1 00:00:03,620 --> 00:00:07,460 Michael Thompson: Welcome to the daily interview for Fear and Greed, Australia's most popular business 2 00:00:07,460 --> 00:00:11,110 Michael Thompson: podcast. I'm Michael Thompson. There is obviously a lot of 3 00:00:11,110 --> 00:00:15,080 Michael Thompson: volatility for investors right now. The outlook for equities changes 4 00:00:15,080 --> 00:00:19,480 Michael Thompson: sector by sector and with so many questions over geopolitical 5 00:00:19,480 --> 00:00:24,410 Michael Thompson: stability, supply chains, COVID, inflation, interest rates. There's really no 6 00:00:24,410 --> 00:00:29,220 Michael Thompson: certainty anytime soon. How do you invest in such a 7 00:00:29,220 --> 00:00:33,470 Michael Thompson: volatile environment? I wanted to look today beyond just offensive 8 00:00:33,470 --> 00:00:38,089 Michael Thompson: stocks, to a broader approach to investing everything from property 9 00:00:38,090 --> 00:00:41,479 Michael Thompson: right through to crypto, to understand if there's a strategy 10 00:00:41,750 --> 00:00:45,550 Michael Thompson: that might help achieve the best result amongst all the 11 00:00:45,550 --> 00:00:49,570 Michael Thompson: disruption. Evan Lucas is head of strategy at InvestSMART. Evan, 12 00:00:49,659 --> 00:00:50,431 Michael Thompson: welcome back to Fear and Greed. 13 00:00:50,431 --> 00:00:51,900 Evan Lucas: Thanks for having me, Michael. 14 00:00:53,010 --> 00:00:55,620 Michael Thompson: I mentioned a few of the factors there that are 15 00:00:55,620 --> 00:00:58,770 Michael Thompson: making it such a volatile time for investors. The conflict 16 00:00:58,770 --> 00:01:02,620 Michael Thompson: obviously in Ukraine, tensions with China, the Fed lifting rates, 17 00:01:02,620 --> 00:01:05,800 Michael Thompson: pressure on the RBA to lift as well, COVID and 18 00:01:05,800 --> 00:01:09,080 Michael Thompson: upcoming election. It is a pretty significant list. Is there 19 00:01:09,080 --> 00:01:12,080 Michael Thompson: anything that I've missed there that's just hanging over us? 20 00:01:12,350 --> 00:01:15,220 Evan Lucas: Inflation, that would probably be the only other one that I'd probably 21 00:01:15,560 --> 00:01:20,200 Evan Lucas: highlight. It's the first time for many, many moons that 22 00:01:20,200 --> 00:01:23,369 Evan Lucas: we've actually had to genuinely think about inflation. And now 23 00:01:23,370 --> 00:01:25,880 Evan Lucas: that you talked about the RBA too. Why the RBA 24 00:01:25,880 --> 00:01:30,660 Evan Lucas: is interesting is that there is an entire generation of homeowners 25 00:01:30,670 --> 00:01:33,290 Evan Lucas: that have never experienced a rate rise in their life. 26 00:01:33,290 --> 00:01:34,890 Evan Lucas: So the last time we saw a rate rise was 27 00:01:34,890 --> 00:01:38,030 Evan Lucas: in 2011 and that's 11 and a half years ago. 28 00:01:38,030 --> 00:01:42,160 Evan Lucas: And you think about the amounts of first homeowners and even homeowners that 29 00:01:42,160 --> 00:01:45,390 Evan Lucas: have changed homes in that period of time that have 30 00:01:45,390 --> 00:01:49,050 Evan Lucas: never experienced that increase. I would say inflation is the only 31 00:01:49,050 --> 00:01:51,169 Evan Lucas: thing you've missed on that, but it's there. 32 00:01:51,880 --> 00:01:55,570 Michael Thompson: Yeah, certainly is. Look, when you're trying to put together 33 00:01:55,760 --> 00:01:59,640 Michael Thompson: a strategy, I mean, we could talk just about equities, 34 00:01:59,870 --> 00:02:02,330 Michael Thompson: but there's enough in that just for an entire conversation 35 00:02:02,330 --> 00:02:05,680 Michael Thompson: on its own. I want to kind of look beyond the ASX, but before 36 00:02:05,680 --> 00:02:08,870 Michael Thompson: we do that, what should equity investors be looking at 37 00:02:09,010 --> 00:02:12,980 Michael Thompson: right now? Just a bit of a 101 on risk management. 38 00:02:13,139 --> 00:02:16,710 Evan Lucas: Yeah. I think all of that together, including your volatility question 39 00:02:16,710 --> 00:02:19,980 Evan Lucas: and what have you, why I look at this is 40 00:02:20,500 --> 00:02:22,440 Evan Lucas: the way to start and the way to talk about 41 00:02:22,440 --> 00:02:25,580 Evan Lucas: this is time and why I say time, time heals 42 00:02:25,580 --> 00:02:27,700 Evan Lucas: all, that needs to be your adage when you're investing 43 00:02:27,700 --> 00:02:32,510 Evan Lucas: in anything, if it's cash products, fixed income, equities, property, 44 00:02:32,510 --> 00:02:35,419 Evan Lucas: crypto, it doesn't matter what it is, it's time. And 45 00:02:35,419 --> 00:02:38,820 Evan Lucas: why I say time, time needs to be defined in 46 00:02:38,820 --> 00:02:41,570 Evan Lucas: your strategy before you start, am I investing for tomorrow? 47 00:02:41,570 --> 00:02:43,149 Evan Lucas: Am I investing for the end of the year? Am 48 00:02:43,150 --> 00:02:46,240 Evan Lucas: I investing for five years, 10 years, 20? And the 49 00:02:46,240 --> 00:02:51,669 Evan Lucas: reason I say that is time will very much override 50 00:02:52,020 --> 00:02:56,520 Evan Lucas: volatility whenever you start extending it, because that is what 51 00:02:56,520 --> 00:02:59,460 Evan Lucas: we know. So why I say that, let's try and 52 00:02:59,460 --> 00:03:02,760 Evan Lucas: do some examples. I don't want to look at COVID 53 00:03:02,760 --> 00:03:04,670 Evan Lucas: in 2020. And I also don't want to look at 54 00:03:04,780 --> 00:03:07,460 Evan Lucas: sort of 2007 with the GSC. I think the years 55 00:03:07,460 --> 00:03:09,540 Evan Lucas: you need to look at, look at something like 2018, 56 00:03:09,540 --> 00:03:12,870 Evan Lucas: very insignificant year in terms of what we think of 57 00:03:12,870 --> 00:03:15,810 Evan Lucas: with regards to investing and what happened. But why I 58 00:03:15,810 --> 00:03:18,980 Evan Lucas: say that, everything that you just mentioned before, Michael, RBA, 59 00:03:19,180 --> 00:03:23,080 Evan Lucas: Fed lift off, China tensions, blah, blah, blah, happened in 60 00:03:23,080 --> 00:03:24,990 Evan Lucas: that year and we sort of forget that. And so 61 00:03:25,340 --> 00:03:26,900 Evan Lucas: if you go back and have a look, the one 62 00:03:26,900 --> 00:03:29,119 Evan Lucas: that always sticks out of my mind around it is 63 00:03:29,120 --> 00:03:35,020 Evan Lucas: that in October, 2018, on about the 5th of October, the 64 00:03:35,020 --> 00:03:38,850 Evan Lucas: newly minted Jerome Powell was at a meeting and was 65 00:03:39,120 --> 00:03:41,340 Evan Lucas: a very big interview with CNBC. And he had a 66 00:03:41,340 --> 00:03:43,840 Evan Lucas: grin on his face like a Cheshire cat about how 67 00:03:44,180 --> 00:03:48,580 Evan Lucas: perfectly positioned the US economy was in. And the suggestion 68 00:03:48,580 --> 00:03:50,170 Evan Lucas: out of that was that rates were going to rise. 69 00:03:50,240 --> 00:03:53,510 Evan Lucas: And a reaction off the back of that was for 70 00:03:53,510 --> 00:04:00,360 Evan Lucas: the S&P 500 to fall 24. 5% from basically that speech to Christmas Eve 71 00:04:00,360 --> 00:04:05,050 Evan Lucas: of the same year. And volatility went from severely complacent, 72 00:04:05,050 --> 00:04:08,330 Evan Lucas: which is about 10 to 12 index points on the US 73 00:04:08,330 --> 00:04:11,450 Evan Lucas: VIX up into the mid fifties. And even when as high 74 00:04:11,450 --> 00:04:15,880 Evan Lucas: as charting 70 in that speed. Why I want you to highlight 75 00:04:15,880 --> 00:04:20,229 Evan Lucas: that is that that was two and a half months 76 00:04:20,890 --> 00:04:25,670 Evan Lucas: of trading, lost 24.5%. But then if you look from 77 00:04:25,670 --> 00:04:29,130 Evan Lucas: that point, from that bottom on the 24th, all the 78 00:04:29,130 --> 00:04:32,930 Evan Lucas: way through 2019 before COVID, the S& P jumped up 79 00:04:32,930 --> 00:04:36,710 Evan Lucas: 63%. So that is very, very short. And not only 80 00:04:36,710 --> 00:04:40,370 Evan Lucas: that, what was short be highlighted, that's another volatile period just 81 00:04:40,370 --> 00:04:43,420 Evan Lucas: to the upside rather than to the downside. So then 82 00:04:43,420 --> 00:04:45,349 Evan Lucas: if you look at the 10 years, we go back just 83 00:04:45,350 --> 00:04:48,070 Evan Lucas: before the GFC. You've got things like the Euro crisis, 84 00:04:48,070 --> 00:04:51,640 Evan Lucas: the China hard landing, you then had the 2018 and 85 00:04:51,640 --> 00:04:54,700 Evan Lucas: you have COVID and where we are now. If you 86 00:04:54,700 --> 00:04:57,220 Evan Lucas: look at the S&P 500 over those 10 years, it's up 87 00:04:57,220 --> 00:05:01,700 Evan Lucas: over 400%. This is what I mean by time, time 88 00:05:01,700 --> 00:05:06,029 Evan Lucas: in the market will always outperform short term issues. So 89 00:05:06,290 --> 00:05:08,620 Evan Lucas: yes, the RBA can lift rates. Yes, the Fed is 90 00:05:08,620 --> 00:05:11,159 Evan Lucas: lifting rates and will lift them higher, tensions with China 91 00:05:11,160 --> 00:05:14,120 Evan Lucas: will remain. And the horrible events in Ukraine are certainly 92 00:05:14,120 --> 00:05:17,810 Evan Lucas: there to be had. And whatever happens in 2022, I 93 00:05:17,810 --> 00:05:19,500 Evan Lucas: will put my hand up and say, " I don't know, 94 00:05:19,580 --> 00:05:22,589 Evan Lucas: but I do know that longer term, if I'm investing, 95 00:05:22,589 --> 00:05:26,089 Evan Lucas: I'm not thinking about now, I'm not thinking about Christmas. 96 00:05:26,470 --> 00:05:30,810 Evan Lucas: I'm thinking about what 2027 looks like really. And what 97 00:05:30,810 --> 00:05:35,080 Evan Lucas: does 2030 look like or 2032 look like in terms 98 00:05:35,080 --> 00:05:37,060 Evan Lucas: of where I sit." Now, that's because I've got a 99 00:05:37,060 --> 00:05:39,310 Evan Lucas: longer term view. But why I want to say that 100 00:05:39,440 --> 00:05:42,419 Evan Lucas: is, again, let's look at the ASX. On a total return's 101 00:05:42,450 --> 00:05:44,640 Evan Lucas: basis, so that's including the dividends you get paid and 102 00:05:44,640 --> 00:05:47,760 Evan Lucas: reinvesting them back in. If you look at where that 103 00:05:47,760 --> 00:05:49,510 Evan Lucas: has come over the last five years, you're up about 104 00:05:49,510 --> 00:05:53,480 Evan Lucas: 70%. If you look at where it is since 2002 105 00:05:53,779 --> 00:05:57,099 Evan Lucas: to where we are today, 20 years ago, it's 408%. 106 00:05:57,910 --> 00:06:01,330 Evan Lucas: But again, it's just a question of times with regards 107 00:06:01,330 --> 00:06:03,810 Evan Lucas: to how you look at it. And so, yeah, your question about 108 00:06:04,200 --> 00:06:08,490 Evan Lucas: volatility is this, can you look through it? Can you 109 00:06:08,490 --> 00:06:14,529 Evan Lucas: accept one, 2% movements intra day, intra week, when your strategy 110 00:06:14,529 --> 00:06:16,800 Evan Lucas: is long term? And if you can start to think 111 00:06:16,800 --> 00:06:18,920 Evan Lucas: of it that way, you'll be able to actually look 112 00:06:18,930 --> 00:06:23,320 Evan Lucas: through volatility. My final point on this is this, expect 113 00:06:23,320 --> 00:06:26,370 Evan Lucas: the unexpected in the short term, expect in the long 114 00:06:26,370 --> 00:06:30,089 Evan Lucas: term some more certainty, final stat. If you take every 115 00:06:30,089 --> 00:06:32,870 Evan Lucas: 20 cut years in the S&P 500, all the way back 116 00:06:32,870 --> 00:06:37,000 Evan Lucas: to 1900, you are 100% more likely to be up 117 00:06:37,020 --> 00:06:40,060 Evan Lucas: than down in each of those 20 year cuts. And 118 00:06:40,060 --> 00:06:42,119 Evan Lucas: that is a stat that the S&P will love telling 119 00:06:42,120 --> 00:06:45,339 Evan Lucas: you, and that is statistically true. And that's why with 120 00:06:45,339 --> 00:06:48,070 Evan Lucas: all those events that we've just talked about, volatility is 121 00:06:48,070 --> 00:06:49,719 Evan Lucas: a short term problem, not a long term one. 122 00:06:50,430 --> 00:06:53,710 Michael Thompson: Can I ask you about gold then, because gold has 123 00:06:53,710 --> 00:06:57,570 Michael Thompson: a reputation for being a safe haven during a crisis. 124 00:06:58,450 --> 00:07:01,110 Michael Thompson: Is it living up to its name at the moment? 125 00:07:01,150 --> 00:07:04,029 Michael Thompson: I mean, we do seem to have lurched essentially kind 126 00:07:04,029 --> 00:07:07,240 Michael Thompson: of from one crisis to the next, when you kind 127 00:07:07,240 --> 00:07:11,090 Michael Thompson: of think about the list. But has it kind of 128 00:07:11,110 --> 00:07:13,290 Michael Thompson: lived up to its name as a safe haven during 129 00:07:13,290 --> 00:07:13,840 Michael Thompson: that time? 130 00:07:14,180 --> 00:07:18,580 Evan Lucas: Gold is not what we used to think of in terms 131 00:07:18,580 --> 00:07:21,840 Evan Lucas: of the 70s, 80s, 90s, and even the early 2000s. It is that 132 00:07:21,840 --> 00:07:24,730 Evan Lucas: safe haven thing and it's the store of value and 133 00:07:24,730 --> 00:07:27,120 Evan Lucas: obviously a hedge against inflation and all those kinds of 134 00:07:27,120 --> 00:07:30,810 Evan Lucas: things. There's more pressure on gold these days. There's more 135 00:07:30,810 --> 00:07:34,130 Evan Lucas: inputs on gold these days, what we call paper trading, 136 00:07:34,130 --> 00:07:38,150 Evan Lucas: so using things like exchange traded funds, or gold contracts 137 00:07:38,150 --> 00:07:41,060 Evan Lucas: versus physical. Because when you look at that, there's two 138 00:07:41,060 --> 00:07:44,300 Evan Lucas: different players that get involved in the difference, so physical, 139 00:07:44,620 --> 00:07:47,180 Evan Lucas: the Chinese and the Indians, the biggest investors in physical 140 00:07:47,180 --> 00:07:49,640 Evan Lucas: gold. But when you look at paper trading, it becomes 141 00:07:49,640 --> 00:07:52,700 Evan Lucas: more global and players like Japan, the US and Europe 142 00:07:52,810 --> 00:07:55,630 Evan Lucas: tend to be there. In answer to your question, to 143 00:07:55,630 --> 00:07:57,530 Evan Lucas: some extent in the last couple of years, you probably 144 00:07:57,530 --> 00:08:02,430 Evan Lucas: would say yes. Again, you look at the reaction to 145 00:08:02,430 --> 00:08:06,270 Evan Lucas: gold in 2020 and making a record all time high 146 00:08:06,270 --> 00:08:11,500 Evan Lucas: into sort of the 2200, 2300 US dollars an ounce, then eases 147 00:08:11,990 --> 00:08:14,870 Evan Lucas: back. I think the reason I'm hesitant of it is 148 00:08:15,520 --> 00:08:18,850 Evan Lucas: gold movements are much stronger than they used to be. 149 00:08:19,230 --> 00:08:22,680 Evan Lucas: They can move quite quickly in hundreds of dollars. Again, 150 00:08:22,680 --> 00:08:25,090 Evan Lucas: if you look back over history, you look at the movement 151 00:08:25,090 --> 00:08:28,240 Evan Lucas: to when it got to 1900 US dollars an ounce during 152 00:08:28,240 --> 00:08:31,560 Evan Lucas: the GFC, it then crashed 800 US dollars an ounce 153 00:08:31,560 --> 00:08:36,000 Evan Lucas: over the preceding couple of years. It's not as easy 154 00:08:36,000 --> 00:08:38,410 Evan Lucas: as it once upon a time used to be, when 155 00:08:38,410 --> 00:08:41,530 Evan Lucas: the gold standard was about ... It's a store of value. 156 00:08:41,730 --> 00:08:46,740 Evan Lucas: It's a hedge to inflation. It's different now. And people 157 00:08:46,740 --> 00:08:51,059 Evan Lucas: use it for all range of different things. Again, sometimes 158 00:08:51,059 --> 00:08:54,780 Evan Lucas: people forget gold also is quite usable these days with 159 00:08:54,780 --> 00:08:58,130 Evan Lucas: regards to conduction and using in technology. So a lot 160 00:08:58,130 --> 00:09:00,650 Evan Lucas: of gold leaf and gold material is used that way. 161 00:09:00,650 --> 00:09:03,080 Evan Lucas: So its demand is higher than it used to be 162 00:09:03,080 --> 00:09:06,090 Evan Lucas: as well. I think all of those factor into why gold's 163 00:09:06,090 --> 00:09:07,990 Evan Lucas: not the same as it once upon a time was. 164 00:09:08,260 --> 00:09:15,600 Michael Thompson: Stay with me, Evan, we'll be back in a minute. My 165 00:09:15,600 --> 00:09:18,319 Michael Thompson: guest this morning is Evan Lucas, head of strategy at 166 00:09:18,320 --> 00:09:22,760 Michael Thompson: InvestSMART. You mentioned gold and the perception of it as 167 00:09:22,760 --> 00:09:26,780 Michael Thompson: being a hedge against inflation. Crypto has also been talked 168 00:09:26,780 --> 00:09:34,070 Michael Thompson: about in some cases in a similar way. Obviously crypto 169 00:09:34,140 --> 00:09:37,780 Michael Thompson: investors would be no strangers to volatility, but we've actually 170 00:09:37,780 --> 00:09:41,530 Michael Thompson: seen some really good gains in recent weeks for most 171 00:09:41,530 --> 00:09:45,569 Michael Thompson: of the main cryptocurrencies. What is kind of pushing that? 172 00:09:45,809 --> 00:09:50,810 Michael Thompson: And obviously we've heard in recent weeks about there being 173 00:09:50,860 --> 00:09:54,980 Michael Thompson: more talk of regulation. Is that helping them to become 174 00:09:54,980 --> 00:09:58,780 Michael Thompson: less volatile in their own right? And I suppose then 175 00:09:58,780 --> 00:10:01,480 Michael Thompson: this is turning into a triple barreled question here, but 176 00:10:01,740 --> 00:10:05,760 Michael Thompson: has crypto become a good way to catch the upside 177 00:10:05,809 --> 00:10:06,449 Michael Thompson: of disruption? 178 00:10:06,890 --> 00:10:10,179 Evan Lucas: Oh, huge questions. Okay. First and foremost, it depends on 179 00:10:10,179 --> 00:10:14,730 Evan Lucas: how you define movement. Let's look at Bitcoin because I think that's the 180 00:10:14,730 --> 00:10:16,490 Evan Lucas: easiest one to start with, with regards to where we 181 00:10:16,490 --> 00:10:19,729 Evan Lucas: see it. Yes, it's highly volatile and I would still 182 00:10:19,730 --> 00:10:23,929 Evan Lucas: say it is. It has moved from low 30,000 back 183 00:10:23,929 --> 00:10:26,929 Evan Lucas: into the mid to high 40,000s, back into the low 184 00:10:26,929 --> 00:10:31,450 Evan Lucas: 30,000s, on and off. So $10, 000 movements for the last 185 00:10:31,450 --> 00:10:33,500 Evan Lucas: six months. Yes, it's slowed down in the last couple of 186 00:10:33,500 --> 00:10:35,750 Evan Lucas: weeks, but if you look at what happened at the 187 00:10:35,750 --> 00:10:38,900 Evan Lucas: start of the Ukraine crisis, it fell like a stone 188 00:10:38,900 --> 00:10:41,490 Evan Lucas: and then took off. Now that sort of comes the 189 00:10:41,490 --> 00:10:43,770 Evan Lucas: next part of your question, what do I think is 190 00:10:43,770 --> 00:10:47,190 Evan Lucas: pushing it around? Well, it's also the biggest providers and 191 00:10:47,190 --> 00:10:50,900 Evan Lucas: users of cryptos tend to be frontier markets, tend to 192 00:10:50,900 --> 00:10:53,640 Evan Lucas: be frontier countries. You'd have to make an argument that 193 00:10:53,640 --> 00:10:58,750 Evan Lucas: there's been big, big movements around how particularly Russian rubles 194 00:10:58,750 --> 00:11:02,929 Evan Lucas: are being exchanged and where Russia is now using exchanges 195 00:11:02,929 --> 00:11:05,020 Evan Lucas: to move around. There's no doubt that they're involved. They're 196 00:11:05,020 --> 00:11:08,610 Evan Lucas: not obviously the main player, but they're part of it. Regulation is 197 00:11:08,610 --> 00:11:10,700 Evan Lucas: the next one. How do you regulate it? And what 198 00:11:10,700 --> 00:11:12,800 Evan Lucas: does regulation come into it? The reason I say it 199 00:11:12,800 --> 00:11:16,020 Evan Lucas: in that sort of response is there is more and 200 00:11:16,020 --> 00:11:19,429 Evan Lucas: more signs that regulation will probably be ... could they actually 201 00:11:19,429 --> 00:11:25,920 Evan Lucas: look at doing blockchain technology for traditional fiat currencies and 202 00:11:25,920 --> 00:11:28,309 Evan Lucas: that I think is more likely, because then you are 203 00:11:28,309 --> 00:11:34,030 Evan Lucas: going to actually get the populations globally to start adapting 204 00:11:34,030 --> 00:11:38,309 Evan Lucas: and using it more. What brings it main mainstream? I 205 00:11:38,309 --> 00:11:42,609 Evan Lucas: mean, it's certainly an amazing speculation product. People have made 206 00:11:42,610 --> 00:11:45,470 Evan Lucas: incredible amounts of money out of it and congratulations to 207 00:11:45,470 --> 00:11:48,390 Evan Lucas: them, but it is still in my eyes, it's not 208 00:11:48,390 --> 00:11:52,400 Evan Lucas: mainstream. It's not inverted commas, a true currency. Because again, 209 00:11:52,400 --> 00:11:55,040 Evan Lucas: getting back to this whole discussion is about store of 210 00:11:55,040 --> 00:11:57,750 Evan Lucas: value, inflation, et cetera. It's not a hedge against inflation, 211 00:11:57,750 --> 00:12:00,390 Evan Lucas: that is clear. And I don't think anybody that tries 212 00:12:00,390 --> 00:12:02,630 Evan Lucas: to argue that is really understanding the point of store 213 00:12:02,630 --> 00:12:05,530 Evan Lucas: of inflation. The next one is a store of value. How 214 00:12:05,530 --> 00:12:08,610 Evan Lucas: can you use a currency, an actual transfer of what 215 00:12:08,610 --> 00:12:12,209 Evan Lucas: is technically a currency is just an IOU. Here is 216 00:12:12,210 --> 00:12:16,059 Evan Lucas: a good, and here is an exchange of fund an 217 00:12:16,059 --> 00:12:19,100 Evan Lucas: IOU for X amount of dollars or X amount of 218 00:12:19,100 --> 00:12:22,540 Evan Lucas: currency of crypto, what have you. You can't be doing 219 00:12:22,540 --> 00:12:30,110 Evan Lucas: business with a value product that can move 10%, 12% per 220 00:12:30,110 --> 00:12:34,700 Evan Lucas: day. It means that this podcast is a great example. The 221 00:12:36,200 --> 00:12:40,679 Evan Lucas: subscriptions that come to this tomorrow could be 12, 10, 20, or 222 00:12:40,679 --> 00:12:43,069 Evan Lucas: even as much as 30%, they've moved to the past 223 00:12:43,420 --> 00:12:47,240 Evan Lucas: percent lower in value or 30% higher in value tomorrow. 224 00:12:47,600 --> 00:12:51,770 Evan Lucas: It's impossible therefore to do contracting. If you look at 225 00:12:51,770 --> 00:12:54,359 Evan Lucas: things like infrastructure products, how could you use cryptocurrencies to 226 00:12:55,059 --> 00:12:57,530 Evan Lucas: use a 10 year infrastructure project and pay for it 227 00:12:57,530 --> 00:13:00,370 Evan Lucas: in that? Because the value can just not be forecasted 228 00:13:00,580 --> 00:13:03,440 Evan Lucas: and cannot be stored, which is why we know what 229 00:13:03,440 --> 00:13:05,410 Evan Lucas: the Australian dollar is going to be roughly worth or 230 00:13:05,410 --> 00:13:07,059 Evan Lucas: what we know the US dollar will be worth. And 231 00:13:07,340 --> 00:13:10,760 Evan Lucas: therefore it's an easier ability to then go, " Here's my 232 00:13:10,760 --> 00:13:14,010 Evan Lucas: Australian dollars for that coffee. Here's my Australian dollars for 233 00:13:14,010 --> 00:13:16,680 Evan Lucas: that service. Here is my Australian dollars for that good." 234 00:13:17,640 --> 00:13:18,699 Evan Lucas: Cryptos aren't that yet. 235 00:13:19,000 --> 00:13:22,260 Michael Thompson: Okay. We are rapidly running out of time. But just 236 00:13:22,260 --> 00:13:25,679 Michael Thompson: trying to put together an overview really of kind of 237 00:13:25,679 --> 00:13:30,370 Michael Thompson: how to manage this element of volatility and risk throughout 238 00:13:30,370 --> 00:13:33,880 Michael Thompson: kind of turbulent times. But we've covered crypto, we've covered 239 00:13:34,020 --> 00:13:39,230 Michael Thompson: gold and really covered equities. What about property then? Because 240 00:13:39,470 --> 00:13:42,600 Michael Thompson: property is obviously subject to its own kind of form 241 00:13:42,600 --> 00:13:44,600 Michael Thompson: of volatility. And some of those factors that we've talked 242 00:13:44,600 --> 00:13:47,710 Michael Thompson: about in terms of interest rates are obviously having a 243 00:13:47,710 --> 00:13:50,630 Michael Thompson: major impact on the market. And we are seeing it 244 00:13:51,260 --> 00:13:55,260 Michael Thompson: start to slow. How should we be looking at property 245 00:13:55,429 --> 00:13:57,640 Michael Thompson: at the moment as a form of investment? 246 00:13:58,150 --> 00:14:01,720 Evan Lucas: Property is no doubt slowing down. The thing about property 247 00:14:01,720 --> 00:14:04,490 Evan Lucas: markets is that it's the most tangible market out there. 248 00:14:04,490 --> 00:14:07,860 Evan Lucas: It's the most hands on touchable market you can have, 249 00:14:07,860 --> 00:14:11,150 Evan Lucas: you physically can change your house. You can physically paint 250 00:14:11,150 --> 00:14:13,110 Evan Lucas: it, do what have you. The other thing that's interesting 251 00:14:13,300 --> 00:14:16,590 Evan Lucas: about property as well is that unlike every other market, 252 00:14:17,200 --> 00:14:20,090 Evan Lucas: it doesn't have a daily price on it. You don't 253 00:14:20,090 --> 00:14:21,810 Evan Lucas: go home to your house every day with a big 254 00:14:21,810 --> 00:14:23,490 Evan Lucas: neon sign on the top of it saying, today it 255 00:14:23,590 --> 00:14:27,140 Evan Lucas: lost 10%. It went from being worth, the median house 256 00:14:27,140 --> 00:14:31,090 Evan Lucas: price in Australia is 660, 000, today it's now worth 650. 257 00:14:31,090 --> 00:14:34,610 Evan Lucas: You just don't get that or vice versa. And the advantage 258 00:14:34,610 --> 00:14:36,710 Evan Lucas: for that is that therefore people don't panic sell, they 259 00:14:36,710 --> 00:14:39,600 Evan Lucas: don't get caught up in the emotion of volatility. The 260 00:14:39,600 --> 00:14:42,890 Evan Lucas: other thing though then particularly in slightly volatile times, or 261 00:14:42,890 --> 00:14:44,930 Evan Lucas: what your question more is, Michael, is that we've got 262 00:14:44,930 --> 00:14:47,700 Evan Lucas: a raising interest rate environment, we've got a slowing environment, 263 00:14:47,950 --> 00:14:51,090 Evan Lucas: we've got a fairly fully valued property market. Prices will 264 00:14:51,090 --> 00:14:53,810 Evan Lucas: come down. But what will also tend to be is 265 00:14:53,810 --> 00:14:56,050 Evan Lucas: that in the property market, what's slightly different is that 266 00:14:57,030 --> 00:14:59,170 Evan Lucas: people can continue to live in their homes, or people 267 00:14:59,360 --> 00:15:02,440 Evan Lucas: can continue just to hold onto their investment property. Instead 268 00:15:02,440 --> 00:15:06,640 Evan Lucas: of there being a fall and a fairly significant crash 269 00:15:06,640 --> 00:15:10,440 Evan Lucas: in the market, what happens to simple economic supply dries up 270 00:15:10,930 --> 00:15:12,870 Evan Lucas: because people don't want to sell into a market that's 271 00:15:12,870 --> 00:15:16,140 Evan Lucas: falling. All of a sudden, we're starting to see this 272 00:15:16,200 --> 00:15:20,850 Evan Lucas: already. Demand is dropping off because prices are expensive. Interest 273 00:15:20,850 --> 00:15:23,210 Evan Lucas: rates are rising. You look in Sydney and Melbourne for 274 00:15:23,210 --> 00:15:25,950 Evan Lucas: the first time for ages, they're actually starting to see 275 00:15:25,950 --> 00:15:30,400 Evan Lucas: a sustained decline in pricing. Do not be surprised therefore 276 00:15:30,400 --> 00:15:35,070 Evan Lucas: to see supply to start falling away. Because as I said, people just 277 00:15:35,070 --> 00:15:36,910 Evan Lucas: don't want to make a loss on it. And therefore 278 00:15:37,160 --> 00:15:40,460 Evan Lucas: they can sustain holding onto their home or their investment 279 00:15:40,460 --> 00:15:43,840 Evan Lucas: property for longer. What tends to happen in property, property 280 00:15:43,840 --> 00:15:47,280 Evan Lucas: is slightly different because there are other inputs into it. 281 00:15:47,640 --> 00:15:50,560 Evan Lucas: So no doubt affordability is the biggest problem right now, 282 00:15:50,630 --> 00:15:53,700 Evan Lucas: that is clear when you look at the rises in prices 283 00:15:53,700 --> 00:15:57,840 Evan Lucas: versus the rise in wages, the affordability crisis, and that's the 284 00:15:57,840 --> 00:16:01,010 Evan Lucas: correct word is certainly driving that and now interest rates. 285 00:16:01,470 --> 00:16:04,160 Evan Lucas: What will be the next driver from my perspective is 286 00:16:04,290 --> 00:16:07,890 Evan Lucas: supply. And it will therefore moderate the declines. I don't 287 00:16:07,890 --> 00:16:12,520 Evan Lucas: expect some forecast of crashing. It just doesn't happen like that. 288 00:16:12,520 --> 00:16:14,570 Evan Lucas: It could certainly decline by 10%. It's not going to 289 00:16:14,810 --> 00:16:18,100 Evan Lucas: decline by 30 like some people are forecasting because nobody's 290 00:16:18,100 --> 00:16:19,980 Evan Lucas: going to start selling their property if prices go that 291 00:16:19,980 --> 00:16:22,400 Evan Lucas: high, and then you're still going to have demand. People 292 00:16:22,400 --> 00:16:24,640 Evan Lucas: still are going to need a new home, are still 293 00:16:24,640 --> 00:16:26,910 Evan Lucas: going to want a new home. So demand will still 294 00:16:26,910 --> 00:16:29,720 Evan Lucas: always be there. So when those properties come up, they 295 00:16:29,720 --> 00:16:32,100 Evan Lucas: will still have a level of demand to keep prices 296 00:16:32,100 --> 00:16:34,710 Evan Lucas: relatively strong even in a falling market. 297 00:16:35,610 --> 00:16:40,160 Michael Thompson: We started the conversation talking about time. And so I'd 298 00:16:40,160 --> 00:16:43,850 Michael Thompson: like to finish with infrastructure and bonds kind of in 299 00:16:43,850 --> 00:16:48,100 Michael Thompson: terms of they have a reputation for obviously stability, but most 300 00:16:48,350 --> 00:16:52,920 Michael Thompson: people really their greatest exposure to these asset classes is 301 00:16:52,920 --> 00:16:56,720 Michael Thompson: probably going to be through their Superfund. How should people 302 00:16:56,770 --> 00:16:59,750 Michael Thompson: be looking at their Super right now? And in doing 303 00:16:59,750 --> 00:17:04,340 Michael Thompson: so, thinking about infrastructure and bonds is probably the most ... their 304 00:17:04,340 --> 00:17:07,000 Michael Thompson: Superfund being the vehicle through which they're going to be 305 00:17:07,000 --> 00:17:10,760 Michael Thompson: able to have some exposure and interaction with those classes. 306 00:17:11,630 --> 00:17:13,720 Evan Lucas: I'm just going to take that a little bit further as well. The other advantage of 307 00:17:13,720 --> 00:17:16,150 Evan Lucas: Super getting back to the point you made about time, is 308 00:17:16,150 --> 00:17:18,649 Evan Lucas: that part of the way to play with volatility and 309 00:17:18,650 --> 00:17:20,260 Evan Lucas: part of the way to look through it is to 310 00:17:20,260 --> 00:17:23,109 Evan Lucas: basically be constantly adding to your investment. If you can 311 00:17:23,109 --> 00:17:25,890 Evan Lucas: look through time, it's called dollar cost averaging where right 312 00:17:25,890 --> 00:17:28,619 Evan Lucas: now or actually they're not, but in the ASX example, 313 00:17:28,619 --> 00:17:31,220 Evan Lucas: but when markets are down, if you are just constantly 314 00:17:31,220 --> 00:17:34,640 Evan Lucas: adding to your portfolio, the average price of your overall 315 00:17:34,640 --> 00:17:37,469 Evan Lucas: cost base will drop down or drop up. But if 316 00:17:37,470 --> 00:17:41,001 Evan Lucas: you are constantly doing that, then you just, the year 10 (inaudible) 317 00:17:41,001 --> 00:17:44,090 Evan Lucas: all learn about compound investing and compound interest, and 318 00:17:44,090 --> 00:17:46,450 Evan Lucas: it just helps you that way. But getting back, so 319 00:17:46,450 --> 00:17:48,460 Evan Lucas: the advantage of Super is that you're forced to do 320 00:17:48,460 --> 00:17:52,570 Evan Lucas: it. That's the incredible thing about Super is that why Australia is so 321 00:17:52,570 --> 00:17:55,070 Evan Lucas: far ahead from most other countries is because you are 322 00:17:55,070 --> 00:17:57,939 Evan Lucas: forced to put 9. 5%, going up to 12 over 323 00:17:57,940 --> 00:18:02,810 Evan Lucas: the next three years into your investments. Looking at infrastructure 324 00:18:02,810 --> 00:18:05,480 Evan Lucas: and looking at bonds, the advantage of infrastructure is that 325 00:18:05,480 --> 00:18:08,830 Evan Lucas: they are incredibly long term projects. They are big and have 326 00:18:08,830 --> 00:18:13,410 Evan Lucas: a decent return. If you look at what infrastructure returns, 327 00:18:13,410 --> 00:18:16,359 Evan Lucas: it's about 3% to 4% per annum. And that is a 328 00:18:16,490 --> 00:18:19,420 Evan Lucas: great advice. And that doesn't matter through almost anything because 329 00:18:19,420 --> 00:18:22,610 Evan Lucas: infrastructure is always needed. We always need better roads, better 330 00:18:22,970 --> 00:18:26,780 Evan Lucas: airports, better trains, blah, blah, blah. Not just that, you 331 00:18:26,780 --> 00:18:28,609 Evan Lucas: then have other things as well that come inside the 332 00:18:28,609 --> 00:18:32,000 Evan Lucas: infrastructure space and superfunds have worked that out. That also 333 00:18:32,000 --> 00:18:35,320 Evan Lucas: sits inside their mandates, they need them because they're such 334 00:18:35,320 --> 00:18:38,320 Evan Lucas: a core part of their defensive side of their portfolio. 335 00:18:38,670 --> 00:18:41,390 Evan Lucas: Infrastructure is what it is onto one side. Let's have 336 00:18:41,390 --> 00:18:45,389 Evan Lucas: a look at bonds though. Bonds are really interesting asset 337 00:18:45,390 --> 00:18:49,119 Evan Lucas: class right now because they're actually losing out, so higher interest 338 00:18:49,119 --> 00:18:51,480 Evan Lucas: rates, certainly not helping them. People know rates are going 339 00:18:51,480 --> 00:18:54,950 Evan Lucas: higher and they're shedding them. You've also then got, and 340 00:18:54,950 --> 00:18:56,530 Evan Lucas: I don't have time to talk about this too much, 341 00:18:56,530 --> 00:19:01,930 Evan Lucas: but the differential between bond yields and real yields. Real 342 00:19:01,930 --> 00:19:04,720 Evan Lucas: yields are actually negative. And by real yields, that's when 343 00:19:04,720 --> 00:19:07,820 Evan Lucas: you include inflation. So most yields, even the best ones 344 00:19:07,820 --> 00:19:10,300 Evan Lucas: out there, stuff like 10 years in the US, et 345 00:19:10,300 --> 00:19:14,790 Evan Lucas: cetera, they're 2.5%, 2. 7% in Australia, what have you, it 346 00:19:14,790 --> 00:19:17,480 Evan Lucas: doesn't matter. Once you put inflation in that, they're actually 347 00:19:17,480 --> 00:19:20,600 Evan Lucas: a negative response. So you're actually losing money just through 348 00:19:20,600 --> 00:19:24,960 Evan Lucas: inflation degradation. And that's why bonds of late has been 349 00:19:24,960 --> 00:19:28,639 Evan Lucas: a really, really talked about subject because they are supposed 350 00:19:28,640 --> 00:19:33,030 Evan Lucas: to be seen as this absolutely conservative opportunity. The other 351 00:19:33,030 --> 00:19:36,300 Evan Lucas: thing I would say, don't forget a fixed income bond, which 352 00:19:36,300 --> 00:19:38,190 Evan Lucas: is what I will refer to something that has capital 353 00:19:38,190 --> 00:19:41,129 Evan Lucas: growth and also a yield component. Whereas a cash component 354 00:19:41,130 --> 00:19:43,500 Evan Lucas: is something like a term deposit that doesn't have a 355 00:19:43,500 --> 00:19:46,359 Evan Lucas: movement in capital. And the capital prices being eroded as 356 00:19:46,359 --> 00:19:50,010 Evan Lucas: well. Investors keep asking that question, why should I hold 357 00:19:50,010 --> 00:19:52,369 Evan Lucas: bonds? Because over the last couple of years, they've been 358 00:19:52,369 --> 00:19:54,950 Evan Lucas: really savaged. The thing is though, again, like any other 359 00:19:54,950 --> 00:19:57,310 Evan Lucas: market, if you look longer term, bonds have actually done 360 00:19:57,820 --> 00:20:00,920 Evan Lucas: pretty well leading into 2018. In fact, they were doing 361 00:20:00,920 --> 00:20:04,730 Evan Lucas: returns that were the same as equities. It's just that 362 00:20:04,730 --> 00:20:08,859 Evan Lucas: question you've asked me before, Michael, which is time. It 363 00:20:08,859 --> 00:20:11,640 Evan Lucas: just depends on when you are looking at time. And there are 364 00:20:11,640 --> 00:20:13,330 Evan Lucas: some arguments to be made, that if you're looking longer 365 00:20:13,330 --> 00:20:17,000 Evan Lucas: term, bonds are trading at quite high discounts. And that's 366 00:20:17,000 --> 00:20:19,280 Evan Lucas: why people will tell you and continue to tell you 367 00:20:19,280 --> 00:20:22,830 Evan Lucas: that investing in them still has an advantageous longer term 368 00:20:22,830 --> 00:20:25,890 Evan Lucas: view because they are discounted to their face value and that 369 00:20:26,250 --> 00:20:28,900 Evan Lucas: therefore will sooner or later come home to maturity and 370 00:20:28,900 --> 00:20:30,350 Evan Lucas: therefore you'll get paid that difference. 371 00:20:30,630 --> 00:20:32,550 Michael Thompson: All right, Evan, thank you for talking to Fear and Greed. 372 00:20:33,280 --> 00:20:36,770 Evan Lucas: Thank you, Michael. Thank you for having me. That was a lot there. I'm very, 373 00:20:36,770 --> 00:20:37,930 Evan Lucas: very appreciative for having me on. 374 00:20:37,930 --> 00:20:40,919 Michael Thompson: I think it's very comprehensive and really the take home 375 00:20:40,920 --> 00:20:42,120 Michael Thompson: message is time. 376 00:20:42,260 --> 00:20:42,700 Evan Lucas: Time. 377 00:20:42,869 --> 00:20:46,000 Michael Thompson: That's it. All right. That's Evan Lucas, head of strategy at InvestSMART. 378 00:20:46,070 --> 00:20:48,149 Michael Thompson: This is the Fear and Greed Daily Interview. Join us 379 00:20:48,150 --> 00:20:50,360 Michael Thompson: every morning for the full episode of Fear and Greed, 380 00:20:50,609 --> 00:20:53,990 Michael Thompson: Australia's most popular business podcast. I'm Michael Thompson, have a 381 00:20:53,990 --> 00:20:54,480 Michael Thompson: great day.