. While 43 00:02:11,160 --> 00:02:14,430 Sean Aylmer: the economy was booming the last six months, it steadfastly 44 00:02:14,430 --> 00:02:16,890 Sean Aylmer: refused to say that it would lift rates any time 45 00:02:16,889 --> 00:02:21,840 Sean Aylmer: before 2024. And then in recent weeks, with lockdowns in Melbourne, 46 00:02:21,840 --> 00:02:25,800 Sean Aylmer: south-east Queensland and Sydney particularly, it's now come out and 47 00:02:25,800 --> 00:02:28,260 Sean Aylmer: kind of been a little bit more optimistic than some 48 00:02:28,260 --> 00:02:29,070 Sean Aylmer: economists thought. 49 00:02:29,910 --> 00:02:32,370 David Bassanese: That's right. I mean, again, there was some discussion that 50 00:02:32,370 --> 00:02:35,070 David Bassanese: before the RBA 's meeting that they might increase their 51 00:02:35,070 --> 00:02:39,010 David Bassanese: bond buying, but they've maintained that upbeat outlook. And, you know, 52 00:02:39,060 --> 00:02:41,490 David Bassanese: we've seen this. It is very frustrating to be in 53 00:02:41,490 --> 00:02:44,940 David Bassanese: lockdown and the economy will take a big hit in Q3. But, 54 00:02:45,270 --> 00:02:47,580 David Bassanese: you know, what we've learnt is that when we do 55 00:02:47,580 --> 00:02:50,880 David Bassanese: come out of lockdown, the economy bounces back pretty quickly, 56 00:02:51,389 --> 00:02:55,770 David Bassanese: spending bounces back pretty quickly. So the so-called scar, the 57 00:02:55,770 --> 00:02:58,860 David Bassanese: fear last year, was that even coming out of lockdowns, 58 00:02:58,860 --> 00:03:03,630 David Bassanese: households and businesses might be scared out of resuming spending, 59 00:03:03,900 --> 00:03:06,240 David Bassanese: but we haven't seen that happen. So I think that's 60 00:03:06,240 --> 00:03:09,090 David Bassanese: the key takeaway from what we've learned since last year. 61 00:03:09,480 --> 00:03:11,010 Sean Aylmer: And what do you think the Reserve Bank, in terms 62 00:03:11,010 --> 00:03:14,070 Sean Aylmer: of what it said yesterday, it's supporting what you're talking 63 00:03:14,070 --> 00:03:16,320 Sean Aylmer: about there, doesn't seem too worried about the Sydney lockdowns. 64 00:03:16,980 --> 00:03:19,540 David Bassanese: No. You know, they're locked down. So what can we do? 65 00:03:19,560 --> 00:03:22,680 David Bassanese: I mean, we know why the economy's weak, because people 66 00:03:22,680 --> 00:03:25,200 David Bassanese: are being forced to stay at home and not shop. 67 00:03:25,200 --> 00:03:28,020 David Bassanese: And a lot of activity is still going on. You know, 68 00:03:28,050 --> 00:03:30,359 David Bassanese: a lot of people are working from home. But obviously, 69 00:03:30,360 --> 00:03:32,070 David Bassanese: if you go and look at the shopping malls and 70 00:03:32,070 --> 00:03:34,740 David Bassanese: the shopping strips, it looks pretty bleak. But, you know, 71 00:03:34,860 --> 00:03:38,430 David Bassanese: a lot of activity is still going on from people's homes. 72 00:03:38,580 --> 00:03:42,510 David Bassanese: But nonetheless, so the economy is taking a hit. But again, 73 00:03:42,510 --> 00:03:45,300 David Bassanese: I think lockdowns are almost like a natural disaster event 74 00:03:45,480 --> 00:03:47,040 David Bassanese: these days. I mean, it's the best way to think 75 00:03:47,040 --> 00:03:49,290 David Bassanese: about it is it's a hit to the economy, but 76 00:03:49,290 --> 00:03:52,440 David Bassanese: it is short run and things thereafter bounce back. That's 77 00:03:52,440 --> 00:03:54,030 David Bassanese: sort of what I think the way the RBA is 78 00:03:54,030 --> 00:03:56,910 David Bassanese: looking at these days. And, you know, if things drag on, 79 00:03:56,910 --> 00:03:59,340 David Bassanese: I mean, if we're assuming Sydney can come out of 80 00:03:59,340 --> 00:04:01,680 David Bassanese: this by the end of August, at the moment, that's 81 00:04:01,680 --> 00:04:05,130 David Bassanese: what the government's promised, well, suggesting. But it may be longer. 82 00:04:05,400 --> 00:04:07,230 David Bassanese: We just, we're in the hands of the virus at 83 00:04:07,230 --> 00:04:09,660 David Bassanese: the moment. And there may well come a point where 84 00:04:09,660 --> 00:04:12,570 David Bassanese: the RBA says, you know, the economy is looking weaker. 85 00:04:12,900 --> 00:04:15,029 David Bassanese: You know, we may even get two quarters of negative 86 00:04:15,030 --> 00:04:18,210 David Bassanese: growth and therefore a technical recession. And I think in 87 00:04:18,210 --> 00:04:22,230 David Bassanese: that situation, the RBA may want to step in and be, again, 88 00:04:22,230 --> 00:04:24,930 David Bassanese: be seen to be doing something just to bolster confidence 89 00:04:24,930 --> 00:04:26,730 David Bassanese: if everyone's talking about recession. 90 00:04:27,029 --> 00:04:30,060 Sean Aylmer: You'd also probably get fiscal spending, the federal government jumping 91 00:04:30,060 --> 00:04:32,520 Sean Aylmer: in with a few spending packages as well, I'd imagine, if 92 00:04:32,520 --> 00:04:33,190 Sean Aylmer: that was the case. 93 00:04:33,660 --> 00:04:35,970 David Bassanese: Yeah, I mean, again, I think another reason may be 94 00:04:35,970 --> 00:04:39,270 David Bassanese: the RBA has decided to hold off on further stimulus 95 00:04:39,270 --> 00:04:43,109 David Bassanese: is the fiscal policy is jumping in. We have a JobKeeper Mark II, 96 00:04:43,980 --> 00:04:47,610 David Bassanese: it's not called JobKeeper, but there are supports being provided 97 00:04:47,610 --> 00:04:50,940 David Bassanese: to businesses and workers. You know, I think the RBA 98 00:04:51,330 --> 00:04:55,080 David Bassanese: rightly does feel that the best policy response to these 99 00:04:55,080 --> 00:04:59,039 David Bassanese: sort of things nowadays is fiscal policy, income support, bridging 100 00:04:59,040 --> 00:05:02,080 David Bassanese: finance in a way to get us through the lockdowns. 101 00:05:02,470 --> 00:05:04,440 Sean Aylmer: Stay with me, David. We'll be back in a minute. 102 00:05:09,500 --> 00:05:14,839 Sean Aylmer: My guest this morning is David Bassanese, Chief Economist at BetaShares. Now, you've talked about 103 00:05:14,839 --> 00:05:18,320 Sean Aylmer: vaccines before. What's your take on the rollout so far? 104 00:05:20,120 --> 00:05:22,909 David Bassanese: Well, you know, obviously, you know, if you look at 105 00:05:22,910 --> 00:05:25,549 David Bassanese: the league ladder, we're going pretty badly. I mean, I 106 00:05:25,550 --> 00:05:29,179 David Bassanese: think it's just a, I guess, like in Asia, it's complacency. 107 00:05:29,180 --> 00:05:32,210 David Bassanese: We handled the virus very well last year. We didn't 108 00:05:32,210 --> 00:05:34,490 David Bassanese: get it as bad as, say, the UK, the US. 109 00:05:34,770 --> 00:05:38,839 David Bassanese: And so the urgency to bring in vaccines and over-order just 110 00:05:38,870 --> 00:05:42,470 David Bassanese: to reduce any risk wasn't there. And so we put 111 00:05:42,620 --> 00:05:45,260 David Bassanese: all our eggs in one basket. And then there was 112 00:05:45,260 --> 00:05:48,920 David Bassanese: some concern around that vaccine, the AstraZeneca one. It turns out, 113 00:05:48,920 --> 00:05:51,739 David Bassanese: even though we probably do have enough vaccine, the one 114 00:05:51,740 --> 00:05:53,779 David Bassanese: we have not a lot of people want to take, 115 00:05:53,779 --> 00:05:57,200 David Bassanese: which is probably not the correct decision, but the marketing 116 00:05:57,200 --> 00:06:00,970 David Bassanese: from governments and health authorities on that has been disastrous. 117 00:06:00,980 --> 00:06:02,960 David Bassanese: I mean, I think as soon as you say one 118 00:06:02,960 --> 00:06:05,839 David Bassanese: part of the population can get this vaccine, but another 119 00:06:05,850 --> 00:06:08,989 David Bassanese: part can't because the risk is too high, basically no one 120 00:06:08,990 --> 00:06:11,270 David Bassanese: wants to take it. Then, as you said that, it's 121 00:06:11,270 --> 00:06:13,940 David Bassanese: game over. No one wants it. And that was a massive, 122 00:06:13,940 --> 00:06:18,740 David Bassanese: massive error, along with some countries bought multiple different vaccines 123 00:06:18,740 --> 00:06:21,410 David Bassanese: just in case one did have problems. And so we 124 00:06:21,410 --> 00:06:24,229 David Bassanese: didn't do that. Look, the good news around the world 125 00:06:24,230 --> 00:06:26,780 David Bassanese: and obviously we're going to ramp up the vaccine rollout, 126 00:06:26,779 --> 00:06:31,640 David Bassanese: but the vaccines, the Pfizer, most of the others are 127 00:06:31,640 --> 00:06:34,220 David Bassanese: very effective against all the strains that we know about 128 00:06:34,220 --> 00:06:37,010 David Bassanese: at the moment. The Delta one in particular. So provided 129 00:06:37,339 --> 00:06:40,400 David Bassanese: we can roll this out and get enough people vaccinated, 130 00:06:40,400 --> 00:06:42,890 David Bassanese: then we can go back to opening up. And the 131 00:06:42,890 --> 00:06:45,020 David Bassanese: point I'd also make is that people are worried about 132 00:06:45,020 --> 00:06:47,930 David Bassanese: what about the people that don't vaccinate? Well, it's actually 133 00:06:47,930 --> 00:06:50,510 David Bassanese: going to be on them. It's their risk, because once 134 00:06:50,510 --> 00:06:53,390 David Bassanese: you're vaccinated, you can still get the virus, you can 135 00:06:53,390 --> 00:06:56,630 David Bassanese: still transmit the virus But the consequences for you as 136 00:06:56,630 --> 00:06:58,729 David Bassanese: a person or a lot less. You know, the risk 137 00:06:58,730 --> 00:07:02,330 David Bassanese: of hospitalisation or death is a lot, lot lower once 138 00:07:02,330 --> 00:07:04,670 David Bassanese: you're vaccinated, which is not the case, obviously, for those 139 00:07:04,670 --> 00:07:07,580 David Bassanese: that don't get vaccinated. So I can see a situation 140 00:07:07,580 --> 00:07:10,460 David Bassanese: where we open up and basically, if you decide you 141 00:07:10,460 --> 00:07:13,670 David Bassanese: don't want to be vaccinated, then, you know, that's your risk. 142 00:07:13,670 --> 00:07:16,790 David Bassanese: That's the risk you're taking because everyone else will be 143 00:07:16,790 --> 00:07:20,390 David Bassanese: OK and should be pretty well OK, provided they're already vaccinated. 144 00:07:20,780 --> 00:07:23,240 Sean Aylmer: And just while I've got you, David, the share market 145 00:07:23,240 --> 00:07:25,820 Sean Aylmer: at the moment, we're trading near record highs, the massive 146 00:07:25,820 --> 00:07:29,300 Sean Aylmer: takeover deal. Jack Dorsey's Square, from Jack Dorsey, of course, 147 00:07:29,300 --> 00:07:32,720 Sean Aylmer: being from Twitter, buying Afterpay. Those guys don't seem too worried 148 00:07:32,720 --> 00:07:34,100 Sean Aylmer: about what's happening in the COVID world. 149 00:07:35,330 --> 00:07:39,020 David Bassanese: No! You know, they are obviously using their equity to do the deal, 150 00:07:39,430 --> 00:07:43,309 David Bassanese: so being granted equity, but very big. That sounds like a 151 00:07:43,310 --> 00:07:45,740 David Bassanese: lot of money. But Twitter is a very big company, 152 00:07:45,740 --> 00:07:49,820 David Bassanese: a US company. So I think they've decided that this is 153 00:07:49,820 --> 00:07:53,930 David Bassanese: their easiest way to make a big entry into this sector, 154 00:07:54,130 --> 00:07:57,050 David Bassanese: the buy now, pay later sector. So compared to sort 155 00:07:57,050 --> 00:08:00,320 David Bassanese: of developing their own systems, you know, and what a genius 156 00:08:00,320 --> 00:08:03,290 David Bassanese: move by Afterpay to move into the US market. 157 00:08:03,290 --> 00:08:03,500 Sean Aylmer: Oh, incredible. 158 00:08:03,500 --> 00:08:07,040 David Bassanese: There's a few people that have been deriding them all along the way. Right. 159 00:08:07,040 --> 00:08:08,560 David Bassanese: And when they went into the US, everyone said it 160 00:08:08,570 --> 00:08:10,550 David Bassanese: was going to be too competitive. But I don't think 161 00:08:10,550 --> 00:08:12,560 David Bassanese: Twitter would have been buying them if they hadn't moved 162 00:08:12,560 --> 00:08:13,610 David Bassanese: into the US market. 163 00:08:14,030 --> 00:08:14,630 Sean Aylmer: Absolutely. 164 00:08:15,080 --> 00:08:16,030 David Bassanese: So, a wonderful story. 165 00:08:16,280 --> 00:08:19,400 Sean Aylmer: What about the market generally? It really is on fire at 166 00:08:19,400 --> 00:08:20,540 Sean Aylmer: the moment. Equities? 167 00:08:21,380 --> 00:08:23,420 David Bassanese: Yeah. Look, I think as a, last time I was 168 00:08:23,420 --> 00:08:26,600 David Bassanese: on your show, I mean, we're enjoying a V-shaped recovery globally. 169 00:08:26,690 --> 00:08:29,060 David Bassanese: We've been hit by lockdowns again. But prior to that, 170 00:08:29,060 --> 00:08:32,270 David Bassanese: we were rebounding very, very well. Earnings are rebounding very, 171 00:08:32,270 --> 00:08:36,110 David Bassanese: very well. There've been a few inflation scares, but really, 172 00:08:36,410 --> 00:08:39,459 David Bassanese: unemployment is still high and so wages growth is still low. 173 00:08:39,480 --> 00:08:41,959 David Bassanese: So we're in this early stage of a new cycle where 174 00:08:42,590 --> 00:08:46,100 David Bassanese: growth is recovering. Central banks are still a sideline, not looking 175 00:08:46,100 --> 00:08:49,760 David Bassanese: to raise interest rates. So it's a good backdrop for 176 00:08:49,790 --> 00:08:52,190 David Bassanese: equity markets. People want to deride it. But I mean, 177 00:08:52,400 --> 00:08:56,030 David Bassanese: we're having a V-shaped recovery. We're the early still, maybe mid-stage, 178 00:08:56,630 --> 00:08:59,210 David Bassanese: possibly you could argue, of the cycle, but certainly far 179 00:08:59,210 --> 00:09:02,329 David Bassanese: from the late stage of the cycle. So markets are 180 00:09:02,330 --> 00:09:03,530 David Bassanese: responding accordingly. 181 00:09:03,770 --> 00:09:05,449 Sean Aylmer: And so they may still run a little bit you think? 182 00:09:06,440 --> 00:09:10,069 David Bassanese: The earnings outlook is very strong globally still. So that's 183 00:09:10,070 --> 00:09:12,890 David Bassanese: looking good. I mean, the vaccines are still rolling out. 184 00:09:12,890 --> 00:09:16,280 David Bassanese: I mean, there's still more upside in global growth. And again, 185 00:09:16,280 --> 00:09:18,200 David Bassanese: in central banks, they're sort of not looking to raise 186 00:09:18,200 --> 00:09:20,900 David Bassanese: rates for a couple of years still. And relative to 187 00:09:20,900 --> 00:09:24,050 David Bassanese: interest rates, the equity market still looks good value. So 188 00:09:24,530 --> 00:09:27,500 David Bassanese: I think there is some scope for further gains albeit 189 00:09:27,980 --> 00:09:30,050 David Bassanese: never in a straight line. There'll be a pullback for 190 00:09:30,050 --> 00:09:33,500 David Bassanese: some reason. But I mean, on a two to three-year view, 191 00:09:33,500 --> 00:09:35,800 David Bassanese: I think equities certainly be pushing high ahead. 192 00:09:37,130 --> 00:09:39,590 Sean Aylmer: Fantastic. David, thank you very much for talking to Fear and Greed. 193 00:09:39,890 --> 00:09:40,330 David Bassanese: No worries, Sean. 194 00:09:41,240 --> 00:09:46,130 Sean Aylmer: That's David Bassanese, Chief Economist at BetaShares. This is a Fear and Greed Daily Interview. 195 00:09:46,130 --> 00:09:48,260 Sean Aylmer: Join me every morning for the full Fear and Greed 196 00:09:48,260 --> 00:09:50,719 Sean Aylmer: podcast with all the business news you need to know. 197 00:09:50,929 --> 00:09:52,760 Sean Aylmer: I'm Sean Aylmer. Enjoy your day.