1 00:00:10,119 --> 00:00:13,040 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:13,119 --> 00:00:16,480 Speaker 1: James Kirby. Welcome aboard everybody. Now, we have been skeptical, 3 00:00:16,760 --> 00:00:20,239 Speaker 1: very skeptical about the boom and private credit funds being 4 00:00:20,280 --> 00:00:23,280 Speaker 1: pushed I think at every day investors for some time, 5 00:00:23,400 --> 00:00:26,200 Speaker 1: and I think some of that question is beginning to 6 00:00:26,280 --> 00:00:31,080 Speaker 1: be justified. There is issues here locally and there are 7 00:00:31,400 --> 00:00:34,879 Speaker 1: bigger issues overseas. So these private credit funds are, guess what, 8 00:00:35,040 --> 00:00:37,479 Speaker 1: getting into trouble. I want to talk about that today. 9 00:00:37,560 --> 00:00:39,559 Speaker 1: I also want to talk about the different issue, but 10 00:00:39,640 --> 00:00:43,720 Speaker 1: important issue, commissions in financial advice. I thought they were banned, 11 00:00:44,680 --> 00:00:48,120 Speaker 1: So how come we're seeing so much headlines and comment 12 00:00:48,159 --> 00:00:50,879 Speaker 1: about commissions in this first Guardian scandal And what are 13 00:00:50,920 --> 00:00:54,400 Speaker 1: they actually commissioned? That's the thing. And oh, yes, funds 14 00:00:54,400 --> 00:00:58,640 Speaker 1: are back, believe it or not. Even government bonds are back. Yes, boring, 15 00:00:58,720 --> 00:01:02,760 Speaker 1: but hey more than four percent and already. So who 16 00:01:02,800 --> 00:01:05,360 Speaker 1: could cover these diverse issues for us? 17 00:01:05,400 --> 00:01:05,680 Speaker 2: Well? 18 00:01:05,760 --> 00:01:11,800 Speaker 1: Doug Charek, Family Office advisor and Investment Committee director, friend 19 00:01:11,840 --> 00:01:14,560 Speaker 1: of the show. We haven't talked for a while. How 20 00:01:14,640 --> 00:01:15,240 Speaker 1: are you, Doug? 21 00:01:16,200 --> 00:01:18,679 Speaker 2: James, I'm terrific and hello listeners. 22 00:01:19,080 --> 00:01:22,520 Speaker 1: Great to have you on I mean family office, and 23 00:01:22,560 --> 00:01:25,440 Speaker 1: that scene is very much a scene. Now you were 24 00:01:25,760 --> 00:01:29,280 Speaker 1: full time engaged before that as an advisor for a 25 00:01:29,319 --> 00:01:33,640 Speaker 1: lot of time Baron's Top hundred advisor. Just for the 26 00:01:33,680 --> 00:01:39,160 Speaker 1: everyday listener. We're hearing all this stuff about commissions at 27 00:01:39,480 --> 00:01:42,120 Speaker 1: First guard in that scandal, which is the worst scandal 28 00:01:42,160 --> 00:01:45,000 Speaker 1: in financial advice. For some time, I thought commissions were gone, 29 00:01:45,160 --> 00:01:46,679 Speaker 1: I mean are they gone. 30 00:01:47,440 --> 00:01:51,120 Speaker 2: They mostly are gone. And in the case of First 31 00:01:51,880 --> 00:01:56,760 Speaker 2: Guardian and Shield, they were bypassed. They were bypassed as 32 00:01:57,200 --> 00:02:02,440 Speaker 2: through some payments for for flow I guess volume bonuses, 33 00:02:02,480 --> 00:02:05,440 Speaker 2: whatever you want to call them. So the you know, 34 00:02:05,520 --> 00:02:09,280 Speaker 2: commissions are gone in most cases, probably two important exceptions. 35 00:02:09,840 --> 00:02:13,760 Speaker 2: One is in insurance commission insurance is are sold, not 36 00:02:13,880 --> 00:02:18,360 Speaker 2: bought product and having handed over checks to widows, to 37 00:02:18,480 --> 00:02:22,679 Speaker 2: the terminally ill and the ill in a former life. 38 00:02:23,000 --> 00:02:26,359 Speaker 2: I don't worry too much about over selling insurance because 39 00:02:26,360 --> 00:02:28,440 Speaker 2: we have an insurance crisis and no one wants to 40 00:02:28,440 --> 00:02:31,359 Speaker 2: pay for insurance advice, so I don't worry about that 41 00:02:31,440 --> 00:02:34,960 Speaker 2: and so much. And there are caps and there are disclosures, 42 00:02:35,040 --> 00:02:37,359 Speaker 2: and there are rules now to have to pay insurance, 43 00:02:37,400 --> 00:02:41,560 Speaker 2: and funny enough, my last body corporate property meeting. That 44 00:02:41,720 --> 00:02:44,639 Speaker 2: turns out half of the fee of the body corporate 45 00:02:44,760 --> 00:02:49,240 Speaker 2: agent is from an insurance commission. So anyway, let's set 46 00:02:49,280 --> 00:02:50,959 Speaker 2: aside insurance commissions. 47 00:02:51,040 --> 00:02:54,320 Speaker 1: Sorry it's yours. And mortgage brokers they're kind of outside 48 00:02:54,320 --> 00:02:55,119 Speaker 1: the loop here. 49 00:02:55,040 --> 00:02:57,120 Speaker 2: Yeah, I think. And mortgage brokers are still there. And 50 00:02:57,200 --> 00:03:02,119 Speaker 2: another one which is probably problematic still and is undealt 51 00:03:02,120 --> 00:03:06,560 Speaker 2: with is sophisticated wholesale investors. So your listeners should be 52 00:03:06,639 --> 00:03:10,359 Speaker 2: very careful when they are signing up for a financial 53 00:03:10,400 --> 00:03:13,799 Speaker 2: product that is being sold where they are treated as 54 00:03:13,840 --> 00:03:17,560 Speaker 2: a sophisticated a wholesale investor because those retail protections do 55 00:03:17,639 --> 00:03:21,600 Speaker 2: not apply, and the person promoting that stock offer might 56 00:03:21,600 --> 00:03:24,720 Speaker 2: get one and a half percent of the IPO, they 57 00:03:24,760 --> 00:03:28,320 Speaker 2: may get kickbacks and commissions. So yeah, that one, and 58 00:03:28,400 --> 00:03:31,320 Speaker 2: there is some very there's some good questions about what 59 00:03:31,480 --> 00:03:34,120 Speaker 2: is the test for a sophisticated investor and it seems 60 00:03:34,120 --> 00:03:37,000 Speaker 2: to be dropped by government. But coming back to First 61 00:03:37,000 --> 00:03:40,480 Speaker 2: Guardian and Shield, it's a tragedy. The core of the 62 00:03:40,520 --> 00:03:46,040 Speaker 2: tragedy is poorly designed financial product that took too much risk, 63 00:03:46,240 --> 00:03:50,920 Speaker 2: highly concentrated property development, and allegedly fraud if one of 64 00:03:50,960 --> 00:03:55,200 Speaker 2: the operators indeed has a Lamborghini and a riverfront house 65 00:03:55,320 --> 00:03:58,120 Speaker 2: because of this is not proper. But what made the 66 00:03:58,160 --> 00:04:01,720 Speaker 2: problem worse was the high hyper marketing and the hyper 67 00:04:01,760 --> 00:04:05,360 Speaker 2: marketing of that made this problem bigger when it eventually exploded. 68 00:04:06,240 --> 00:04:09,360 Speaker 2: Is where your question comes from, which is, you know, 69 00:04:09,480 --> 00:04:12,080 Speaker 2: how did the incentives work. It is illegal for a 70 00:04:12,080 --> 00:04:15,240 Speaker 2: retail advisor to hawk or call someone for advice, but 71 00:04:15,280 --> 00:04:18,679 Speaker 2: it's apparently not illegal for them to pay for leads, 72 00:04:19,240 --> 00:04:23,120 Speaker 2: and there are a few lead generation firms out there. 73 00:04:23,120 --> 00:04:25,040 Speaker 1: The lead generation. Yeah. 74 00:04:25,080 --> 00:04:27,800 Speaker 2: Well, it's a complicated scandal and we could talk about 75 00:04:27,880 --> 00:04:30,320 Speaker 2: so many aspects of it, Like at the moment, the 76 00:04:30,360 --> 00:04:33,320 Speaker 2: regulator is going after the superannuation trustees and saying you 77 00:04:33,320 --> 00:04:35,720 Speaker 2: should have done a better job as the market, as 78 00:04:35,760 --> 00:04:38,600 Speaker 2: the supermarket operator to know what was on your shelves, 79 00:04:38,839 --> 00:04:41,520 Speaker 2: and they're like, well, I thought I was just running 80 00:04:41,520 --> 00:04:44,760 Speaker 2: a supermarket and the personal shoppers were responsible. And then 81 00:04:44,760 --> 00:04:47,600 Speaker 2: of course you know the people who rated the products, 82 00:04:47,880 --> 00:04:50,000 Speaker 2: that's pretty clear. I think that they didn't do a 83 00:04:50,000 --> 00:04:52,160 Speaker 2: good job, didn't do their due diligence. But there's a 84 00:04:52,240 --> 00:04:55,479 Speaker 2: whole bunch of finger pointing going on. It's alleged the 85 00:04:55,480 --> 00:04:58,040 Speaker 2: regulator was told about this for many years. Didn't that 86 00:04:58,160 --> 00:05:01,160 Speaker 2: quick enough? I don't know, you're the investigator journalist, James, 87 00:05:01,160 --> 00:05:02,760 Speaker 2: and I'm only reading the second hand. 88 00:05:02,800 --> 00:05:07,440 Speaker 1: But and it should be said that Macquarie and Laser 89 00:05:07,520 --> 00:05:10,239 Speaker 1: Self Wealth have actually come to the table and paid 90 00:05:10,279 --> 00:05:11,440 Speaker 1: outfold give. 91 00:05:11,320 --> 00:05:14,800 Speaker 2: Contributed some money. That's right, there's the hat is going around. 92 00:05:14,839 --> 00:05:16,760 Speaker 2: And then there's a big problem that we have the 93 00:05:17,839 --> 00:05:21,520 Speaker 2: financial scheme of Last Resort, which is going to run 94 00:05:21,560 --> 00:05:24,480 Speaker 2: out of money if it has to keep funding these things. 95 00:05:24,520 --> 00:05:26,760 Speaker 2: And the funding base of that is a narrow set 96 00:05:26,760 --> 00:05:30,359 Speaker 2: of advisors, not institutions, not product providers. So then the 97 00:05:30,400 --> 00:05:32,760 Speaker 2: government is now you probably have told listeners going to 98 00:05:32,800 --> 00:05:35,920 Speaker 2: put a tax on self managed super funds who aren't 99 00:05:35,920 --> 00:05:38,520 Speaker 2: even eligible to participate in this scheme, but they have 100 00:05:38,600 --> 00:05:42,360 Speaker 2: to contribute. So yeah, we're back to a mess. It's 101 00:05:42,360 --> 00:05:44,960 Speaker 2: a shame because again you know even that when Assek 102 00:05:45,120 --> 00:05:48,880 Speaker 2: published the list of lead generations and firms using it, 103 00:05:49,000 --> 00:05:54,240 Speaker 2: you know it's ten firms amongst a thousand or five hundred, 104 00:05:54,279 --> 00:05:56,680 Speaker 2: So it's another case of bad apples. 105 00:05:57,160 --> 00:06:00,000 Speaker 1: So just to terrify folks, if you followed that issue 106 00:06:00,160 --> 00:06:03,760 Speaker 1: with first garagon as Doug says, the law is the law. 107 00:06:03,920 --> 00:06:07,320 Speaker 1: There is no commissions anymore financial advice. There are commissions 108 00:06:07,320 --> 00:06:10,400 Speaker 1: for insurance, there are commissions for mortgage broken and in 109 00:06:10,440 --> 00:06:12,400 Speaker 1: the case of First Garagon, if you look at it closely, 110 00:06:12,400 --> 00:06:15,200 Speaker 1: in terms of the regulatory and legal actions so far, 111 00:06:15,240 --> 00:06:19,120 Speaker 1: the word commissions isn't used. There is a spectacular array 112 00:06:19,200 --> 00:06:24,240 Speaker 1: of fees, highly controversial fees, and alleged fraud in that area. 113 00:06:24,600 --> 00:06:27,159 Speaker 1: We will see that play out. But for what it's worth, 114 00:06:27,320 --> 00:06:29,839 Speaker 1: all that talk about commissions in the press is actually 115 00:06:30,960 --> 00:06:33,560 Speaker 1: they're using the wrong word. Commissions are banned. If that 116 00:06:33,640 --> 00:06:35,840 Speaker 1: makes you feel any better, I don't know if it does, Doug, 117 00:06:35,880 --> 00:06:37,719 Speaker 1: I want to talk to you about a couple of 118 00:06:37,720 --> 00:06:39,080 Speaker 1: things that you want to talk about. 119 00:06:39,160 --> 00:06:41,159 Speaker 2: Oh well, just before The only other thing I could 120 00:06:41,200 --> 00:06:43,960 Speaker 2: suggest as a consumer protection is, you know, it does 121 00:06:44,040 --> 00:06:47,480 Speaker 2: look like if you were working with an independent firm 122 00:06:47,800 --> 00:06:51,679 Speaker 2: who receives no types of these payments and aren't allowed 123 00:06:51,680 --> 00:06:54,719 Speaker 2: to receive any commissions, you might have been better protected. 124 00:06:54,800 --> 00:06:58,920 Speaker 2: So that's another suggestion for listeners is be careful being 125 00:06:59,560 --> 00:07:03,040 Speaker 2: considered a sophisticated wholesale investor in opting out of these 126 00:07:03,080 --> 00:07:05,960 Speaker 2: retail protections and other and if you are searching for advice, 127 00:07:05,960 --> 00:07:08,679 Speaker 2: and I do believe in the value advice, I would 128 00:07:08,680 --> 00:07:11,640 Speaker 2: favor looking for an independent firm of which you know 129 00:07:11,720 --> 00:07:13,800 Speaker 2: there are five ten percent of the operators out there 130 00:07:13,800 --> 00:07:16,480 Speaker 2: would meet. That's harder than past definition. 131 00:07:17,080 --> 00:07:19,360 Speaker 1: And don't be flattered. Don't be flattered by the fact 132 00:07:19,360 --> 00:07:22,680 Speaker 1: that you're you qualify as a sophisticated investor, especially if 133 00:07:22,680 --> 00:07:25,520 Speaker 1: somebody seems to be more enthusiastic than you are. All right, 134 00:07:25,600 --> 00:07:35,040 Speaker 1: we'll take a short break back in a moment. Hello, 135 00:07:35,120 --> 00:07:38,160 Speaker 1: Welcome back to the Australians Money Puzzle podcast. James Krby 136 00:07:38,200 --> 00:07:42,040 Speaker 1: here with Dr Doug Turek, a regular on the show. 137 00:07:42,240 --> 00:07:44,440 Speaker 1: You have heard him many times over the years on 138 00:07:44,600 --> 00:07:47,840 Speaker 1: many subjects, A very experienced advisor and now in the 139 00:07:47,840 --> 00:07:52,800 Speaker 1: family office advisory world, which is another league altogether. So 140 00:07:52,880 --> 00:07:56,320 Speaker 1: tell us in that world, Doug. Private credit. All of 141 00:07:56,360 --> 00:07:58,440 Speaker 1: a sudden, we have been warning on the show. Maybe 142 00:07:58,520 --> 00:08:03,440 Speaker 1: we were too conservative on the show, telling people not 143 00:08:03,560 --> 00:08:07,040 Speaker 1: to go near it in many cases, but really I've 144 00:08:07,080 --> 00:08:11,640 Speaker 1: always been skeptical that the everyday investor listening to the 145 00:08:11,680 --> 00:08:14,920 Speaker 1: show is a suitable candidate for private credit. Most of it, 146 00:08:15,040 --> 00:08:19,320 Speaker 1: most people, most of the time suddenly suddenly there are 147 00:08:19,440 --> 00:08:21,760 Speaker 1: some funds well. Blew Out of course, is in the 148 00:08:21,840 --> 00:08:25,280 Speaker 1: terrible spot, very big operator in the US, and it's 149 00:08:25,320 --> 00:08:29,920 Speaker 1: share price been sort off really heavily. So what's going 150 00:08:30,000 --> 00:08:35,080 Speaker 1: on and what's your view now about private credit? I 151 00:08:35,120 --> 00:08:37,319 Speaker 1: don't mean for family officers, I'm sure they know what 152 00:08:37,360 --> 00:08:39,560 Speaker 1: they're doing, but for the everyday investor. 153 00:08:40,920 --> 00:08:44,800 Speaker 2: Well, I think James, your right to caution investors that 154 00:08:44,960 --> 00:08:48,600 Speaker 2: when you're bundling your money with others and lending it 155 00:08:48,640 --> 00:08:53,400 Speaker 2: out in a way where you surrender access to your monies, 156 00:08:53,640 --> 00:08:56,600 Speaker 2: be careful they may not be always available to you. 157 00:08:56,840 --> 00:08:59,800 Speaker 2: And austrain investors probably know a little bit more about 158 00:08:59,800 --> 00:09:03,920 Speaker 2: this than American investors. I do remember through the GFC, 159 00:09:04,040 --> 00:09:08,120 Speaker 2: Australian investors were taught a very hard lesson around unlisted 160 00:09:08,160 --> 00:09:12,960 Speaker 2: property trusts freezing and mortgage trusts freezing. And some of 161 00:09:13,000 --> 00:09:17,480 Speaker 2: these funds did fine eventually, But when all the when 162 00:09:17,559 --> 00:09:20,839 Speaker 2: there is a run in redemptions on a pool of 163 00:09:20,880 --> 00:09:24,760 Speaker 2: investments that are not on liquid the money, these funds 164 00:09:24,800 --> 00:09:27,960 Speaker 2: have to freeze to protect themselves. Now, a basket of 165 00:09:28,080 --> 00:09:31,400 Speaker 2: private credit loans, you know, probably will come back to 166 00:09:31,480 --> 00:09:34,280 Speaker 2: the lender in a year or two. So it's probably 167 00:09:34,559 --> 00:09:38,520 Speaker 2: more liquid than a basket of property or a basket 168 00:09:38,520 --> 00:09:41,320 Speaker 2: of private equity, which has even bigger liquidity problems. But 169 00:09:41,360 --> 00:09:44,000 Speaker 2: liquidity is this funny thing. For ninety percent of the time, 170 00:09:44,040 --> 00:09:46,120 Speaker 2: no one worries about it and thinks that they can 171 00:09:46,160 --> 00:09:48,600 Speaker 2: get their money back out at the end of the 172 00:09:48,640 --> 00:09:51,000 Speaker 2: month or with thirty days notice or whatever one of 173 00:09:51,040 --> 00:09:53,960 Speaker 2: these unlisted fund rules are. But as soon as there's 174 00:09:53,960 --> 00:09:57,200 Speaker 2: a rush to the exits, there's not liquid assets to sell, 175 00:09:57,240 --> 00:09:59,679 Speaker 2: and the operator is probably doing the right thing by 176 00:09:59,720 --> 00:10:03,280 Speaker 2: the ulka the investors, and that's not it's just freezing 177 00:10:03,320 --> 00:10:06,480 Speaker 2: the exit and gating and letting people out slowly. But 178 00:10:06,600 --> 00:10:08,120 Speaker 2: it's a little bit like a run on a bank. 179 00:10:08,400 --> 00:10:11,760 Speaker 2: One investor runs if you see a queue at the bank, 180 00:10:12,000 --> 00:10:14,440 Speaker 2: then everyone panics and the bank will just freeze, And 181 00:10:14,480 --> 00:10:17,160 Speaker 2: that's kind of what's happening. You mentioned Blue Owl, which 182 00:10:17,200 --> 00:10:21,400 Speaker 2: is a very large and capable private lender in America, 183 00:10:21,880 --> 00:10:26,199 Speaker 2: and they have a number of unlisted funds, and coincidentally, 184 00:10:26,280 --> 00:10:29,559 Speaker 2: they have almost the identical fund listed on the stock market, 185 00:10:29,960 --> 00:10:32,439 Speaker 2: and the fund listed on the stock market is trading 186 00:10:32,480 --> 00:10:36,440 Speaker 2: at a discount of about thirty percent to the asset value. 187 00:10:37,040 --> 00:10:40,160 Speaker 2: And those funds, by the way, are so confident they're 188 00:10:40,360 --> 00:10:43,520 Speaker 2: geared about two x. So what they're kind what the investor, 189 00:10:43,559 --> 00:10:46,880 Speaker 2: what the share market is saying is we think that 190 00:10:47,000 --> 00:10:50,080 Speaker 2: the loans out there are only eighty five cents good 191 00:10:50,120 --> 00:10:52,960 Speaker 2: on the dollar, you know, doubled up for gearing. So 192 00:10:53,360 --> 00:10:55,520 Speaker 2: that's maybe the market doing its job. And you can 193 00:10:55,559 --> 00:10:58,800 Speaker 2: invest in the Blue Owl Fund. OBDC is one of 194 00:10:58,840 --> 00:11:02,640 Speaker 2: the largest of these funds, and it's giving you supposedly 195 00:11:02,640 --> 00:11:05,440 Speaker 2: a yield of thirteen percent, but that's before they might 196 00:11:05,559 --> 00:11:10,160 Speaker 2: slow redemptions or anyway. But the unlisted version of that 197 00:11:10,200 --> 00:11:12,920 Speaker 2: fund is being sold at par and the investors in 198 00:11:13,000 --> 00:11:16,120 Speaker 2: those funds think they for every dollar they have invested, 199 00:11:16,120 --> 00:11:18,800 Speaker 2: it's worth a dollar. And then they look over the 200 00:11:18,880 --> 00:11:20,960 Speaker 2: shoulder at the share market and they go, well, a 201 00:11:21,080 --> 00:11:23,800 Speaker 2: dollar of these same assets is only trading at seventy 202 00:11:23,840 --> 00:11:27,160 Speaker 2: cents in the dollar. So something's not right here. So 203 00:11:27,240 --> 00:11:29,400 Speaker 2: now no surprise, a lot of investors are running for 204 00:11:29,440 --> 00:11:32,040 Speaker 2: the exits and they've had to freeze the fund. 205 00:11:32,400 --> 00:11:35,120 Speaker 1: The fund and the thing is Doug the regulator here 206 00:11:35,160 --> 00:11:37,199 Speaker 1: ACIK just a few months ago came out and you 207 00:11:37,240 --> 00:11:41,680 Speaker 1: know the big names Metrics, credit partners La Trube, the Acid. 208 00:11:41,920 --> 00:11:44,679 Speaker 1: You put out a warning effectively quite a strong warning 209 00:11:44,679 --> 00:11:47,800 Speaker 1: before Christmas that they were unhappy with many aspects of 210 00:11:47,920 --> 00:11:52,720 Speaker 1: these funds, particularly their transparency. And that's from a that's 211 00:11:52,720 --> 00:11:57,760 Speaker 1: from a regulatory, pretty sophisticated view. But for everyday investors, 212 00:11:57,800 --> 00:12:00,719 Speaker 1: I think the issue is tell me if I'm wrong. 213 00:12:00,760 --> 00:12:03,120 Speaker 1: When you go to one of these funds, they say, so, 214 00:12:03,200 --> 00:12:05,200 Speaker 1: this is not like the share market. Okay, this is unlisted, 215 00:12:05,280 --> 00:12:07,040 Speaker 1: but you can get your money out and they might 216 00:12:07,040 --> 00:12:10,000 Speaker 1: say quarterly. You know, they might say monthly. But there's 217 00:12:10,080 --> 00:12:14,160 Speaker 1: fine print, isn't there, And that ability to get your 218 00:12:14,160 --> 00:12:18,559 Speaker 1: money out quarterly is really it's discretionary. 219 00:12:18,960 --> 00:12:22,319 Speaker 2: It only works if there's only far less than ten 220 00:12:22,360 --> 00:12:25,000 Speaker 2: percent of the assets that won out at that day. 221 00:12:25,080 --> 00:12:26,760 Speaker 2: So again, if there's a kind of run on the 222 00:12:26,800 --> 00:12:29,480 Speaker 2: fund like a run on the bank, that the just 223 00:12:29,640 --> 00:12:32,400 Speaker 2: is not enough liquidity. And ninety percent of the time 224 00:12:32,400 --> 00:12:35,280 Speaker 2: this is not an issue. Now ask did an excellent job, 225 00:12:35,320 --> 00:12:37,440 Speaker 2: and then all the listeners can go on and read 226 00:12:37,440 --> 00:12:39,560 Speaker 2: that report. It's well written. It has about half a 227 00:12:39,600 --> 00:12:42,960 Speaker 2: dozen concerns. It has some concerns around fee transparency and 228 00:12:43,040 --> 00:12:46,160 Speaker 2: inter party details, and it just shows that you know, 229 00:12:46,240 --> 00:12:49,560 Speaker 2: these things aren't as safe as term deposits, and yet 230 00:12:49,600 --> 00:12:52,199 Speaker 2: they some of them are being marketed like that. And 231 00:12:52,480 --> 00:12:56,000 Speaker 2: you know, we could probably link this into APRA's decision 232 00:12:56,160 --> 00:13:00,280 Speaker 2: to stop retail investors investing in hybrid securities. And you know, 233 00:13:00,280 --> 00:13:03,320 Speaker 2: the first thing to remember is there are securities out 234 00:13:03,320 --> 00:13:06,040 Speaker 2: there available on the market that will last as long 235 00:13:06,080 --> 00:13:09,120 Speaker 2: as twenty thirty two. So I'm personally a fan, and 236 00:13:09,240 --> 00:13:11,560 Speaker 2: I think you might as well just stay there and wait. 237 00:13:11,640 --> 00:13:15,480 Speaker 2: But some people are suggesting some of these listed private 238 00:13:15,520 --> 00:13:19,280 Speaker 2: credit funds or unlisted private credit funds are an alternative. 239 00:13:19,400 --> 00:13:22,320 Speaker 2: There's an all smorgas board of things in the bond market 240 00:13:22,400 --> 00:13:24,680 Speaker 2: that could be used in place of hydri Do. 241 00:13:24,600 --> 00:13:25,800 Speaker 1: You think they're an alternative? 242 00:13:26,760 --> 00:13:29,559 Speaker 2: They're all different, they are all I have different risk 243 00:13:29,640 --> 00:13:30,760 Speaker 2: reward features. 244 00:13:30,800 --> 00:13:34,400 Speaker 1: Well, if I said to you that bank hybrid to 245 00:13:34,480 --> 00:13:40,440 Speaker 1: me was a instrument half equity half bond, and guess 246 00:13:40,520 --> 00:13:43,880 Speaker 1: what it was linked with government guaranteed banks in Australia, 247 00:13:43,920 --> 00:13:46,000 Speaker 1: and I thought that was good enough for me before 248 00:13:46,040 --> 00:13:49,120 Speaker 1: I saw any of the ratings or the grades. And 249 00:13:49,200 --> 00:13:52,440 Speaker 1: if I was comparing that to unlisted credit funds, I 250 00:13:52,480 --> 00:13:56,320 Speaker 1: would call that shooting in the dark. So what I 251 00:13:56,320 --> 00:13:58,120 Speaker 1: mean is that they're enough remote comparable. 252 00:13:58,760 --> 00:14:01,600 Speaker 2: That's right. So the concern is, you know, we're getting 253 00:14:01,600 --> 00:14:04,800 Speaker 2: read rid of a semi risky product, and people will 254 00:14:04,800 --> 00:14:07,840 Speaker 2: find a way into riskier products. And I do believe, 255 00:14:08,559 --> 00:14:11,000 Speaker 2: given your comment, which I agree with, that they were 256 00:14:11,000 --> 00:14:14,640 Speaker 2: sort of indirectly backstopped by the federal Commonwealth government. They 257 00:14:14,760 --> 00:14:18,160 Speaker 2: paid above average return for below average risk. Now I 258 00:14:18,200 --> 00:14:20,640 Speaker 2: think the government is I can see it. If you're 259 00:14:20,640 --> 00:14:22,840 Speaker 2: sitting in Canberra, you might say, I don't like franking. 260 00:14:23,120 --> 00:14:25,520 Speaker 2: I don't like how the banks are using franking credits 261 00:14:25,560 --> 00:14:28,640 Speaker 2: here too, and I'm paying for some of this hybrid return. 262 00:14:28,800 --> 00:14:30,560 Speaker 2: And I think they could say, I don't really want 263 00:14:30,600 --> 00:14:32,600 Speaker 2: to be in the backstop game, and you know, I 264 00:14:32,640 --> 00:14:35,280 Speaker 2: want depositors to bail in a bank. I don't want 265 00:14:35,280 --> 00:14:37,120 Speaker 2: to be the government to bail in a bank. So 266 00:14:37,200 --> 00:14:40,840 Speaker 2: they're backing away from this, But that just means there'll 267 00:14:40,880 --> 00:14:43,760 Speaker 2: be other products for consumers to look at. And there's 268 00:14:43,760 --> 00:14:46,560 Speaker 2: no free lunch in finance, so if people want to 269 00:14:46,600 --> 00:14:49,440 Speaker 2: get the same return, they'll probably have to take on 270 00:14:49,560 --> 00:14:53,320 Speaker 2: more risk. So that is where we're at. I mean, 271 00:14:53,360 --> 00:14:55,560 Speaker 2: the whole bond market is bigger than the share market 272 00:14:55,720 --> 00:14:58,600 Speaker 2: much more complex. There's all kinds of different ways to 273 00:14:58,840 --> 00:15:01,840 Speaker 2: lend your money and get it back in good and 274 00:15:02,040 --> 00:15:05,440 Speaker 2: in good times we're always interested in the return on 275 00:15:05,560 --> 00:15:08,520 Speaker 2: the investment, and in bad times we're just simply worried 276 00:15:08,560 --> 00:15:10,440 Speaker 2: about the return of the investment. 277 00:15:10,720 --> 00:15:12,960 Speaker 1: So what about the investor who listening to the show, 278 00:15:12,960 --> 00:15:15,720 Speaker 1: who says, Okay, you know, I'm looking I'm looking for 279 00:15:15,840 --> 00:15:18,840 Speaker 1: alternatives at least I'm looking at for alternatives six ures 280 00:15:18,880 --> 00:15:21,800 Speaker 1: in cash. I read about these private credit funds, or 281 00:15:21,840 --> 00:15:24,280 Speaker 1: maybe someone said I went into them and I really 282 00:15:24,280 --> 00:15:25,960 Speaker 1: didn't know what I was going into, and I'm worried. 283 00:15:26,000 --> 00:15:26,200 Speaker 2: Now. 284 00:15:26,680 --> 00:15:29,400 Speaker 1: Similarly, they see the hybrids are the habits are there, 285 00:15:29,440 --> 00:15:34,920 Speaker 1: but the market is shrinking. Bonds have are sitting there 286 00:15:35,000 --> 00:15:38,640 Speaker 1: as as an alternative on the on the on the 287 00:15:38,640 --> 00:15:42,320 Speaker 1: fixed side or on the on the safer side, defensive side, 288 00:15:42,960 --> 00:15:46,280 Speaker 1: and rates have sort of crawled up along to the 289 00:15:46,280 --> 00:15:49,480 Speaker 1: point that our government bonds are now over four percent. 290 00:15:50,520 --> 00:15:55,120 Speaker 1: So what's your view on bonds for the private investor now? 291 00:15:57,040 --> 00:15:59,280 Speaker 2: Yeah, So just a reminder, what we're talking about all 292 00:15:59,360 --> 00:16:03,000 Speaker 2: kinds of flightas of debt investments, and now debt's are 293 00:16:03,000 --> 00:16:05,600 Speaker 2: four letter words. So we don't really use that in public, 294 00:16:05,640 --> 00:16:07,920 Speaker 2: but that's all these are just and the debt market's 295 00:16:07,920 --> 00:16:10,720 Speaker 2: bigger in equity markets. There's a whole ladder of risk 296 00:16:10,800 --> 00:16:14,680 Speaker 2: and return and at the low lowest end we would 297 00:16:14,680 --> 00:16:19,680 Speaker 2: believe would be government loans, and generally a loan for 298 00:16:19,720 --> 00:16:22,400 Speaker 2: a few years is called a bond, and a loan 299 00:16:22,520 --> 00:16:24,600 Speaker 2: for a lesson a year we might call a note. 300 00:16:24,600 --> 00:16:27,960 Speaker 2: But anyway, they're all we would probably think the safest 301 00:16:28,000 --> 00:16:31,200 Speaker 2: creditor in Australia is the Commonwealth government, so when you 302 00:16:31,320 --> 00:16:34,360 Speaker 2: lend money to them, you can do that by buying, 303 00:16:34,560 --> 00:16:38,480 Speaker 2: generally second hand, a bond that's been issued to help 304 00:16:38,560 --> 00:16:43,400 Speaker 2: finance the spending a lot of spending, which there is 305 00:16:43,440 --> 00:16:46,680 Speaker 2: a lot of demands just now, so you can lend, 306 00:16:46,800 --> 00:16:50,520 Speaker 2: you can buy secondhand essentially refinance someone who lent money 307 00:16:50,520 --> 00:16:53,160 Speaker 2: to the government, and in Australia we can do that 308 00:16:53,320 --> 00:16:55,760 Speaker 2: on the ASX, so it is a kind of interesting 309 00:16:56,440 --> 00:16:59,800 Speaker 2: swap from a sort of six percent yielding hybrid to 310 00:17:00,080 --> 00:17:02,920 Speaker 2: a four point seven percent ten year government bond that 311 00:17:02,920 --> 00:17:06,480 Speaker 2: you can buy in the AX and also own fee free. 312 00:17:06,560 --> 00:17:09,800 Speaker 2: So these are everyone is probably much more aware of 313 00:17:10,000 --> 00:17:14,960 Speaker 2: exchange traded funds. These are called exchange traded bonds, and 314 00:17:15,040 --> 00:17:18,280 Speaker 2: probably they're called exchange traded government bonds, so we could 315 00:17:18,280 --> 00:17:23,000 Speaker 2: call them ETBs or etgbs. But there's probably ten fifteen 316 00:17:23,080 --> 00:17:26,960 Speaker 2: of these Commonwealth government issued bonds available to be bought 317 00:17:26,960 --> 00:17:30,439 Speaker 2: on the AX. They come in two flavors. A nominal bond, 318 00:17:30,840 --> 00:17:33,320 Speaker 2: which is the traditional type of bond where you're getting 319 00:17:33,359 --> 00:17:37,199 Speaker 2: a certain interest or coupon, but there's also inflation link bonds, 320 00:17:37,240 --> 00:17:40,600 Speaker 2: which you know, I quite like, although they have nuances. 321 00:17:40,920 --> 00:17:42,840 Speaker 2: One of the strangest things is they made a lot 322 00:17:42,840 --> 00:17:45,280 Speaker 2: of money as interest rates collapsed even though there was 323 00:17:45,280 --> 00:17:48,320 Speaker 2: no inflation, and then when there was inflation, they lost money. 324 00:17:49,600 --> 00:17:52,399 Speaker 2: So these government bonds are a little bit complicated because 325 00:17:52,400 --> 00:17:56,400 Speaker 2: sometimes the government wants to issue bonds yielding only one 326 00:17:56,440 --> 00:17:59,119 Speaker 2: percent and they sell those for ninety cents in the dollar. 327 00:17:59,280 --> 00:18:02,679 Speaker 2: Sometimes the will issue a bond yielding six percent and 328 00:18:02,720 --> 00:18:04,440 Speaker 2: they'll sell at a dollar ten person. 329 00:18:04,560 --> 00:18:06,960 Speaker 1: The inflation bond is by no means a sort of 330 00:18:07,280 --> 00:18:07,639 Speaker 1: god no. 331 00:18:07,720 --> 00:18:09,920 Speaker 2: This is even though this is yeah, this is even 332 00:18:10,240 --> 00:18:13,560 Speaker 2: traditional bonds. So the government, if a government offers a 333 00:18:13,680 --> 00:18:16,120 Speaker 2: very low yielding bond, it won't get all its money. 334 00:18:16,160 --> 00:18:19,240 Speaker 2: And if it offers a high bond, it'll get a premium. 335 00:18:19,280 --> 00:18:22,040 Speaker 2: And so when you go on to the ASX or 336 00:18:22,720 --> 00:18:25,320 Speaker 2: over the counter and buy a bond with a low coupon, 337 00:18:25,800 --> 00:18:27,639 Speaker 2: you probably get it at a discount. And if you 338 00:18:27,680 --> 00:18:30,680 Speaker 2: buy a bond with a high coupon, you know, imagine 339 00:18:30,680 --> 00:18:33,639 Speaker 2: if you bought a seven percent Australian government bond, if 340 00:18:33,640 --> 00:18:35,399 Speaker 2: there was one, you would probably have to pay one 341 00:18:35,480 --> 00:18:37,920 Speaker 2: hundred and twenty dollars to get one hundred dollars back 342 00:18:37,920 --> 00:18:41,760 Speaker 2: at maturity. So bond pricing and bond return is a 343 00:18:41,960 --> 00:18:44,200 Speaker 2: confusing to the retail investor, for sure. 344 00:18:44,240 --> 00:18:46,280 Speaker 1: It is specialist to a degree. But for the everyday 345 00:18:46,280 --> 00:18:49,080 Speaker 1: investor who was started in bonds and have been looking 346 00:18:49,080 --> 00:18:52,520 Speaker 1: at bonds through ETFs and if they were thinking of 347 00:18:52,560 --> 00:18:57,959 Speaker 1: government bonds because they are marvelously sound, Okay, they're back 348 00:18:58,000 --> 00:19:01,520 Speaker 1: by the government. You can't get a better backer, Which 349 00:19:01,560 --> 00:19:04,040 Speaker 1: would you if if I'm sitting across the table from you, 350 00:19:04,080 --> 00:19:06,280 Speaker 1: when I said I'd like exposures to these government bonds, 351 00:19:06,280 --> 00:19:07,800 Speaker 1: I can go in through an ETF, or I can 352 00:19:07,840 --> 00:19:08,760 Speaker 1: go and buy one. 353 00:19:09,440 --> 00:19:14,000 Speaker 2: You can buy one. Yeah, you can buy one bond matures. 354 00:19:13,560 --> 00:19:15,239 Speaker 1: And say, no matter what happens in the world, I'm 355 00:19:15,240 --> 00:19:17,400 Speaker 1: going to get my four point seven percent. Which would 356 00:19:17,440 --> 00:19:17,919 Speaker 1: you prefer? 357 00:19:19,520 --> 00:19:23,280 Speaker 2: Well, I think some investors hate paying fees, so buy 358 00:19:23,520 --> 00:19:26,280 Speaker 2: You could buy a basket of individual bonds and just 359 00:19:26,400 --> 00:19:28,919 Speaker 2: own them to maturity. And if you bought them for 360 00:19:29,000 --> 00:19:31,920 Speaker 2: eighty five dollars and they pay a low coupon, you'll 361 00:19:31,920 --> 00:19:34,399 Speaker 2: get your hundred dollars on maturity. Or you buy them 362 00:19:34,400 --> 00:19:36,520 Speaker 2: for one hundred and ten dollars with a very high 363 00:19:36,520 --> 00:19:39,639 Speaker 2: coupon and you'll get one hundred dollars of maturity. They're fine. 364 00:19:40,119 --> 00:19:43,320 Speaker 2: You can alternatively just buy a basket of bonds ready 365 00:19:43,359 --> 00:19:46,920 Speaker 2: made from your favorite ETF supplier, but you will give 366 00:19:46,960 --> 00:19:50,920 Speaker 2: them point one point two point three percent fee, which 367 00:19:50,960 --> 00:19:54,720 Speaker 2: will reduce your bond coverage. And again those bonds are 368 00:19:54,800 --> 00:19:58,880 Speaker 2: marked to market daily, and so strange things happen with bonds, 369 00:19:58,960 --> 00:20:02,919 Speaker 2: good things and things. So the reason where why you 370 00:20:03,200 --> 00:20:07,200 Speaker 2: are right by saying bonds are back is because thankfully 371 00:20:07,240 --> 00:20:09,119 Speaker 2: yields are back up. And so if you were to 372 00:20:09,160 --> 00:20:11,960 Speaker 2: buy a ten year Australian government bond today, you would 373 00:20:11,960 --> 00:20:15,440 Speaker 2: get a yield of four point seven percent made up 374 00:20:15,520 --> 00:20:18,440 Speaker 2: of easy it's pretty good, which is pretty good, yeah, 375 00:20:19,040 --> 00:20:22,320 Speaker 2: and it will come from either some combination of capital 376 00:20:22,480 --> 00:20:26,679 Speaker 2: gain or loss and yield. But generally speaking, your return 377 00:20:26,760 --> 00:20:28,920 Speaker 2: if you hold it to maturity ten years from now 378 00:20:28,960 --> 00:20:31,320 Speaker 2: be four point seven percent. And if the government runs 379 00:20:31,359 --> 00:20:33,359 Speaker 2: out of money, it'll just invent it and print it 380 00:20:33,400 --> 00:20:35,719 Speaker 2: and pay you off. So we don't know what the 381 00:20:35,720 --> 00:20:38,240 Speaker 2: purchasing power will be good for it, but that's that's 382 00:20:38,240 --> 00:20:40,399 Speaker 2: why they're good for it. But the second reason we 383 00:20:40,560 --> 00:20:42,760 Speaker 2: like bonds and why they're back, is that they can 384 00:20:42,800 --> 00:20:45,600 Speaker 2: now work as an air bag to your a share crash. 385 00:20:45,640 --> 00:20:48,400 Speaker 2: So let's say the share market falls twenty percent next 386 00:20:48,400 --> 00:20:53,200 Speaker 2: week because we somebody invades Iran or something else happens, 387 00:20:53,440 --> 00:20:56,160 Speaker 2: and generally speaking, that money is going to rush out 388 00:20:56,160 --> 00:20:58,439 Speaker 2: of the share market, probably into the safety of a 389 00:20:58,480 --> 00:21:01,640 Speaker 2: government bond. And let's say the Central Bank says I've 390 00:21:01,680 --> 00:21:04,720 Speaker 2: got your back, economy and cuts interest rates. So let's 391 00:21:04,760 --> 00:21:07,720 Speaker 2: say a few months from now the Australian ten year 392 00:21:07,800 --> 00:21:10,840 Speaker 2: yields three point seven. Well, James, if you owned a 393 00:21:10,920 --> 00:21:13,840 Speaker 2: four point seven yielding ten year government bond and today 394 00:21:13,920 --> 00:21:17,200 Speaker 2: new ones yield three point seven, someone's got to pay 395 00:21:17,200 --> 00:21:20,119 Speaker 2: you a ten percent premium to take that off you 396 00:21:20,200 --> 00:21:22,679 Speaker 2: because you're going to get one percent more than the 397 00:21:22,720 --> 00:21:26,119 Speaker 2: current bond for ten years. So a holder of a 398 00:21:26,280 --> 00:21:30,080 Speaker 2: four percent four point seven percent yielding government bond in 399 00:21:30,119 --> 00:21:33,440 Speaker 2: a world a year later that's yielding only three point 400 00:21:33,520 --> 00:21:36,760 Speaker 2: seven could sell that bond and make a return of 401 00:21:36,960 --> 00:21:41,200 Speaker 2: fifteen percent. They'll make four point seven plus ten point 402 00:21:41,240 --> 00:21:42,160 Speaker 2: capital games. 403 00:21:42,840 --> 00:21:45,640 Speaker 1: So you get your four poincent, hold it for ten years, 404 00:21:45,680 --> 00:21:46,880 Speaker 1: and if you so wish. 405 00:21:46,760 --> 00:21:48,600 Speaker 2: You could sell it for a ten percent capital game. 406 00:21:49,119 --> 00:21:51,800 Speaker 1: You could sell it assuming assuming there was a share 407 00:21:51,840 --> 00:21:55,200 Speaker 1: market drop rather than a share market melitale. 408 00:21:54,800 --> 00:21:58,160 Speaker 2: And that bond yields went down, and it didn't back 409 00:21:58,160 --> 00:22:00,720 Speaker 2: in COVID because of the silly enough on yields were 410 00:22:00,760 --> 00:22:03,960 Speaker 2: down at one percent and interest rates were zero, So 411 00:22:04,000 --> 00:22:07,520 Speaker 2: the bond market was broken back in COVID, which is 412 00:22:07,560 --> 00:22:09,400 Speaker 2: one of the reasons why I've fell in love with 413 00:22:09,440 --> 00:22:12,959 Speaker 2: the yellow metal back then. But bonds are back, and 414 00:22:13,000 --> 00:22:16,200 Speaker 2: they do work. They probably will work well now as 415 00:22:16,200 --> 00:22:17,639 Speaker 2: a share market airbag. 416 00:22:18,400 --> 00:22:22,680 Speaker 1: They're back. You're convinced, they're back in their traditional role, 417 00:22:23,040 --> 00:22:26,159 Speaker 1: and we'll play their traditional role going forward. 418 00:22:27,240 --> 00:22:31,640 Speaker 2: Convinced is a very expensive word. James switch issues. They're 419 00:22:31,720 --> 00:22:35,760 Speaker 2: set up to succeed much more than when the governments 420 00:22:35,760 --> 00:22:39,160 Speaker 2: of the world interfered with the bond market during zero 421 00:22:39,240 --> 00:22:42,000 Speaker 2: interest rate policy and negative interest rate policy. 422 00:22:42,040 --> 00:22:45,119 Speaker 1: It's a very good point, well worth hearing, folks. I 423 00:22:45,560 --> 00:22:47,840 Speaker 1: think that is really what taking on board is really 424 00:22:47,880 --> 00:22:51,800 Speaker 1: we're thinking about. I have been unconvinced about bonds as 425 00:22:51,800 --> 00:22:54,280 Speaker 1: well for a long time, but I look this morning. 426 00:22:54,320 --> 00:22:56,120 Speaker 1: I say, hey, look at that ten years four point 427 00:22:56,119 --> 00:22:58,520 Speaker 1: seven percent government bond and guess what if the share 428 00:22:58,560 --> 00:23:00,560 Speaker 1: market falls, It's only the price of it is only 429 00:23:00,600 --> 00:23:05,280 Speaker 1: going to go up. I think it's a very compelling proposition. 430 00:23:05,600 --> 00:23:07,560 Speaker 1: That's all. Let's leave it there. We're going to have 431 00:23:07,600 --> 00:23:09,760 Speaker 1: a break. We've got some very good questions which I've 432 00:23:10,000 --> 00:23:14,280 Speaker 1: curated for Doug. From Tim, from Scott, from Stephen back 433 00:23:14,280 --> 00:23:23,200 Speaker 1: in a moment. Hello, Welcome back to the Australian's Money 434 00:23:23,200 --> 00:23:26,720 Speaker 1: Puzzle podcast. James Kirby here with doctor Doug chu rec 435 00:23:27,560 --> 00:23:33,320 Speaker 1: Family Office Director, Investment Committee Director, advisor to all and sundry, 436 00:23:33,359 --> 00:23:37,840 Speaker 1: but particularly advisors in these days to the family office 437 00:23:38,000 --> 00:23:42,119 Speaker 1: a circle. Okay, now he won't tell you who the 438 00:23:42,119 --> 00:23:45,480 Speaker 1: family Office is, so I can't tell you, doctor, all right. 439 00:23:45,600 --> 00:23:48,440 Speaker 1: The first question is from Tim Hi, James love the show. 440 00:23:48,560 --> 00:23:52,439 Speaker 1: At risk of over simplifying things, No, No, don't need 441 00:23:52,480 --> 00:23:56,960 Speaker 1: to worry about that, Tim. Won't AI increase productivity by 442 00:23:57,000 --> 00:24:01,280 Speaker 1: default from most businesses, and if so, given the constant 443 00:24:01,359 --> 00:24:05,280 Speaker 1: calls for enhanced productivity in Australia, isn't it simply a 444 00:24:05,320 --> 00:24:09,840 Speaker 1: matter of time with broad AI adoption before productivity increases 445 00:24:10,160 --> 00:24:13,840 Speaker 1: and subsequently living standards also increase, assuming once it has 446 00:24:13,840 --> 00:24:16,159 Speaker 1: a job. Gee, Tim, that is a great question. And 447 00:24:16,359 --> 00:24:19,720 Speaker 1: I don't argue with the core premise that AI will 448 00:24:19,720 --> 00:24:23,040 Speaker 1: boost productivity, and I also don't argue with the premise 449 00:24:23,119 --> 00:24:30,439 Speaker 1: that it could do so creating unemployment. However, unlike in 450 00:24:30,480 --> 00:24:32,639 Speaker 1: the past, I think we may well have a We 451 00:24:32,680 --> 00:24:36,200 Speaker 1: could have a we could have high employment boom, which 452 00:24:36,240 --> 00:24:38,159 Speaker 1: is not for everybody, but I think we could have 453 00:24:38,160 --> 00:24:42,000 Speaker 1: a high employment boom, high unemployment boom, possibly for the 454 00:24:42,000 --> 00:24:44,840 Speaker 1: first time in history, which leads us to all sorts 455 00:24:44,880 --> 00:24:47,280 Speaker 1: of issues about whether people should get a university basic 456 00:24:47,320 --> 00:24:50,480 Speaker 1: income and all that thoughts. Doctor Doug, I'm sure this 457 00:24:50,520 --> 00:24:51,639 Speaker 1: one got you thinking. 458 00:24:53,200 --> 00:24:56,720 Speaker 2: I think it's a very well worded question, assuming one 459 00:24:56,800 --> 00:25:03,240 Speaker 2: has a job. So reminder, productivity sounds like this interesting concept, 460 00:25:03,280 --> 00:25:06,680 Speaker 2: but all it is work divided by number of people. Now, 461 00:25:06,800 --> 00:25:09,679 Speaker 2: if you're a shareholder of a phone company and a bank, 462 00:25:09,760 --> 00:25:13,000 Speaker 2: and there's less people answering working in the call center, 463 00:25:13,000 --> 00:25:15,600 Speaker 2: then you're a beneficiary. But if you're the worker in 464 00:25:15,600 --> 00:25:18,440 Speaker 2: the call center, then you're not. And by the way, 465 00:25:18,480 --> 00:25:22,320 Speaker 2: my experiences with chatbots is I'm really very happy to 466 00:25:22,560 --> 00:25:25,879 Speaker 2: get rid of them. They are definitely a case of 467 00:25:25,960 --> 00:25:31,879 Speaker 2: in shitification. So it's definitely ready for AI to improve. 468 00:25:31,960 --> 00:25:34,480 Speaker 1: But you know, you know, just this morning, Wise Take, 469 00:25:34,640 --> 00:25:38,480 Speaker 1: one of Australia's biggest software companies just fired, fired more 470 00:25:38,520 --> 00:25:42,200 Speaker 1: than three people overnight on AI. And I bet that 471 00:25:42,200 --> 00:25:45,800 Speaker 1: that company will be rewarded on the share market for that. 472 00:25:46,320 --> 00:25:51,640 Speaker 1: So what about Tim's basic premise. And by the way, 473 00:25:52,359 --> 00:25:56,480 Speaker 1: some context, Australia has you know, the worst productivity possibly 474 00:25:56,480 --> 00:25:58,560 Speaker 1: in the OECD. I mean, I've seen the tables. We're 475 00:25:58,560 --> 00:26:00,560 Speaker 1: at the very bottom. 476 00:26:01,040 --> 00:26:03,440 Speaker 2: Well, I don't think AI is going to fix you 477 00:26:03,680 --> 00:26:06,320 Speaker 2: building approvals and all the hoops you have to go through. 478 00:26:06,359 --> 00:26:09,320 Speaker 2: We just talked about all the regulation and financial advice, 479 00:26:09,320 --> 00:26:11,280 Speaker 2: which is only going to get worse. I mean, I 480 00:26:11,320 --> 00:26:14,639 Speaker 2: don't think there's an industry untouched by government wanting to 481 00:26:14,680 --> 00:26:18,679 Speaker 2: add more complexity. So I feel a very strong we 482 00:26:18,760 --> 00:26:21,120 Speaker 2: need a change of heart in this country, we need 483 00:26:21,160 --> 00:26:23,560 Speaker 2: a kind of maybe we need to let things get 484 00:26:23,600 --> 00:26:25,280 Speaker 2: so bad that we kind of have a kind of 485 00:26:25,960 --> 00:26:29,800 Speaker 2: war revolution philosophy that says, no, we're going to get 486 00:26:29,800 --> 00:26:32,560 Speaker 2: out of the way and let people make work and 487 00:26:32,640 --> 00:26:35,760 Speaker 2: do business. But at the moment we keep throwing all 488 00:26:35,840 --> 00:26:39,280 Speaker 2: kinds of mean well things, but we are suffocating the 489 00:26:39,320 --> 00:26:42,760 Speaker 2: golden goose where it can't carry all the load and weight. 490 00:26:43,240 --> 00:26:46,919 Speaker 2: So basically, yeah, there's a cost of society as a 491 00:26:47,000 --> 00:26:50,560 Speaker 2: whole that if you want to do all these extra things, 492 00:26:50,880 --> 00:26:54,520 Speaker 2: things move slowly and sludgely. And there are countries in 493 00:26:54,520 --> 00:26:56,840 Speaker 2: the world that don't think this way. There's a very 494 00:26:56,840 --> 00:27:01,320 Speaker 2: productive asia that would rather do the work that we do. So, James, 495 00:27:01,359 --> 00:27:03,760 Speaker 2: I'm very worried about the overspending government. 496 00:27:04,000 --> 00:27:07,560 Speaker 1: What about the promise of AI in productivity to basically 497 00:27:07,640 --> 00:27:12,200 Speaker 1: create and lift in living standards that lift and profitability anyway, 498 00:27:12,520 --> 00:27:13,920 Speaker 1: even with all the retake. 499 00:27:13,640 --> 00:27:16,040 Speaker 2: Well, I worry that AI is overhyped, And I think 500 00:27:16,080 --> 00:27:18,080 Speaker 2: all we're going to do is look back in history 501 00:27:18,119 --> 00:27:21,680 Speaker 2: at all the different technological revolutions of which this is one. 502 00:27:21,920 --> 00:27:25,159 Speaker 2: You know, when we created canals, we didn't have to 503 00:27:25,320 --> 00:27:28,040 Speaker 2: cart stuff. When we created trains. We didn't have the 504 00:27:28,080 --> 00:27:32,399 Speaker 2: canal stuff when we created the phone company, and we 505 00:27:32,440 --> 00:27:35,560 Speaker 2: didn't have to telegraph stuff, you know, and we created 506 00:27:35,640 --> 00:27:38,040 Speaker 2: the Internet. We did all kinds of things, and this 507 00:27:38,160 --> 00:27:42,480 Speaker 2: is just another technological revolution which will enhance certain things. 508 00:27:42,520 --> 00:27:44,320 Speaker 2: But I don't think BHP is going to be a 509 00:27:44,400 --> 00:27:48,080 Speaker 2: huge beneficiary of this. Your favorite gold miner won't. But 510 00:27:48,800 --> 00:27:51,440 Speaker 2: maybe government will get a bit more efficient, but I'd 511 00:27:51,480 --> 00:27:54,920 Speaker 2: be surprised. And it's just something else that will I think, 512 00:27:55,000 --> 00:27:58,240 Speaker 2: improve our living standards. But if you were a buggy 513 00:27:58,280 --> 00:28:01,840 Speaker 2: whip manufacturer and the automobile came along and then it 514 00:28:01,880 --> 00:28:05,720 Speaker 2: was impactful to your career. So and don't get me 515 00:28:05,760 --> 00:28:12,160 Speaker 2: started about tech bros and technology and stable coins and. 516 00:28:12,640 --> 00:28:13,359 Speaker 1: All right, let's go. 517 00:28:13,760 --> 00:28:17,520 Speaker 2: I'm worriedsome not skeptical. I'm worried. Anyway, let's move on. 518 00:28:17,880 --> 00:28:21,000 Speaker 1: Okay, show me to read out Scott's question, Tim, Yes, 519 00:28:21,080 --> 00:28:23,119 Speaker 1: and by the way, information only, folks, as you know, 520 00:28:23,200 --> 00:28:26,760 Speaker 1: not advice, okay, because this one is of that nature. Scott. Yes, 521 00:28:26,800 --> 00:28:28,119 Speaker 1: what's Scott's question there? 522 00:28:28,200 --> 00:28:33,760 Speaker 2: Doug. I wanted to share detail regarding the etf VTS 523 00:28:34,640 --> 00:28:38,400 Speaker 2: because it's as US domiciled investors must complete a w 524 00:28:38,640 --> 00:28:41,000 Speaker 2: A B E N form via the share registry in 525 00:28:41,080 --> 00:28:44,160 Speaker 2: this case computer shares. In my experience, brokers like Compsect 526 00:28:44,200 --> 00:28:47,520 Speaker 2: don't always notify investors of this, and I've missed years 527 00:28:47,520 --> 00:28:51,520 Speaker 2: of dividend tax concessions for my children's education fund before 528 00:28:51,560 --> 00:28:52,840 Speaker 2: discovering the requirement. 529 00:28:55,040 --> 00:28:57,880 Speaker 1: Scott is Scott right, there can he not. You can't 530 00:28:57,880 --> 00:29:02,200 Speaker 1: catch up or anything. You can't retrospectively do anything. And 531 00:29:02,240 --> 00:29:04,440 Speaker 1: the WBN form, Folks, if you've been this thing, we've 532 00:29:04,480 --> 00:29:06,320 Speaker 1: been talking about it, it's just this pain in the 533 00:29:06,320 --> 00:29:08,560 Speaker 1: book form that you have to do if you buy 534 00:29:08,560 --> 00:29:09,320 Speaker 1: overseas shares. 535 00:29:10,280 --> 00:29:12,720 Speaker 2: Yeah, so if you're buying overseas shares or in this case, 536 00:29:12,760 --> 00:29:16,200 Speaker 2: you're actually investing in an overseas fund. So this is 537 00:29:16,280 --> 00:29:19,480 Speaker 2: an ETF from Vanguard VTS gives you a very low 538 00:29:19,520 --> 00:29:22,280 Speaker 2: cost exposure to the US share market. There's a cousin 539 00:29:22,400 --> 00:29:26,120 Speaker 2: fund called VEEU, which gives you very low cost exposure 540 00:29:26,200 --> 00:29:28,880 Speaker 2: to everything but the US share market. These are US 541 00:29:28,920 --> 00:29:32,760 Speaker 2: domiciled funds which were released in Australia very early on 542 00:29:32,880 --> 00:29:35,680 Speaker 2: as a demonstration of how low you can go in 543 00:29:35,680 --> 00:29:41,360 Speaker 2: ETF pricing. But the foreign domiciled cross listed in Australia 544 00:29:41,400 --> 00:29:44,040 Speaker 2: ETFs aren't very popular, and one of the reasons being 545 00:29:44,200 --> 00:29:46,960 Speaker 2: is because the foreign government in this case of the US, 546 00:29:47,240 --> 00:29:49,520 Speaker 2: wants to tax you, and all of that work's done 547 00:29:49,640 --> 00:29:52,920 Speaker 2: for you in an Australian domiciled fund. Now, when the 548 00:29:53,200 --> 00:29:55,760 Speaker 2: government of the US wants to tax you, first of all, 549 00:29:55,760 --> 00:29:57,760 Speaker 2: it will tax you at a very punitive rate, which 550 00:29:57,840 --> 00:30:01,880 Speaker 2: might be thirty percent for and if you it's not 551 00:30:01,920 --> 00:30:04,880 Speaker 2: a must, but if you file a W EIGHTB in form, 552 00:30:05,120 --> 00:30:08,480 Speaker 2: then the US government will kindly read the tax treaty 553 00:30:08,960 --> 00:30:12,680 Speaker 2: written thirty years ago between Australia and the US and 554 00:30:12,760 --> 00:30:17,240 Speaker 2: drop the withholding tax to fifteen percent, cut that in half. Now, 555 00:30:17,640 --> 00:30:20,680 Speaker 2: what should happen in many cases is when you file 556 00:30:20,720 --> 00:30:23,760 Speaker 2: your tax return, you say to the Australian government, I've 557 00:30:23,760 --> 00:30:27,200 Speaker 2: earned some dividend from this overseas investment, but the US 558 00:30:27,280 --> 00:30:30,920 Speaker 2: government took thirty or fifteen percent or whatever is the 559 00:30:31,000 --> 00:30:34,560 Speaker 2: dollar tax, and you'll get a credit for it according 560 00:30:34,600 --> 00:30:38,880 Speaker 2: to our tax agreement with the US. Now where the problem. 561 00:30:39,360 --> 00:30:42,000 Speaker 2: So in case of Scott this is for a children's 562 00:30:42,080 --> 00:30:44,920 Speaker 2: education fund, so this would not be a tax free scheme, 563 00:30:45,200 --> 00:30:48,479 Speaker 2: possibly unless it's a very low balanced fund and there 564 00:30:48,480 --> 00:30:51,600 Speaker 2: are rules around children investing. But if the children were 565 00:30:51,600 --> 00:30:55,520 Speaker 2: paying tax, then in theory, the higher or lower after 566 00:30:55,600 --> 00:30:58,880 Speaker 2: filing a W EIGHTB and form tax taken by the 567 00:30:59,000 --> 00:31:03,480 Speaker 2: US government would offset and reduce the tax payable to 568 00:31:03,520 --> 00:31:06,680 Speaker 2: the Australian government. A problem for a lot of our 569 00:31:06,760 --> 00:31:09,560 Speaker 2: listeners here is they may be tax free investors because 570 00:31:09,560 --> 00:31:13,720 Speaker 2: they cleverly arrange their affairs using pensions super or they 571 00:31:13,760 --> 00:31:16,240 Speaker 2: have lots of franking credits and they pay zero tax 572 00:31:16,280 --> 00:31:19,040 Speaker 2: to the Australian government. So when you go to the 573 00:31:19,120 --> 00:31:22,240 Speaker 2: Australian government, so I paid this tax overseas, may or 574 00:31:22,240 --> 00:31:24,880 Speaker 2: may not be reduced by funding this pain in the 575 00:31:24,920 --> 00:31:27,440 Speaker 2: butt form, They're not going to give you a credit. 576 00:31:27,600 --> 00:31:30,560 Speaker 2: So these are not refundable tax credits. They're just offsetting 577 00:31:30,600 --> 00:31:33,800 Speaker 2: tax credits. So a general rule is you'd probably want 578 00:31:33,800 --> 00:31:38,000 Speaker 2: to steer away from these type of investments. Another observation 579 00:31:38,240 --> 00:31:41,960 Speaker 2: is be careful when you invest offshore for income, because 580 00:31:42,120 --> 00:31:44,880 Speaker 2: you can't escape that the foreign government wants to take 581 00:31:44,920 --> 00:31:47,880 Speaker 2: some money. And this is a two way street. When 582 00:31:47,920 --> 00:31:51,440 Speaker 2: a foreigner invests in Australia, we take some of their money. 583 00:31:51,600 --> 00:31:53,960 Speaker 2: Now in both cases, no one seems to care about 584 00:31:54,000 --> 00:31:58,200 Speaker 2: capital gains, which is a topical thing. But that's thank 585 00:31:58,240 --> 00:32:01,360 Speaker 2: you to Scott for reminding there's a few of these 586 00:32:01,400 --> 00:32:05,200 Speaker 2: funny ETFs out there, and not many that are not astrand, 587 00:32:05,520 --> 00:32:08,720 Speaker 2: that are technically not fully astrained domiciled. They don't do 588 00:32:08,800 --> 00:32:11,240 Speaker 2: the tax work for you, and you do. If you 589 00:32:11,280 --> 00:32:13,600 Speaker 2: want to reduce the tax the US takes from you 590 00:32:13,840 --> 00:32:16,200 Speaker 2: and not try to get it back through your tax 591 00:32:16,280 --> 00:32:19,400 Speaker 2: filing process, you should file a w e BN form. 592 00:32:19,800 --> 00:32:24,440 Speaker 1: Okay, So, folks, here's the short Thank you, Doug. That 593 00:32:24,560 --> 00:32:26,880 Speaker 1: is a splendid answer, and that's the sort of answer 594 00:32:26,960 --> 00:32:29,560 Speaker 1: to get around the table of family offices, right because 595 00:32:29,600 --> 00:32:33,600 Speaker 1: the amounts, not the amounts the question are enormous as 596 00:32:33,640 --> 00:32:36,000 Speaker 1: opposed to perhaps the amounts in Scott's fund are my 597 00:32:36,120 --> 00:32:38,920 Speaker 1: funder anyone else is fun But really I would think 598 00:32:38,920 --> 00:32:42,720 Speaker 1: the short answer is never go near a fund that 599 00:32:42,880 --> 00:32:46,360 Speaker 1: is a funder company that's domosigned in the US unless 600 00:32:46,360 --> 00:32:48,120 Speaker 1: you must. So you know, if you want to buy 601 00:32:48,120 --> 00:32:50,840 Speaker 1: that particular American company, then you must do it and 602 00:32:50,880 --> 00:32:53,360 Speaker 1: find the wbe N form to make sure you don't 603 00:32:53,360 --> 00:32:58,680 Speaker 1: lose any dividend income. However, for most ETFs, especially most tts, 604 00:32:58,720 --> 00:33:00,640 Speaker 1: most of the time, especially all the new were ones. 605 00:33:01,280 --> 00:33:03,480 Speaker 1: They're very clever. They got they got amasidant here the 606 00:33:03,560 --> 00:33:06,320 Speaker 1: side stepped all that. So I would imagine if Scott 607 00:33:06,360 --> 00:33:09,600 Speaker 1: could rewind the clock, he would not have gone and 608 00:33:09,800 --> 00:33:13,040 Speaker 1: bought us amicie yt if well, it's a cheap. 609 00:33:13,000 --> 00:33:14,960 Speaker 2: It's very cheap. It's I think it was I membory. 610 00:33:14,960 --> 00:33:17,120 Speaker 2: It was six basis points when at the time other 611 00:33:17,200 --> 00:33:20,040 Speaker 2: things were twenty thirty. So Scott would have saved anybody 612 00:33:20,520 --> 00:33:24,520 Speaker 2: he was getting. The dividends on US shares is terrible. 613 00:33:24,560 --> 00:33:28,600 Speaker 2: It's only one percent maybe, and then if so, he's 614 00:33:28,600 --> 00:33:31,640 Speaker 2: losing point three point one five percent in dividend tax. 615 00:33:32,680 --> 00:33:37,280 Speaker 2: There By the way, this James, if there's any US listeners, 616 00:33:37,320 --> 00:33:39,120 Speaker 2: this is very complicated and we can't give you US 617 00:33:39,200 --> 00:33:42,880 Speaker 2: tax advice, but funny enough for you. The US government 618 00:33:42,960 --> 00:33:47,920 Speaker 2: hates try and manage funds invested by its own dual citizens, 619 00:33:48,160 --> 00:33:51,560 Speaker 2: so VTS and BEU might be a good product for 620 00:33:51,600 --> 00:33:53,720 Speaker 2: your US tax listeners. 621 00:33:54,480 --> 00:33:57,440 Speaker 1: There you go to US tax listeners. Take that on board. 622 00:33:57,680 --> 00:34:00,000 Speaker 1: All right? Very good? Hey, thank you very much, Delta. 623 00:34:00,320 --> 00:34:01,800 Speaker 1: Great to have you on the show again. It's been 624 00:34:01,800 --> 00:34:03,280 Speaker 1: too long. We'll have you on again soon. 625 00:34:03,640 --> 00:34:04,960 Speaker 2: Thank you. 626 00:34:04,960 --> 00:34:09,240 Speaker 1: You're welcome and also, folks, just something would be terrific 627 00:34:09,560 --> 00:34:13,480 Speaker 1: if you could add some We get so many correspondents 628 00:34:13,480 --> 00:34:15,360 Speaker 1: saying they love the show, you know, but if you 629 00:34:15,400 --> 00:34:17,440 Speaker 1: want to support the show, would be terrific to have 630 00:34:17,560 --> 00:34:21,879 Speaker 1: some reviews on the Apple iPod reviews. We haven't had 631 00:34:21,880 --> 00:34:24,840 Speaker 1: one for Ois. I would love to see some new ones. Okay. 632 00:34:24,880 --> 00:34:27,560 Speaker 1: Today's show was produced by li Is Sam mcglue. I'm 633 00:34:27,640 --> 00:34:31,839 Speaker 1: James Kirby. Keep the correspondence Rolling the money puzzle at 634 00:34:31,840 --> 00:34:34,879 Speaker 1: the Australian dot com dot Au. Talk to you soon.