1 00:00:09,850 --> 00:00:12,770 Speaker 1: Hello and welcome to The Australian's Money Puzzle Podcast. I'm 2 00:00:12,810 --> 00:00:16,480 Speaker 1: James Kirby, Wealth Editor at The Australian. Welcome aboard, everybody. 3 00:00:17,000 --> 00:00:18,919 Speaker 1: You know, when I asked this week's guest to come 4 00:00:19,020 --> 00:00:21,420 Speaker 1: on the show, I didn't know at the time that 5 00:00:21,440 --> 00:00:23,380 Speaker 1: we were going to have the worst day on the 6 00:00:23,420 --> 00:00:26,900 Speaker 1: stock market for four years in the same week, or 7 00:00:26,960 --> 00:00:30,250 Speaker 1: indeed that share markets would have moved, you know, from 8 00:00:30,330 --> 00:00:35,780 Speaker 1: pretty good to pretty rocky. in a matter of days. 9 00:00:36,060 --> 00:00:39,340 Speaker 1: So it's good timing. Danielle Ekoye has been on the 10 00:00:39,380 --> 00:00:42,540 Speaker 1: show before. She's an author of the book Shareplicity. She's 11 00:00:42,580 --> 00:00:46,220 Speaker 1: a writer. She's a television presenter. She's a seasoned investor 12 00:00:46,740 --> 00:00:50,040 Speaker 1: and a professional investor for many years around the world 13 00:00:50,600 --> 00:00:53,900 Speaker 1: in London and here. Always good to talk to her. 14 00:00:53,980 --> 00:00:56,020 Speaker 1: I'm delighted to have her on the show. How are you, Danielle? 15 00:00:56,940 --> 00:00:59,240 Speaker 2: Good, James. Thank you so much for having me back 16 00:00:59,300 --> 00:01:00,000 Speaker 2: on the programme. 17 00:01:00,440 --> 00:01:06,950 Speaker 1: Exquisite sense of timing. Straight into it. If you and I, right, 18 00:01:07,020 --> 00:01:11,699 Speaker 1: let's say you and I, Danielle, had a self-managed super 19 00:01:11,740 --> 00:01:16,940 Speaker 1: fund full of shares. And I said to you, oh, 20 00:01:16,980 --> 00:01:21,300 Speaker 1: my God, I got a scare on Monday. Japan fell 21 00:01:21,300 --> 00:01:27,220 Speaker 1: 10 percent. The US fell over days. The ASX, of course, 22 00:01:27,780 --> 00:01:32,880 Speaker 1: in classic fashion, fell with vigor for no apparent reason 23 00:01:32,920 --> 00:01:37,149 Speaker 1: apart from the US. So if I was saying to you, hey, 24 00:01:37,170 --> 00:01:40,130 Speaker 1: what should we do with our shares now? What would 25 00:01:40,170 --> 00:01:41,810 Speaker 1: your gut instinct be? 26 00:01:42,050 --> 00:01:44,840 Speaker 2: Well, I can only revisit a conversation I had with 27 00:01:45,060 --> 00:01:47,780 Speaker 2: a former very large client of mine who used to 28 00:01:47,820 --> 00:01:52,770 Speaker 2: invest in emerging markets. And basically, the approach was, A, 29 00:01:53,120 --> 00:01:55,950 Speaker 2: you do nothing until you establish really what was going on, 30 00:01:55,990 --> 00:02:00,200 Speaker 2: which became quite clear, James. It that there was what 31 00:02:00,260 --> 00:02:04,770 Speaker 2: is called the unwind of the Japanese yen carry trade. 32 00:02:04,850 --> 00:02:09,230 Speaker 2: So for the most simplistic purposes out there, it represented 33 00:02:09,250 --> 00:02:12,910 Speaker 2: a whole lot of leverage borrowing by hedge funds in 34 00:02:12,970 --> 00:02:16,790 Speaker 2: our financial system, where they borrow in Japanese yen and 35 00:02:16,850 --> 00:02:21,080 Speaker 2: then invest in overseas assets, particularly into the US. That's 36 00:02:21,100 --> 00:02:23,740 Speaker 2: where a lot of the money had gone. And because 37 00:02:23,780 --> 00:02:27,120 Speaker 2: of a number of events, including a higher than expected 38 00:02:27,240 --> 00:02:31,850 Speaker 2: hike in Japan, the Japanese interest rates of about 25 39 00:02:31,850 --> 00:02:35,250 Speaker 2: basis points, you started to see a big move between 40 00:02:35,270 --> 00:02:38,169 Speaker 2: the US dollar and the yen. And that meant this 41 00:02:38,310 --> 00:02:41,790 Speaker 2: lovely carry trade, which has basically been a funding source 42 00:02:41,830 --> 00:02:46,720 Speaker 2: for hedge funds to invest in overseas markets, came under pressure. 43 00:02:47,000 --> 00:02:49,280 Speaker 2: And the long and the short of the story, because 44 00:02:49,300 --> 00:02:52,020 Speaker 2: some people might find it a little bit confusing, is 45 00:02:52,260 --> 00:02:55,179 Speaker 2: just imagine you have one of these. And James, you 46 00:02:55,220 --> 00:02:59,380 Speaker 2: and I have spoken about these before. these liquidity drawdown events. 47 00:02:59,540 --> 00:03:02,980 Speaker 2: And it's basically when hedge funds get themselves into trouble 48 00:03:03,560 --> 00:03:07,340 Speaker 2: because they've taken on too much debt and something in 49 00:03:07,380 --> 00:03:10,780 Speaker 2: their position starts to work against them. So instead of 50 00:03:10,840 --> 00:03:13,940 Speaker 2: making lots of money, they start to generate lots of losses. 51 00:03:14,780 --> 00:03:18,200 Speaker 2: And the more that the assets that they've invested in fall, 52 00:03:18,460 --> 00:03:21,120 Speaker 2: the prices, the more that they have to sell to 53 00:03:21,560 --> 00:03:26,020 Speaker 2: cover at the other end. And basically, that huge fall 54 00:03:26,040 --> 00:03:28,560 Speaker 2: that we saw in the Nikkei and the Cosby, the 55 00:03:28,600 --> 00:03:32,220 Speaker 2: Korean market on Monday, that's not normal. That is just 56 00:03:32,280 --> 00:03:35,310 Speaker 2: not normal. That isn't just the US going, oh, we 57 00:03:35,370 --> 00:03:39,370 Speaker 2: might be growing more slowly or a recession might be coming, James. 58 00:03:39,810 --> 00:03:44,130 Speaker 2: That means something has not broken in the financial system, 59 00:03:44,730 --> 00:03:48,180 Speaker 2: but some of these big hedge funds with all that 60 00:03:48,250 --> 00:03:49,960 Speaker 2: debt are coming unstuck. 61 00:03:50,160 --> 00:03:53,250 Speaker 1: I won't say that I was cynical about about this 62 00:03:53,310 --> 00:03:58,070 Speaker 1: carry trade. But, you know, to me, correct me if 63 00:03:58,150 --> 00:04:01,630 Speaker 1: I'm wrong, you know, it's a technicality. I wake up 64 00:04:01,710 --> 00:04:03,830 Speaker 1: and I find that the Australian market has its worst 65 00:04:03,870 --> 00:04:06,430 Speaker 1: day in four years because of hedge funds in the 66 00:04:06,690 --> 00:04:08,790 Speaker 1: Japan carry trade. And I know a lot of people 67 00:04:08,830 --> 00:04:13,700 Speaker 1: have mentioned it as part of their invariably, you know, lengthy, 68 00:04:13,780 --> 00:04:17,920 Speaker 1: menulent explanation as to why the markets fell. But that 69 00:04:18,060 --> 00:04:23,529 Speaker 1: doesn't explain why the markets lost their nerve The quantity 70 00:04:23,610 --> 00:04:27,810 Speaker 1: of that action doesn't explain why traders lost their nerve 71 00:04:27,950 --> 00:04:32,280 Speaker 1: around the world, including here. I know what happened, and 72 00:04:32,320 --> 00:04:34,880 Speaker 1: I know it's in there among the explanations. 73 00:04:36,460 --> 00:04:37,280 Speaker 2: Why doesn't it? 74 00:04:38,200 --> 00:04:38,539 Speaker 1: Why? 75 00:04:39,420 --> 00:04:44,270 Speaker 2: Why? Because I think what people have completely underestimated, and 76 00:04:44,370 --> 00:04:46,770 Speaker 2: I think it's really clear when you compare the Australian 77 00:04:46,810 --> 00:04:50,050 Speaker 2: market to the U.S. market and what's being impacted in 78 00:04:50,070 --> 00:04:55,440 Speaker 2: the U.S., is that these hedge funds had been riding, 79 00:04:55,880 --> 00:04:59,720 Speaker 2: let's say, the Gen AI wave, the GLP-1 wave, which 80 00:04:59,779 --> 00:05:03,060 Speaker 2: we discussed at our last one. And those share prices 81 00:05:03,140 --> 00:05:05,550 Speaker 2: are being hit more. And we're actually seeing that being 82 00:05:05,610 --> 00:05:08,969 Speaker 2: reflected back into the Australian share market with the stocks 83 00:05:09,050 --> 00:05:12,890 Speaker 2: like Goodman Group, by way of example, which has exposure 84 00:05:12,910 --> 00:05:15,790 Speaker 2: to data centers getting hit. Now, you might be sort 85 00:05:15,810 --> 00:05:17,880 Speaker 2: of saying, like, what does little all Australia have to 86 00:05:17,940 --> 00:05:22,810 Speaker 2: do with the carry trade? Well, nothing. directly probably, but 87 00:05:22,850 --> 00:05:28,370 Speaker 2: to the extent that the financial system is so intertwined, James, 88 00:05:29,110 --> 00:05:32,740 Speaker 2: it can no longer be a case of when something 89 00:05:32,770 --> 00:05:34,800 Speaker 2: goes wrong in one part of the world, it has 90 00:05:34,860 --> 00:05:39,859 Speaker 2: no impact elsewhere. I'll give you an example. Long-term capital management, 91 00:05:39,960 --> 00:05:42,460 Speaker 2: and it's one I always use, and it came unstuck 92 00:05:42,560 --> 00:05:45,020 Speaker 2: in the Asian currency crisis, and that was the time 93 00:05:45,060 --> 00:05:49,140 Speaker 2: when I was broking emerging markets. And they were meant 94 00:05:49,240 --> 00:05:53,659 Speaker 2: to be the best mathematicians around with the best algorithms 95 00:05:53,720 --> 00:05:55,540 Speaker 2: and black box. They used to call it black box 96 00:05:55,580 --> 00:06:00,060 Speaker 2: at the time. And they hadn't anticipated that Russia would 97 00:06:00,110 --> 00:06:04,210 Speaker 2: default on its sovereign debt. Okay. When they did that, 98 00:06:04,290 --> 00:06:07,270 Speaker 2: the whole hedge fund basically blew up. So what started 99 00:06:07,350 --> 00:06:10,310 Speaker 2: as an Asian currency crisis where they were making money 100 00:06:10,350 --> 00:06:14,510 Speaker 2: and the Asian markets were falling suddenly became, oh my gosh, 101 00:06:14,529 --> 00:06:17,560 Speaker 2: this is a Wall Street problem. And you saw the 102 00:06:17,720 --> 00:06:20,830 Speaker 2: US market then responding in kind, and they had to 103 00:06:20,870 --> 00:06:25,229 Speaker 2: bail out LTCM because it became too big to fail. Now, 104 00:06:25,570 --> 00:06:27,880 Speaker 2: the events that you've seen with the carry trade, A, 105 00:06:28,440 --> 00:06:31,100 Speaker 2: I think through the passage of time, we'll find out 106 00:06:31,140 --> 00:06:36,779 Speaker 2: the carry trade has, in fact, injected so much money 107 00:06:37,690 --> 00:06:41,090 Speaker 2: into assets overseas that that we're probably only seeing the 108 00:06:41,130 --> 00:06:44,360 Speaker 2: tip of the iceberg in terms of the unwide potentially 109 00:06:44,630 --> 00:06:47,300 Speaker 2: in the trade. We don't know how much leverage these 110 00:06:47,360 --> 00:06:50,420 Speaker 2: hedge funds have and how long it's going to take 111 00:06:50,460 --> 00:06:54,440 Speaker 2: them to rebalance. All we do know is that the 112 00:06:54,500 --> 00:06:57,460 Speaker 2: Bank of Japan came out in response and said, oh, well, 113 00:06:57,500 --> 00:07:00,089 Speaker 2: we won't be raising interest rates anytime soon. 114 00:07:00,110 --> 00:07:03,609 Speaker 1: That's right. So hang on. So this carry trade is 115 00:07:03,710 --> 00:07:05,070 Speaker 1: not as disturbed as we thought? 116 00:07:05,750 --> 00:07:08,789 Speaker 2: No, on the contrary, it is that disturbed because the 117 00:07:08,830 --> 00:07:12,330 Speaker 2: Bank of Japan came out and said, with like a 118 00:07:12,390 --> 00:07:16,000 Speaker 2: Fed put, when markets fall, they've come out and said, 119 00:07:16,160 --> 00:07:18,180 Speaker 2: and I suspect the US, the Fed was on the 120 00:07:18,220 --> 00:07:22,100 Speaker 2: phone to them saying, whoa, guys, hello, we can't afford 121 00:07:22,160 --> 00:07:24,960 Speaker 2: to have at this point in the cycle, one of 122 00:07:25,000 --> 00:07:29,200 Speaker 2: these drawdown events where we go back to what happened 123 00:07:29,680 --> 00:07:31,460 Speaker 2: in the lockdowns. 124 00:07:32,220 --> 00:07:35,600 Speaker 1: What I meant was that If I'm a retail investor 125 00:07:35,620 --> 00:07:38,220 Speaker 1: listening to the show and I hear this, I say, okay, 126 00:07:38,240 --> 00:07:42,240 Speaker 1: all right. Okay. You know. Okay. So all these sort 127 00:07:42,260 --> 00:07:44,180 Speaker 1: of desk jockeys around the world are doing this and that. 128 00:07:44,200 --> 00:07:46,730 Speaker 1: What about my shares? And what I'm really driving at 129 00:07:46,820 --> 00:07:52,010 Speaker 1: is I don't want to simplify the long-term capital management event. 130 00:07:52,610 --> 00:07:56,190 Speaker 1: But in a way, right, they were technical events. 131 00:07:56,710 --> 00:07:59,050 Speaker 2: Correct. Totally. Totally. 132 00:07:59,290 --> 00:08:04,760 Speaker 1: They don't fully explain everything. why the market has dropped 133 00:08:05,180 --> 00:08:08,320 Speaker 1: and what I'm asking you I suppose what I'm driving 134 00:08:08,400 --> 00:08:11,230 Speaker 1: at is it wasn't much of a drop in the 135 00:08:11,290 --> 00:08:14,090 Speaker 1: end it has recovered a fair bit so far it's 136 00:08:14,130 --> 00:08:16,670 Speaker 1: not a crash it's not even a correction the fall 137 00:08:16,690 --> 00:08:19,810 Speaker 1: was 7.5% at its peak on the US on the 138 00:08:19,990 --> 00:08:22,710 Speaker 1: S & P and 10% is a correction but I 139 00:08:22,890 --> 00:08:25,490 Speaker 1: wonder Danielle if we were running our shares in the 140 00:08:25,710 --> 00:08:28,110 Speaker 1: SMSF and you were telling me all about this stuff 141 00:08:28,190 --> 00:08:33,709 Speaker 1: I would simply say I think I worry sentimental approach, 142 00:08:34,250 --> 00:08:37,120 Speaker 1: knowing history, watching markets all the way back to 1987, 143 00:08:37,120 --> 00:08:43,179 Speaker 1: I feel it's a dress rehearsal for what this market 144 00:08:43,240 --> 00:08:43,560 Speaker 1: is due. 145 00:08:44,920 --> 00:08:47,330 Speaker 2: So you're saying you think markets need to crash. Is 146 00:08:47,350 --> 00:08:48,089 Speaker 2: that what you're saying? 147 00:08:48,670 --> 00:08:50,610 Speaker 1: I'm saying that, look, one of the things I sort 148 00:08:50,630 --> 00:08:53,290 Speaker 1: of obsessed with all week of all the mountains of 149 00:08:53,330 --> 00:08:55,589 Speaker 1: material I've read and listened to is Mike Wilson, the 150 00:08:55,630 --> 00:09:00,469 Speaker 1: strategy king, right, at Morgan Stanley, the kings of the 151 00:09:00,490 --> 00:09:02,710 Speaker 1: global market. And by the way, in terms of what 152 00:09:02,750 --> 00:09:05,970 Speaker 1: wealthy people do in Australia, they absolutely dominate the top 153 00:09:06,010 --> 00:09:09,750 Speaker 1: end of financial advice market here. I mean, I think 154 00:09:09,770 --> 00:09:11,780 Speaker 1: they have something like a quarter of all entries on 155 00:09:11,840 --> 00:09:15,559 Speaker 1: our top advisors list. And their chief strategist said a 156 00:09:15,580 --> 00:09:18,280 Speaker 1: very simple thing. He said, long-term average on the US, 157 00:09:18,280 --> 00:09:22,520 Speaker 1: 16 times PE. Current PE, 21. He thinks it should 158 00:09:22,540 --> 00:09:25,300 Speaker 1: drop to about 19 to be right. Either the earnings 159 00:09:25,340 --> 00:09:27,830 Speaker 1: have to fly up For all those stocks in the US, 160 00:09:28,270 --> 00:09:31,860 Speaker 1: they have to come down. And this market is due 161 00:09:31,960 --> 00:09:37,199 Speaker 1: a reversal because of the AI excitement, which percolates right 162 00:09:37,220 --> 00:09:38,340 Speaker 1: through the market, even to our. 163 00:09:38,580 --> 00:09:38,880 Speaker 2: Maybe. 164 00:09:39,120 --> 00:09:41,040 Speaker 1: What do you think of what I'm saying? 165 00:09:41,679 --> 00:09:44,849 Speaker 2: Well, it's funny because you've gone from like, it's a 166 00:09:44,890 --> 00:09:50,070 Speaker 2: storm in a teacup about the yen trade, but... The 167 00:09:50,110 --> 00:09:52,600 Speaker 2: markets really need to fall over in a heap. And 168 00:09:52,620 --> 00:09:55,240 Speaker 2: of course, there is that narrative out there. It's probably 169 00:09:55,320 --> 00:09:59,770 Speaker 2: been the most distrusted rally in share markets post the. 170 00:09:59,730 --> 00:10:02,740 Speaker 1: Low I really like that phrase. Well, it is. 171 00:10:02,840 --> 00:10:07,640 Speaker 2: People just go, this shouldn't be happening. And yet you go, U.S. 172 00:10:08,360 --> 00:10:12,579 Speaker 2: earnings are actually better than expected this quarter. They're coming 173 00:10:12,720 --> 00:10:17,599 Speaker 2: out better than expected. I think that whole gloom we're 174 00:10:17,620 --> 00:10:24,329 Speaker 2: going to have mean revert back on valuations. I personally 175 00:10:24,450 --> 00:10:27,630 Speaker 2: don't subscribe to it. I go back to the financial 176 00:10:27,730 --> 00:10:32,870 Speaker 2: system globally has fundamentally shifted over the last 30 years. 177 00:10:33,510 --> 00:10:36,490 Speaker 2: Of course, there are investors, and you have to be 178 00:10:36,530 --> 00:10:40,510 Speaker 2: very careful to differentiate between somebody that has $ 10 billion, 179 00:10:40,510 --> 00:10:46,319 Speaker 2: $ 100 billion, or even $ 100 million. versus probably most of 180 00:10:46,360 --> 00:10:50,580 Speaker 2: your listeners, because those people have a completely different take 181 00:10:50,640 --> 00:10:55,760 Speaker 2: on asset allocation, okay, versus most of us who have 182 00:10:55,820 --> 00:10:58,730 Speaker 2: money in the markets and a superannuation in the markets. 183 00:10:59,540 --> 00:11:03,230 Speaker 2: And super funds have been the biggest buyers of banks 184 00:11:04,050 --> 00:11:07,330 Speaker 2: over this year, which I bet would surprise you, because 185 00:11:07,590 --> 00:11:11,270 Speaker 2: every broker has a sell rating on them. So I think. 186 00:11:12,610 --> 00:11:14,530 Speaker 1: Sorry, Danielle, are you talking about the Australian banks? 187 00:11:15,070 --> 00:11:17,030 Speaker 2: Yeah, the Australian banks. Yeah, yeah. 188 00:11:17,050 --> 00:11:20,070 Speaker 1: So this is why CommBank is at $ 130, et cetera. 189 00:11:21,130 --> 00:11:23,410 Speaker 2: Correct. And nobody expected that. 190 00:11:23,570 --> 00:11:28,040 Speaker 3: I think this whole big doom, gloom, interest rates are 191 00:11:28,059 --> 00:11:29,559 Speaker 3: still going to go up in Australia. 192 00:11:30,280 --> 00:11:33,120 Speaker 2: I'm not so sure about that. When you look at 193 00:11:33,559 --> 00:11:37,339 Speaker 2: the reset in the markets, possibly, yes, Australian shares had 194 00:11:37,400 --> 00:11:42,120 Speaker 2: moved too far. Yes, US shares had moved too far. 195 00:11:42,320 --> 00:11:47,260 Speaker 2: Is Gen A, I? a flash in the pan? Absolutely not. 196 00:11:48,440 --> 00:11:54,599 Speaker 2: So differentiate between what was possibly exuberance coming into certain shares. 197 00:11:55,120 --> 00:11:58,760 Speaker 2: But I just think, be very careful about saying markets 198 00:11:58,800 --> 00:12:00,929 Speaker 2: are going to crash. Lots of people say markets are 199 00:12:00,970 --> 00:12:05,730 Speaker 2: going to crash, but I will put it out there 200 00:12:06,190 --> 00:12:09,130 Speaker 2: that there is no government and no central bank that's 201 00:12:09,170 --> 00:12:10,290 Speaker 2: going to let that happen. 202 00:12:10,309 --> 00:12:14,300 Speaker 1: Okay. By the way, I would never say markets are 203 00:12:14,320 --> 00:12:16,200 Speaker 1: going to crash and I would never say the word panic. 204 00:12:16,540 --> 00:12:19,079 Speaker 1: What I would say is that pullback wasn't as big 205 00:12:19,120 --> 00:12:21,219 Speaker 1: as I thought it was going to be. Simple as that. 206 00:12:21,500 --> 00:12:23,640 Speaker 2: Because it hasn't finished necessarily. 207 00:12:23,679 --> 00:12:24,710 Speaker 1: It hasn't finished necessarily. 208 00:12:24,780 --> 00:12:28,510 Speaker 3: Because the Bank of Japan has backstopped everything. That's what 209 00:12:28,550 --> 00:12:31,449 Speaker 3: I was trying to explain. The Bank of Japan has 210 00:12:31,550 --> 00:12:34,970 Speaker 3: kind of backstopped it. Now, again, I don't want people 211 00:12:35,010 --> 00:12:37,449 Speaker 3: to be scared because ultimately at the end of the day, 212 00:12:38,800 --> 00:12:42,360 Speaker 3: It's like it's going to, once this liquidity drawdown, once 213 00:12:42,400 --> 00:12:46,739 Speaker 3: the liquidity readjusts, right, it will be about going back 214 00:12:46,820 --> 00:12:49,990 Speaker 3: to earnings. And if earnings are growing, it's a very 215 00:12:50,040 --> 00:12:52,810 Speaker 3: simple story. Share prices go up over time. 216 00:12:53,330 --> 00:12:54,090 Speaker 2: End of story. 217 00:12:54,850 --> 00:12:58,429 Speaker 1: So let's take that line of inquiry. If that's the case, 218 00:12:58,890 --> 00:13:03,130 Speaker 1: and let's assume that's the case, then we have a 219 00:13:03,170 --> 00:13:05,449 Speaker 1: market that is a bit cheaper this week than last week. 220 00:13:06,900 --> 00:13:11,679 Speaker 1: And is it too early to go bargain hunting? 221 00:13:12,830 --> 00:13:17,130 Speaker 2: Well, it's reporting season, James. So I think in the 222 00:13:17,170 --> 00:13:22,210 Speaker 2: context of that, it is probably more prudent to, rather 223 00:13:22,250 --> 00:13:27,350 Speaker 2: than play the casino game of red or black, The 224 00:13:27,610 --> 00:13:30,280 Speaker 2: investors should wait till the results come out. I'll give 225 00:13:30,320 --> 00:13:34,040 Speaker 2: you a couple of examples. Mervac was off about 12% 226 00:13:34,040 --> 00:13:39,520 Speaker 2: today because their 2025 guidance is lower than expected. Then 227 00:13:39,580 --> 00:13:42,540 Speaker 2: there is another company, Ordinate, a favorite. They had to 228 00:13:42,620 --> 00:13:47,230 Speaker 2: reset their earnings guidance down and it fell 35%. But 229 00:13:47,270 --> 00:13:49,370 Speaker 2: now a whole lot of brokers have come up and 230 00:13:49,470 --> 00:13:53,190 Speaker 2: upgraded today, or Macquarie, which had downgraded before, have upgraded 231 00:13:53,250 --> 00:13:56,770 Speaker 2: and said, look, now it's offering value. So I guess 232 00:13:57,809 --> 00:14:02,860 Speaker 2: whilst not giving advice, I would say to listeners, wait 233 00:14:02,940 --> 00:14:08,480 Speaker 2: till the company reports. There's going to be ongoing volatility 234 00:14:08,700 --> 00:14:12,040 Speaker 2: and big share price moves. So rather than going to 235 00:14:12,080 --> 00:14:16,209 Speaker 2: the casino and second guessing saying, is ComBank share price 236 00:14:16,250 --> 00:14:18,490 Speaker 2: going to go up and down, will Telstra's go up 237 00:14:18,530 --> 00:14:23,580 Speaker 2: and down, whatever. Just, I think, wait and absorb because 238 00:14:23,760 --> 00:14:26,360 Speaker 2: everybody's going to have a different position in terms of 239 00:14:26,420 --> 00:14:29,840 Speaker 2: the shares they own, what time period, etc. But I 240 00:14:29,900 --> 00:14:34,330 Speaker 2: think you can expect volatility in this earnings season. 241 00:14:35,690 --> 00:14:37,790 Speaker 1: I want to ask you one thing, which is just 242 00:14:37,830 --> 00:14:40,390 Speaker 1: about how our market is just a little bit different 243 00:14:40,410 --> 00:14:42,950 Speaker 1: than the US in earnings. I'm going to say ComBank, 244 00:14:42,970 --> 00:14:46,060 Speaker 1: you mentioned there, biggest stock in the market, biggest bank 245 00:14:46,080 --> 00:14:49,500 Speaker 1: in the market. They're due to report... on the 14th, 246 00:14:49,580 --> 00:14:54,800 Speaker 1: which is next Wednesday. And they are expected, market consensus 247 00:14:54,860 --> 00:14:56,740 Speaker 1: is that their profit actually will drop a little bit, 248 00:14:57,440 --> 00:15:00,980 Speaker 1: very roughly from 10 point something to nine point something billion. 249 00:15:01,600 --> 00:15:04,260 Speaker 1: But at the same time, their dividend is going to 250 00:15:04,420 --> 00:15:07,250 Speaker 1: crawl higher by five cents. What I'm driving at here 251 00:15:07,310 --> 00:15:12,430 Speaker 1: is in our market, the value proposal to the investor 252 00:15:12,470 --> 00:15:17,780 Speaker 1: includes dividends at a 4% dividend yield in the US, 253 00:15:17,800 --> 00:15:21,230 Speaker 1: the dividend is nothing remotely near that. So the promise 254 00:15:21,280 --> 00:15:23,090 Speaker 1: is price increase. So what I want to ask you is, 255 00:15:23,670 --> 00:15:30,230 Speaker 1: when you look at the results, should the dividend payout 256 00:15:30,570 --> 00:15:36,030 Speaker 1: or payment be a more important criteria on the ASX 257 00:15:36,050 --> 00:15:38,700 Speaker 1: than it would be on global shares? 258 00:15:40,920 --> 00:15:43,820 Speaker 2: Well, it really depends on the share, James, because obviously 259 00:15:43,840 --> 00:15:48,470 Speaker 2: it's important for become important for the big miners and 260 00:15:48,650 --> 00:15:51,370 Speaker 2: it is important for the banks. But there's a whole 261 00:15:51,410 --> 00:15:54,090 Speaker 2: lot of shares that don't pay much dividend here in Australia. 262 00:15:54,430 --> 00:15:57,690 Speaker 1: For the ones that are the big, like literally dividend influencers, 263 00:15:57,730 --> 00:15:58,390 Speaker 1: like companies? 264 00:15:58,410 --> 00:16:02,210 Speaker 2: Well, yeah. Yeah, of course. Of course. In the US, 265 00:16:02,290 --> 00:16:07,270 Speaker 2: it's buybacks. Okay, because they changed the legislation years ago. 266 00:16:07,330 --> 00:16:09,710 Speaker 2: I think it was Bill Clinton that made buybacks more 267 00:16:09,750 --> 00:16:15,210 Speaker 2: attractive than dividends. So yeah, of course, dividend is hugely important. 268 00:16:15,430 --> 00:16:19,030 Speaker 2: Although I wouldn't be surprised unless they really come out 269 00:16:19,210 --> 00:16:21,370 Speaker 2: on a big miss on the dividends or a big 270 00:16:21,550 --> 00:16:24,250 Speaker 2: better than expected on the dividend. I wouldn't expect that 271 00:16:24,270 --> 00:16:26,350 Speaker 2: you're going to get much movement for some of those 272 00:16:26,630 --> 00:16:29,430 Speaker 2: more well-known companies. Actually, I haven't had a look at 273 00:16:29,490 --> 00:16:33,130 Speaker 2: Transurban today because I think their dividend might be slightly 274 00:16:33,170 --> 00:16:38,180 Speaker 2: better than expected. But generally speaking, Rio came out with 275 00:16:38,340 --> 00:16:40,619 Speaker 2: a lower than expected dividend the other day, and the 276 00:16:40,660 --> 00:16:44,859 Speaker 2: share price didn't really respond. So it has to be 277 00:16:44,980 --> 00:16:47,720 Speaker 2: quite a big change for them. 278 00:16:48,280 --> 00:16:51,580 Speaker 1: Dramatic. Okay. Actually, while we're talking about dividend, and before 279 00:16:51,600 --> 00:16:52,780 Speaker 1: we go to the break, I want to throw one 280 00:16:52,850 --> 00:16:56,730 Speaker 1: other thing at you, which is I was surprised, even 281 00:16:56,750 --> 00:16:58,630 Speaker 1: I think at the start of the show there, I mentioned, oh, 282 00:16:59,830 --> 00:17:03,490 Speaker 1: part of the distinct value proposal of Australian shares, as 283 00:17:03,550 --> 00:17:09,100 Speaker 1: opposed to offshore shares, is the dividend rate, the dividend yield. 284 00:17:10,420 --> 00:17:14,020 Speaker 1: But it's been dropping. And the forecast dividend yield for 285 00:17:14,040 --> 00:17:15,740 Speaker 1: the market is under 4. 286 00:17:15,740 --> 00:17:15,929 Speaker 3: It's 3.8. 287 00:17:15,920 --> 00:17:20,280 Speaker 1: We were always told it was 4.5. So to that extent, 288 00:17:20,340 --> 00:17:23,140 Speaker 1: the dividend side of the deal seems to be fading 289 00:17:23,270 --> 00:17:27,510 Speaker 1: while the price action is all right, but it's never 290 00:17:27,550 --> 00:17:30,870 Speaker 1: as good as the U.S. What do you think of that? 291 00:17:32,600 --> 00:17:35,620 Speaker 2: I'm not surprised. All of these institutions that have paid 292 00:17:35,760 --> 00:17:39,120 Speaker 2: out too high a payout ratio, too much in dividends 293 00:17:39,180 --> 00:17:42,460 Speaker 2: and haven't invested in the future have to invest now. 294 00:17:42,840 --> 00:17:43,840 Speaker 2: It's a huge problem. 295 00:17:44,780 --> 00:17:46,399 Speaker 1: They're catching up with them. 296 00:17:47,080 --> 00:17:51,960 Speaker 2: Yeah, totally. Totally. Banks are a classic case in point. Again, 297 00:17:52,060 --> 00:17:55,109 Speaker 2: it goes back to even if you're looking at things 298 00:17:55,190 --> 00:17:58,689 Speaker 2: like cybersecurity and all the attacks that are going on there. 299 00:17:58,810 --> 00:18:01,450 Speaker 2: I mean, they have to invest for the future. That's 300 00:18:01,500 --> 00:18:06,560 Speaker 2: the bottom line. I think investors have feasted, gorged themselves 301 00:18:07,300 --> 00:18:10,580 Speaker 2: on amazing dividends in Australia, and it's typical of a 302 00:18:10,920 --> 00:18:14,220 Speaker 2: cyclical mature market. The UK is the same, I think 303 00:18:14,240 --> 00:18:17,369 Speaker 2: you'll find, James. That has quite a high yield as 304 00:18:17,450 --> 00:18:22,170 Speaker 2: well from memory. For example, tobacco companies. I was just 305 00:18:22,230 --> 00:18:24,790 Speaker 2: recently in London and met with a friend of mine who's– 306 00:18:24,990 --> 00:18:27,430 Speaker 2: I know tobacco companies. I know everybody's cup of tea, 307 00:18:27,450 --> 00:18:29,470 Speaker 2: so I'm not suggesting you run out and buy them. 308 00:18:30,109 --> 00:18:33,149 Speaker 1: I know. There have been great investments for a long time. 309 00:18:33,250 --> 00:18:33,810 Speaker 1: I know this. 310 00:18:35,010 --> 00:18:41,570 Speaker 4: The dividend yield on BAT is over 9% British and 311 00:18:41,630 --> 00:18:45,830 Speaker 4: American tobacco because my friend is a top-rated tobacco analyst 312 00:18:46,070 --> 00:18:46,590 Speaker 4: in the world. 313 00:18:47,230 --> 00:18:50,010 Speaker 3: And I said, how much capital erosion have you had? 314 00:18:50,030 --> 00:18:52,910 Speaker 3: And he said, oh, yes, quite a bit of capital erosion. 315 00:18:53,390 --> 00:18:55,830 Speaker 2: And I go, and then he explains why. But I 316 00:18:55,869 --> 00:18:59,030 Speaker 2: guess what I'm saying is that some of those more 317 00:18:59,510 --> 00:19:04,250 Speaker 2: mature industries, et cetera, have much higher yields. But in 318 00:19:04,270 --> 00:19:06,990 Speaker 2: the case of Australia, if we look at our companies 319 00:19:07,010 --> 00:19:09,950 Speaker 2: that respond or behave in a fashion that is more 320 00:19:10,030 --> 00:19:12,830 Speaker 2: attuned to possibly what investors look for in the US, 321 00:19:13,410 --> 00:19:17,020 Speaker 2: so the car sales, REA, which is reporting on Friday, 322 00:19:17,540 --> 00:19:22,340 Speaker 2: the likes of WiseTech Global, Xero. Now, these companies are 323 00:19:22,380 --> 00:19:26,240 Speaker 2: investing for the future, always upgrading, and they don't pay 324 00:19:26,300 --> 00:19:30,580 Speaker 2: high dividends, and yet their performance, capital appreciation has been spectacular. 325 00:19:30,820 --> 00:19:35,879 Speaker 1: We won't go down the side alley of the reality 326 00:19:35,940 --> 00:19:41,109 Speaker 1: that the frank dividend regime has a lot to answer 327 00:19:41,150 --> 00:19:46,040 Speaker 1: for here. It really does, because it steamrolled and basically 328 00:19:46,220 --> 00:19:50,960 Speaker 1: shunted the whole market towards the dividends becoming perhaps overly important. 329 00:19:52,000 --> 00:19:54,550 Speaker 1: A story for another day. We'll be back in a moment, folks. 330 00:19:54,590 --> 00:20:03,770 Speaker 1: We'll take a short break. Hello and welcome back to 331 00:20:03,790 --> 00:20:07,330 Speaker 1: the Australian's Money Puzzle podcast. I'm talking to Danielle Okoye, 332 00:20:07,890 --> 00:20:10,669 Speaker 1: author of the Shareplicity book, which was a bestseller on 333 00:20:10,750 --> 00:20:13,229 Speaker 1: shares and terrific book if you are getting to know 334 00:20:13,270 --> 00:20:16,190 Speaker 1: the share market and want an introduction to it. She 335 00:20:16,490 --> 00:20:21,609 Speaker 1: is also an analyst, investor, professional investor and writer. I 336 00:20:21,670 --> 00:20:24,790 Speaker 1: wanted to ask you, Danielle, this segment, folks, is going 337 00:20:24,810 --> 00:20:26,430 Speaker 1: to be choppy, right? Because I'm going to throw different 338 00:20:26,450 --> 00:20:28,730 Speaker 1: things at Danielle and she's sort of a person that 339 00:20:28,750 --> 00:20:30,270 Speaker 1: you can do this and she's going to be able 340 00:20:30,290 --> 00:20:33,090 Speaker 1: to answer most of the questions. You know, this hunt 341 00:20:33,130 --> 00:20:38,560 Speaker 1: for alternative assets is And this, which I'm terribly skeptical about, 342 00:20:38,780 --> 00:20:41,910 Speaker 1: not that I'm skeptical about it. I'm terribly skeptical about 343 00:20:41,990 --> 00:20:49,270 Speaker 1: the business of listed securities on the Australian market where 344 00:20:49,650 --> 00:20:53,189 Speaker 1: mom and dad are told, here's your way into private credit. 345 00:20:53,570 --> 00:20:58,060 Speaker 1: Here's your way into private equity in the very, to me, 346 00:20:58,260 --> 00:21:03,340 Speaker 1: extremely unlikely vehicle of a listed share. Did you have 347 00:21:03,359 --> 00:21:07,900 Speaker 1: a look at, see how those performed in the shock 348 00:21:08,180 --> 00:21:11,930 Speaker 1: drop earlier in the week? And what do you think 349 00:21:12,010 --> 00:21:18,189 Speaker 1: of that fashion of pulling retail investors into, I mean, 350 00:21:18,210 --> 00:21:20,149 Speaker 1: these funds are just popping out by the day. Everyone's 351 00:21:20,190 --> 00:21:24,540 Speaker 1: rushing in and launching these listed funds where they say 352 00:21:24,560 --> 00:21:26,959 Speaker 1: to people, hey, folks, you know, you can't get at 353 00:21:27,060 --> 00:21:30,160 Speaker 1: private credit and private equity because you're just Joe Average. 354 00:21:30,700 --> 00:21:31,980 Speaker 1: But if you want to catch up with the future 355 00:21:32,020 --> 00:21:34,399 Speaker 1: found in Australian super, buy this listed share. What do 356 00:21:34,440 --> 00:21:35,520 Speaker 1: you think of that whole thing? 357 00:21:37,000 --> 00:21:39,940 Speaker 2: Well, I'm going to refer to another guest of yours, 358 00:21:40,060 --> 00:21:42,810 Speaker 2: Will Hamilton, because Will and I used to work together. 359 00:21:43,619 --> 00:21:46,230 Speaker 2: And we have a little bit of a joke about this. 360 00:21:46,609 --> 00:21:49,190 Speaker 2: And it's not to dismiss anyone that has put money 361 00:21:49,430 --> 00:21:52,350 Speaker 2: in these forms of asset classes, but we are very 362 00:21:52,450 --> 00:21:55,449 Speaker 2: cynical because we've come from that side of the industry. 363 00:21:55,990 --> 00:22:00,900 Speaker 2: We know that the institutions will give the retail public 364 00:22:01,540 --> 00:22:04,960 Speaker 2: the funds that they think they will like and they 365 00:22:05,000 --> 00:22:11,379 Speaker 2: can sell. So straight off the bat, I'm very concerned, cynical, 366 00:22:11,940 --> 00:22:16,340 Speaker 2: that whilst there will be good vehicles, there will also 367 00:22:16,420 --> 00:22:20,360 Speaker 2: be vehicles that could tell a very sorry story down 368 00:22:20,400 --> 00:22:24,070 Speaker 2: the track. Now, private credit has been a huge growth market, 369 00:22:24,740 --> 00:22:27,950 Speaker 2: largely to do with banking regulations. So the banks have 370 00:22:28,090 --> 00:22:32,140 Speaker 2: shifted out of funding in this area and private institutions 371 00:22:32,180 --> 00:22:33,139 Speaker 2: have moved into it. 372 00:22:33,920 --> 00:22:37,300 Speaker 3: In my former job at Ausbis, I was interviewing a 373 00:22:37,340 --> 00:22:38,660 Speaker 3: lot of private credit people. 374 00:22:38,720 --> 00:22:43,490 Speaker 2: It is growing rapidly. But when you think about it, 375 00:22:43,970 --> 00:22:49,430 Speaker 2: not all debt, so you buy in credit, is created equally, James. 376 00:22:50,750 --> 00:22:54,130 Speaker 2: And if we are going into an economic slowdown, albeit 377 00:22:54,210 --> 00:22:57,840 Speaker 2: everyone's debating the extent of the slowdown, one has to 378 00:22:57,890 --> 00:23:03,609 Speaker 2: question the quality of the credit that people are investing in. Intuitively, 379 00:23:03,770 --> 00:23:09,300 Speaker 2: if you're getting a 10% plus yield on debt versus, 380 00:23:09,380 --> 00:23:13,780 Speaker 2: let's say, I bought some ANZ corporate bonds today, which 381 00:23:13,840 --> 00:23:18,640 Speaker 2: are almost yielding about 5.9%, versus getting 10%, you have 382 00:23:18,680 --> 00:23:21,120 Speaker 2: to ask, how much risk am I taking for that 383 00:23:21,300 --> 00:23:29,570 Speaker 2: almost additional 5% per annum? And personally, For smaller investors, 384 00:23:30,470 --> 00:23:33,630 Speaker 2: it sounds attractive. I know a lot of older investors, 385 00:23:33,690 --> 00:23:36,670 Speaker 2: I think, have been saying, we'll sell our shares, we'll 386 00:23:36,710 --> 00:23:39,560 Speaker 2: go into private credit because we just want the income. 387 00:23:40,060 --> 00:23:43,340 Speaker 2: But like all new fads, I think there's going to 388 00:23:43,359 --> 00:23:45,300 Speaker 2: be winners and there's going to be losers. So you 389 00:23:45,320 --> 00:23:49,220 Speaker 2: have to be very careful. You just can't assume what 390 00:23:49,260 --> 00:23:52,100 Speaker 2: the underlying asset is and if it's going to be 391 00:23:52,240 --> 00:23:57,420 Speaker 2: okay and what happens if that company goes bust. Now, obviously, 392 00:23:58,440 --> 00:24:01,520 Speaker 2: There's a lot of property credit out there and property 393 00:24:01,760 --> 00:24:04,520 Speaker 2: is in an immense world of pain at the moment. 394 00:24:04,580 --> 00:24:08,129 Speaker 2: So I think investors have to be incredibly diligent and 395 00:24:08,170 --> 00:24:13,010 Speaker 2: careful about what they're buying. When it comes to private equity, 396 00:24:13,650 --> 00:24:17,310 Speaker 2: investors have to understand that the big boys, they, again, 397 00:24:17,350 --> 00:24:19,810 Speaker 2: if you go back to the big investor with $ 100 398 00:24:19,390 --> 00:24:23,040 Speaker 2: million or whatever they have, they don't mind blowing up 399 00:24:23,040 --> 00:24:25,859 Speaker 2: $ 10 million. That's why they'll put it into Bitcoin or 400 00:24:25,880 --> 00:24:29,530 Speaker 2: they'll put it into something else. Do you know what 401 00:24:29,550 --> 00:24:32,910 Speaker 2: I mean? It's petty cash. Yeah, it's petty cash. So 402 00:24:32,950 --> 00:24:35,990 Speaker 2: it comes down to asset allocation. If you have a 403 00:24:36,030 --> 00:24:40,100 Speaker 2: good fund manager that is asset allocating across a huge 404 00:24:40,210 --> 00:24:46,020 Speaker 2: spectrum of new companies in private equity, one maybe out 405 00:24:46,060 --> 00:24:50,859 Speaker 2: of 100 will do really well. We hear about the canvas. 406 00:24:51,400 --> 00:24:54,560 Speaker 2: We don't hear about all the ones that end up 407 00:24:55,119 --> 00:24:56,820 Speaker 2: in the toilets. That's the problem. 408 00:24:57,250 --> 00:25:00,890 Speaker 1: They all talk about the winners. This is like horse racing. 409 00:25:01,090 --> 00:25:04,810 Speaker 1: I had a winner in the 230 at whatever Randwick. Yeah, 410 00:25:04,830 --> 00:25:07,889 Speaker 1: but what about the dozens of times you didn't? Hey, 411 00:25:08,359 --> 00:25:11,100 Speaker 1: just one quick thing. It just struck me there. It 412 00:25:11,140 --> 00:25:16,959 Speaker 1: didn't dent to your highly sophisticated and experienced investor mind 413 00:25:17,540 --> 00:25:19,580 Speaker 1: when you bought, and I don't want to plug any 414 00:25:19,640 --> 00:25:24,119 Speaker 1: particular bank, but when you bought a bank security that 415 00:25:24,140 --> 00:25:26,280 Speaker 1: you just mentioned, it didn't dent to your mind that, 416 00:25:26,580 --> 00:25:29,399 Speaker 1: These were the guys that are financing the private credit 417 00:25:30,100 --> 00:25:32,060 Speaker 1: people anyway, the funds. 418 00:25:32,660 --> 00:25:35,600 Speaker 2: Yeah, that's true, actually. And obviously, yes, it was more, 419 00:25:35,680 --> 00:25:37,940 Speaker 2: I obviously have missed something in that. It was more 420 00:25:37,980 --> 00:25:40,440 Speaker 2: a switch out of a floating rate note into a 421 00:25:40,530 --> 00:25:41,810 Speaker 2: fixed rate. So I'm taking. 422 00:25:41,940 --> 00:25:44,470 Speaker 1: But the big banks, the big investment banks, they're behind 423 00:25:44,530 --> 00:25:45,650 Speaker 1: all that anyway, aren't they? 424 00:25:45,869 --> 00:25:48,050 Speaker 2: Well, I'm not up to date on that one, but 425 00:25:48,090 --> 00:25:51,890 Speaker 2: it's their financing the credit market, which I guess somebody 426 00:25:51,950 --> 00:25:55,149 Speaker 2: has to. Yeah, because they've taken it off their balance sheets. 427 00:25:56,150 --> 00:25:57,070 Speaker 2: Same in the US. 428 00:25:57,609 --> 00:26:01,050 Speaker 1: They've taken it off their balance sheets. That is the lending. 429 00:26:01,070 --> 00:26:05,060 Speaker 1: And then these funds come along. But the funds are 430 00:26:05,119 --> 00:26:07,239 Speaker 1: financed by banks. Anyway, we'll put that out there just 431 00:26:07,260 --> 00:26:07,680 Speaker 1: for the moment. 432 00:26:08,160 --> 00:26:08,460 Speaker 3: All right. 433 00:26:08,520 --> 00:26:10,939 Speaker 1: OK. We'll take a short break. We've got some really 434 00:26:10,960 --> 00:26:15,020 Speaker 1: good questions from Matthew and Joe and Matt and someone 435 00:26:15,060 --> 00:26:17,320 Speaker 1: who likes to call themselves the average punter. Back in 436 00:26:17,340 --> 00:26:26,460 Speaker 1: a moment. Hello and welcome back to the Australian's Money Puzzle. 437 00:26:26,720 --> 00:26:29,880 Speaker 1: Maybe you and I could read them alternately if you'd 438 00:26:29,900 --> 00:26:31,920 Speaker 1: like to do that. Yep. 439 00:26:32,140 --> 00:26:34,680 Speaker 2: Okay. So Matthew has asked, if the market always goes 440 00:26:34,780 --> 00:26:37,320 Speaker 2: up in the long term, why wouldn't a young investor 441 00:26:37,540 --> 00:26:43,000 Speaker 2: always buy a geared ETF? I don't understand the long-term downside. Ultimately, 442 00:26:43,100 --> 00:26:47,109 Speaker 2: one is just magnifying the long-term expected market return. If 443 00:26:47,130 --> 00:26:50,490 Speaker 2: the expected return wasn't positive over the long term, we 444 00:26:50,510 --> 00:26:52,870 Speaker 2: wouldn't buy it in the first place. Great question. 445 00:26:52,910 --> 00:26:53,350 Speaker 1: I had a. 446 00:26:53,330 --> 00:26:56,649 Speaker 2: Conversation with my son, who at one point watched a 447 00:26:56,710 --> 00:26:58,780 Speaker 2: triple-geared NASDAQ fund. 448 00:26:58,800 --> 00:26:59,359 Speaker 1: Triple-geared? 449 00:27:00,460 --> 00:27:04,520 Speaker 2: I think so, yeah. I stand to be corrected. It 450 00:27:04,580 --> 00:27:07,300 Speaker 2: might be only double-geared. Look, at the end of the day, 451 00:27:07,320 --> 00:27:10,940 Speaker 2: in theory, it sounds great. But when markets fall by 20% 452 00:27:10,940 --> 00:27:14,679 Speaker 2: and your geared ETF has gone down by double or 453 00:27:14,740 --> 00:27:20,470 Speaker 2: triple the amount, you mightn't feel as ballsy. So it 454 00:27:20,510 --> 00:27:26,350 Speaker 2: depends on your risk tolerance, Matthew. Like everything, people forget, James, 455 00:27:26,430 --> 00:27:29,889 Speaker 2: that you can have long periods of underperformance in share 456 00:27:29,930 --> 00:27:33,640 Speaker 2: markets from 1968 to the early 80s, and I'm sure 457 00:27:33,660 --> 00:27:36,679 Speaker 2: you've discussed reasons why in previous podcasts. 458 00:27:37,340 --> 00:27:38,980 Speaker 1: It's come up, of course, yeah. 459 00:27:39,980 --> 00:27:44,700 Speaker 2: But I think it depends how... your risk tolerance works. 460 00:27:45,040 --> 00:27:48,050 Speaker 2: Me personally, women tend to be more conservative. I would 461 00:27:48,109 --> 00:27:52,609 Speaker 2: never consider a geared ETF or a geared ETF into 462 00:27:52,650 --> 00:27:55,429 Speaker 2: a stock like Nvidia. Yes, you can make lots of 463 00:27:55,490 --> 00:27:58,210 Speaker 2: money in the short term, but equally, you could watch 464 00:27:58,230 --> 00:28:03,220 Speaker 2: your capital erode rather quickly. Long-term wealth creation is done, 465 00:28:04,020 --> 00:28:05,159 Speaker 2: I think, more patiently. 466 00:28:05,300 --> 00:28:08,240 Speaker 1: Okay. Matthew, this is never advice, by the way, of course. 467 00:28:08,340 --> 00:28:11,300 Speaker 1: It's always information. But one thing I want to ask you, theoretically, 468 00:28:11,380 --> 00:28:13,899 Speaker 1: I suppose, Would you gear at all? Would you borrow 469 00:28:13,940 --> 00:28:16,040 Speaker 1: to invest on the markets? Never. 470 00:28:16,300 --> 00:28:16,860 Speaker 4: No, I see. 471 00:28:17,000 --> 00:28:17,220 Speaker 3: Okay. 472 00:28:17,440 --> 00:28:20,659 Speaker 1: All right. Okay. Then your answer was very much in 473 00:28:20,720 --> 00:28:25,480 Speaker 1: keeping with your broader worldview. All right. The Average Punter says, 474 00:28:25,790 --> 00:28:27,810 Speaker 1: I always listen to your podcast when picking up my 475 00:28:27,850 --> 00:28:30,950 Speaker 1: daughter from school. Actually, you know what we should do? 476 00:28:31,030 --> 00:28:33,990 Speaker 1: We should encourage people to tell us what they do 477 00:28:34,030 --> 00:28:36,129 Speaker 1: when they're listening to the podcast. It just struck me, 478 00:28:36,170 --> 00:28:38,280 Speaker 1: you know. I hear all sorts of things. We had a... 479 00:28:39,570 --> 00:28:42,150 Speaker 1: We had a listener who used to tell us that 480 00:28:42,190 --> 00:28:46,770 Speaker 1: they listened to us blowing the leaves, doing the garden, cycling, 481 00:28:46,850 --> 00:28:49,200 Speaker 1: all sorts of things. I wonder what's the oddest one. 482 00:28:49,210 --> 00:28:53,940 Speaker 1: They have to be genuine, of course. Let us know. Okay. Recently, 483 00:28:54,020 --> 00:28:56,660 Speaker 1: says the average printer, I heard Marcus Padley, who's someone 484 00:28:56,680 --> 00:28:59,680 Speaker 1: I must have on the show someday, of Marcus today saying, 485 00:29:00,160 --> 00:29:03,160 Speaker 1: if the overnight iron ore prices are up, then the 486 00:29:03,220 --> 00:29:06,930 Speaker 1: share prices of iron ore prices like Fortescue go up. 487 00:29:07,350 --> 00:29:09,950 Speaker 1: when the ASX opens for trading. And if they're down, 488 00:29:10,470 --> 00:29:12,590 Speaker 1: vice versa. Is it true? And how would I check 489 00:29:12,810 --> 00:29:17,080 Speaker 1: iron ore prices before the ASX opens for trading? Okay, well, 490 00:29:17,100 --> 00:29:21,360 Speaker 1: the ASX opens at 10 o'clock for trading. These days, 491 00:29:21,400 --> 00:29:25,000 Speaker 1: you can get this stuff pretty easily. It's like the 492 00:29:25,040 --> 00:29:28,680 Speaker 1: London Metals Exchange would have live prices. They're nine hours behind, etc. 493 00:29:30,430 --> 00:29:34,120 Speaker 2: We have it on the FN Arena website, James. The 494 00:29:34,280 --> 00:29:36,500 Speaker 2: iron ore price can be a little bit tricky to 495 00:29:36,560 --> 00:29:39,910 Speaker 2: get hold of. It's not traded directly out of London. 496 00:29:40,280 --> 00:29:43,680 Speaker 1: Why is it tricky to get a hold of? So 497 00:29:43,700 --> 00:29:45,640 Speaker 1: what's the key price market for iron ore? 498 00:29:46,480 --> 00:29:50,280 Speaker 2: I think it's traded in Singapore. That's the main one. 499 00:29:50,340 --> 00:29:51,920 Speaker 2: And they have different futures. 500 00:29:52,160 --> 00:29:52,350 Speaker 1: Yeah. 501 00:29:52,370 --> 00:29:56,650 Speaker 2: And there's also the Chinese exchange and they're usually traded 502 00:29:56,710 --> 00:30:01,290 Speaker 2: in futures prices. But FNArena.com has an update, which you 503 00:30:01,310 --> 00:30:04,370 Speaker 2: can see on the front of the website, updated all 504 00:30:04,490 --> 00:30:10,770 Speaker 2: the commodity prices every morning by about 8.15. There you are, AveragePunter. 505 00:30:11,290 --> 00:30:11,650 Speaker 2: All right. 506 00:30:11,950 --> 00:30:15,570 Speaker 1: Do you want to read the question from Joe? And 507 00:30:15,610 --> 00:30:18,730 Speaker 1: just before you do, AFIC folks, which is the subject 508 00:30:18,770 --> 00:30:21,570 Speaker 1: of this question, is the Australian Foundation Investment Company. It's 509 00:30:21,650 --> 00:30:24,520 Speaker 1: a listed investment fund. It's the most famous of them all. 510 00:30:24,730 --> 00:30:26,660 Speaker 1: I think it's the biggest of them all too. Okay. 511 00:30:26,700 --> 00:30:29,640 Speaker 1: Would you like to read that one, Danielle? Yes. 512 00:30:29,940 --> 00:30:32,930 Speaker 2: So Joe is asking that he's invested in AFIC over 513 00:30:32,970 --> 00:30:35,030 Speaker 2: the last few years and he can't understand at the 514 00:30:35,070 --> 00:30:38,210 Speaker 2: moment why the net assets are higher than the share price. 515 00:30:38,830 --> 00:30:42,030 Speaker 2: I can understand where this happens for a listed investment 516 00:30:42,130 --> 00:30:46,090 Speaker 2: company based on properties where the underlying valuations may not 517 00:30:46,130 --> 00:30:50,890 Speaker 2: align to the LIC valuations. Interesting one, James. I've had 518 00:30:50,910 --> 00:30:56,780 Speaker 2: a wee peek at the asset valuation and the latest 519 00:30:56,860 --> 00:31:00,750 Speaker 2: one that they've provided. It was really interesting, James, because 520 00:31:00,910 --> 00:31:05,610 Speaker 2: the pre-tax valuation versus the post-tax valuation compared to the 521 00:31:05,670 --> 00:31:10,010 Speaker 2: share price presents a totally different picture. So I didn't 522 00:31:10,090 --> 00:31:13,610 Speaker 2: come away with a very clear response to this one. 523 00:31:13,650 --> 00:31:17,400 Speaker 2: And I'd be interested in your view because pre-tax, the 524 00:31:17,500 --> 00:31:22,420 Speaker 2: share price is actually trading lower than the asset valuation. Post-tax, 525 00:31:22,760 --> 00:31:23,380 Speaker 2: it's higher. 526 00:31:23,420 --> 00:31:24,040 Speaker 1: Oh, yeah. 527 00:31:25,900 --> 00:31:27,600 Speaker 2: Which is interesting, isn't it? Because. 528 00:31:28,630 --> 00:31:30,190 Speaker 1: Has it got stored frank dividends? 529 00:31:31,490 --> 00:31:35,080 Speaker 2: Yeah, they do. They've got a lot of them. Yeah, 530 00:31:35,380 --> 00:31:38,420 Speaker 2: I think so. And all I would say is that 531 00:31:38,460 --> 00:31:41,400 Speaker 2: typically you're best to buy when the share price is 532 00:31:41,440 --> 00:31:44,380 Speaker 2: trading at a discount. It should have done quite well 533 00:31:44,440 --> 00:31:48,640 Speaker 2: because its largest holding is actually Commonwealth Bank. But they 534 00:31:48,680 --> 00:31:52,170 Speaker 2: do tend to move depending on what the shareholdings are. Although, 535 00:31:52,190 --> 00:31:55,490 Speaker 2: I don't know what you've heard, James, or your view, 536 00:31:55,550 --> 00:31:59,860 Speaker 2: but I think some of these listed investment companies are 537 00:31:59,940 --> 00:32:04,440 Speaker 2: not necessarily the preferred vehicle for the young. They tend 538 00:32:04,460 --> 00:32:08,110 Speaker 2: to buy ETFs. And I'm wondering whether the flow of 539 00:32:08,250 --> 00:32:13,610 Speaker 2: funds has impacted on some of these discounts, et cetera, 540 00:32:13,650 --> 00:32:14,550 Speaker 2: to the share prices. 541 00:32:14,930 --> 00:32:17,670 Speaker 1: Listed investment companies, I won't say invariably, but I think 542 00:32:17,710 --> 00:32:21,770 Speaker 1: you'll probably find actually the majority numerically trade below their 543 00:32:21,830 --> 00:32:26,459 Speaker 1: net asset value or tangible asset value. And the textbooks 544 00:32:26,480 --> 00:32:29,130 Speaker 1: will tell you, buy them when they're trading at a 545 00:32:29,170 --> 00:32:31,190 Speaker 1: discount to them. The thing is that they never narrow 546 00:32:31,230 --> 00:32:34,350 Speaker 1: the discount. Most of them never catch up. Some of 547 00:32:34,390 --> 00:32:37,950 Speaker 1: the good ones do, the better ones, and AFIC would 548 00:32:37,990 --> 00:32:40,890 Speaker 1: be one of them. So that's point one. And point 549 00:32:40,930 --> 00:32:45,350 Speaker 1: two is, as Danielle is saying, the thing about ETFs 550 00:32:45,450 --> 00:32:48,330 Speaker 1: is that, especially now with active ETFs, where they can 551 00:32:48,510 --> 00:32:52,229 Speaker 1: really sort of get very close to an approximate of 552 00:32:52,270 --> 00:32:57,520 Speaker 1: a conventional ASX top 200, listed investment company, their fees 553 00:32:59,680 --> 00:33:02,510 Speaker 1: can be lower and they can go lower even still. 554 00:33:02,980 --> 00:33:05,390 Speaker 1: So that's going on there. But for what it's worth, 555 00:33:05,990 --> 00:33:09,230 Speaker 1: in many ways, it's always the case with even really 556 00:33:09,270 --> 00:33:13,990 Speaker 1: good licks that they trade below the net tangible value 557 00:33:14,010 --> 00:33:15,950 Speaker 1: of all the shares in them, which is kind of ironic. 558 00:33:16,430 --> 00:33:19,570 Speaker 1: It shouldn't be the case, but it invariably is. I 559 00:33:19,610 --> 00:33:21,770 Speaker 1: might be corrected. I'll be corrected by that. The ones 560 00:33:21,810 --> 00:33:24,270 Speaker 1: that are trading at a premium will tell me very quickly. 561 00:33:24,610 --> 00:33:26,370 Speaker 1: But if you have a look across the board, that's 562 00:33:26,410 --> 00:33:32,060 Speaker 1: often the case. All right, Matt. Finally, Matt, last question. 563 00:33:32,520 --> 00:33:35,979 Speaker 1: Like many others, I have shares in big tech in 564 00:33:36,000 --> 00:33:39,050 Speaker 1: the U.S. I don't want to sell, but I want 565 00:33:39,090 --> 00:33:42,890 Speaker 1: to protect against the falling U.S. dollar. What can I 566 00:33:42,970 --> 00:33:48,520 Speaker 1: do as a mom slash dad investor? You're probably a 567 00:33:48,600 --> 00:33:52,480 Speaker 1: dad investor, Matt. Look, a couple of things. First of all, 568 00:33:53,040 --> 00:33:54,880 Speaker 1: it's funny, we had this conversation the other day. Over 569 00:33:54,900 --> 00:33:56,920 Speaker 1: a very long period of time, the hedging doesn't really 570 00:33:56,960 --> 00:33:59,960 Speaker 1: make an awful lot of difference. That's the first thing. 571 00:34:00,660 --> 00:34:04,790 Speaker 1: Second thing is, any sort of hedging whatsoever, nothing's free. 572 00:34:05,110 --> 00:34:07,670 Speaker 1: If you get hedging, you pay for it. 573 00:34:08,620 --> 00:34:12,450 Speaker 2: I wouldn't. I wouldn't personally. It's not advice, but mass. 574 00:34:12,570 --> 00:34:16,629 Speaker 2: I talk about Greek, enough Greek investing overseas with, you know, 575 00:34:16,890 --> 00:34:20,549 Speaker 2: even in big tech. It's everybody calls the demise of 576 00:34:20,590 --> 00:34:23,259 Speaker 2: the US dollar, but I don't think we're going to 577 00:34:23,280 --> 00:34:26,240 Speaker 2: see the demise of the US dollar in our lifetime, James. 578 00:34:26,680 --> 00:34:29,660 Speaker 2: Everybody calls the Aussie dollar at 80 cents for years, 579 00:34:30,000 --> 00:34:32,120 Speaker 2: and we haven't seen 80 cents in ages. 580 00:34:33,020 --> 00:34:34,820 Speaker 1: You don't think even Trump can undo it? 581 00:34:37,300 --> 00:34:39,060 Speaker 2: Oh, I think if Trump has a go at trying 582 00:34:39,080 --> 00:34:42,339 Speaker 2: to do some of the stuff that's in Project 2025, 583 00:34:42,340 --> 00:34:44,939 Speaker 2: you'll see the bond market have conniptions and he'll back 584 00:34:45,000 --> 00:34:47,299 Speaker 2: off faster than the roadrunner. 585 00:34:47,700 --> 00:34:53,550 Speaker 1: Is your sense of its ability to remain the world's 586 00:34:53,570 --> 00:34:56,430 Speaker 1: reserve currency and a strong currency, is it based on 587 00:34:56,469 --> 00:35:00,649 Speaker 1: the fact that trading as such, but the fact that 588 00:35:00,930 --> 00:35:03,670 Speaker 1: it is the reserve currency? And so when things go wrong, ironically, 589 00:35:03,730 --> 00:35:05,270 Speaker 1: even if they're sparked by the US, the whole world 590 00:35:05,310 --> 00:35:06,750 Speaker 1: puts their money in US treasuries. 591 00:35:07,239 --> 00:35:09,350 Speaker 2: Yes, that's part of it. And it's also because it's 592 00:35:09,370 --> 00:35:12,410 Speaker 2: the collateral that's used around the world, those US treasuries. 593 00:35:12,690 --> 00:35:13,150 Speaker 1: Yeah. 594 00:35:13,670 --> 00:35:17,390 Speaker 2: So that's the biggest thing. That's my understanding. And it's 595 00:35:17,450 --> 00:35:20,069 Speaker 2: not going to be dislodged anytime soon, nor is the 596 00:35:20,170 --> 00:35:22,980 Speaker 2: US government and the Federal Reserve going to roll over 597 00:35:23,060 --> 00:35:26,680 Speaker 2: and say, take our hegemony like that easily. They can 598 00:35:26,719 --> 00:35:28,060 Speaker 2: make life very difficult. 599 00:35:28,680 --> 00:35:30,819 Speaker 1: There's a bottom line where they won't jeopardize their own 600 00:35:31,100 --> 00:35:33,339 Speaker 1: preeminence in currency markets. 601 00:35:34,780 --> 00:35:37,120 Speaker 2: Well, they don't want to give up that power anytime soon, 602 00:35:37,140 --> 00:35:40,520 Speaker 2: do they? Because, I mean, they have weaponized the US 603 00:35:40,580 --> 00:35:44,940 Speaker 2: dollar geopolitically with Russia, and that's what's caused China and 604 00:35:44,980 --> 00:35:48,840 Speaker 2: these other countries to be looking to increase their gold 605 00:35:48,900 --> 00:35:53,520 Speaker 2: holdings and looking to create an alternative to the US dollar. 606 00:35:53,540 --> 00:35:58,890 Speaker 2: But ultimately, James, it's very hard because everybody, when they 607 00:35:58,989 --> 00:36:02,290 Speaker 2: go out to borrow whatever they need, the collateral, and 608 00:36:02,330 --> 00:36:06,969 Speaker 2: you're not going to by Chinese treasuries or the equivalent, 609 00:36:07,360 --> 00:36:10,080 Speaker 2: nor probably is there the liquidity to actually do it. 610 00:36:10,219 --> 00:36:14,860 Speaker 2: So I think the demise of the US dollar is overstated. 611 00:36:15,020 --> 00:36:17,200 Speaker 2: I think if you invest in the US, you just have. 612 00:36:17,100 --> 00:36:21,560 Speaker 3: To take a long-term view that over the balance of time, 613 00:36:21,580 --> 00:36:25,760 Speaker 3: the share price capital appreciation of the shares will do 614 00:36:25,820 --> 00:36:29,870 Speaker 3: you well enough. Trying to hedge currencies is even impossible 615 00:36:29,930 --> 00:36:31,530 Speaker 3: for the big boys, isn't it, James? 616 00:36:32,030 --> 00:36:34,310 Speaker 2: Let alone our little mere mortals. 617 00:36:34,890 --> 00:36:38,310 Speaker 1: Matt, let me tell you, they get it so wrong 618 00:36:39,350 --> 00:36:42,070 Speaker 1: so often that the chances you'll get it right are 619 00:36:42,090 --> 00:36:45,660 Speaker 1: very slim. So just, yes, look, it would seem, we're 620 00:36:45,680 --> 00:36:47,110 Speaker 1: not talking to you, Matt, we're talking to all the 621 00:36:47,160 --> 00:36:49,980 Speaker 1: Matts in the world hedging, you know, really, don't worry 622 00:36:50,000 --> 00:36:53,080 Speaker 1: about it, particularly if you are a long-term investor. And 623 00:36:53,140 --> 00:36:56,500 Speaker 1: as for whether the US will drop just because whatever, 624 00:36:57,100 --> 00:36:58,880 Speaker 1: and you didn't mention Trump, but the narrative at the 625 00:36:58,920 --> 00:37:01,919 Speaker 1: moment is that what he plans will weaken the US dollar. 626 00:37:02,360 --> 00:37:05,540 Speaker 1: Don't know about that either. OK, terrific. Hey, thank you 627 00:37:05,580 --> 00:37:07,740 Speaker 1: very much, Danielle. It was great to talk to you today, 628 00:37:07,840 --> 00:37:09,799 Speaker 1: as always. Regular guest on the show. 629 00:37:10,239 --> 00:37:13,020 Speaker 2: Pleasure, James. Lovely to chat with you. And thank you 630 00:37:13,080 --> 00:37:14,259 Speaker 2: so much for having me on. 631 00:37:14,860 --> 00:37:16,680 Speaker 1: Oh, you're very welcome. And lovely to have you back 632 00:37:16,760 --> 00:37:20,219 Speaker 1: on the show. OK, folks, as I have asked for 633 00:37:20,260 --> 00:37:22,880 Speaker 1: a week or two, if you are enjoying the podcast, 634 00:37:22,980 --> 00:37:24,940 Speaker 1: thank you. Thanks for all the ratings and everything. But 635 00:37:24,980 --> 00:37:27,040 Speaker 1: what would be really good would be if you would 636 00:37:27,060 --> 00:37:30,460 Speaker 1: just mention it to one other person in your circle 637 00:37:30,560 --> 00:37:33,420 Speaker 1: that you like it. That would be our little reward, 638 00:37:33,540 --> 00:37:37,700 Speaker 1: and we'd love that. All right. Communications. Let's have some more. 639 00:37:37,719 --> 00:37:41,609 Speaker 1: Let's have some questions, observations. Even tell us what you 640 00:37:41,650 --> 00:37:44,870 Speaker 1: do when you're listening to the podcast for our own entertainment, 641 00:37:44,910 --> 00:37:49,980 Speaker 1: for the audience's entertainment. All right. The email, themoneypuzzle at theaustralian.com.au. 642 00:37:50,060 --> 00:37:51,339 Speaker 1: Talk to you soon. 643 00:37:59,150 --> 00:37:59,650 Speaker 2: Thank you.