Speaker 1: Hello, and welcome to the Australians Money Puzzle podcast. I'm
Speaker 1: James Kirkby Well, the editor at The Australian. Welcome aboard everybody.
Speaker 1: You know, when I asked this week's guest to come
Speaker 1: on the show, I didn't know at the time that
Speaker 1: we were going to have the worst day on the
Speaker 1: stock market for four years in the same week, or
Speaker 1: indeed that share markets would have moved, you know, from
Speaker 1: pretty good to a pretty rocky in a matter of days.
Speaker 1: So it's good timing. Danielle Ekoye has been on the
Speaker 1: show before. She's an author of the book Shared Plicity.
Speaker 1: She's a writer, she's a television presenter. She's a seasoned
Speaker 1: investor and a professional investor for many years around the world,
Speaker 1: in London and here. It's always good to talk to her.
Speaker 1: I'm delighted to have her on the show. How are you, Danielle?
Speaker 2: Good James, Thank you so much for having me back
Speaker 2: on the program.
Speaker 1: Exquisite sense of timing straight into it. If you and
Speaker 1: I right, let's say you and I Danielle had a
Speaker 1: self managed super fund full of shares and I said
Speaker 1: to you, oh my god, I got a scare on Monday,
Speaker 1: Japan felt ten percent. The US fell over days. The ax,
Speaker 1: of course, delighted in classic fashion, fell with vigor for
Speaker 1: no apparentarieson apart from the US. So what if I
Speaker 1: was saying to you, hey, what should we do with
Speaker 1: our shares? Now? What would you got instinct be?
Speaker 2: Well? I can only revisit a conversation I had with
Speaker 2: a former very large client of mine. He used to
Speaker 2: invest in emerging markets, and basically the approach was a
Speaker 2: you do nothing until you establish really what was going on,
Speaker 2: which became quite clear James that there was what is
Speaker 2: called the unwind of the Japanese yen carry trade. So
Speaker 2: for the most simplifictic purposes out there, it represented a
Speaker 2: whole lot of leverage borrowing by hedge funds in our
Speaker 2: financial system, where they borrow in Japanese yen and then
Speaker 2: invest in overseas assets, particularly into the US. That's where
Speaker 2: a lot of the money had gone. And because of
Speaker 2: a number of events, including a high and expected hike
Speaker 2: in the Japanese interest rates of about twenty five basis points,
Speaker 2: you started to see a big move between the US
Speaker 2: dollar and the en, and that meant this lovely carry trade,
Speaker 2: which has basically been a funding source for hedge funds
Speaker 2: to invest in overseas markets came under pressure. And the
Speaker 2: long and the short of the story, because some people
Speaker 2: might find it a little bit confusing, is just imagine
Speaker 2: you have one of these and James, you and I
Speaker 2: have spoken about these before, these liquidity draw down events,
Speaker 2: and it's back when hedge funds get themselves into trouble
Speaker 2: because they've taken on too much debt and something in
Speaker 2: their position starts to work against them. So instead of
Speaker 2: making lots of money, they start to generate lots of losses.
Speaker 2: And the more that the assets that they've invested in
Speaker 2: for the prices, the more that they have to sell
Speaker 2: to cover at the other end. And basically that huge
Speaker 2: four that we saw in the nicke and the cosby
Speaker 2: the Korean market on Monday, that's not normal. That is
Speaker 2: just not normal. That isn't just the US going, Oh,
Speaker 2: we might be going growing more slowly, or a recession
Speaker 2: might be coming, James. That means something has not broken
Speaker 2: in the financial system, but in some of these big
Speaker 2: hedge funds with all that debt, are coming unstuck.
Speaker 1: I won't say that I was cynical about this currage trade.
Speaker 1: But you know, to me, correct me if I'm wrong,
Speaker 1: you know it's ancality. I wake up and I find
Speaker 1: that the Australian markets has the worst day in four
Speaker 1: years because the hedge funds in the japan carry trade.
Speaker 1: And I know a lot of people have mentioned it
Speaker 1: as part of their invariably you know, lengthy menu length
Speaker 1: explanation as to why the markets felt, But that doesn't
Speaker 1: explain why the markets lost their nerve. The quantity of
Speaker 1: that action doesn't explain why traders lost their nerve around
Speaker 1: the world, including here. I know what happened, and I
Speaker 1: know it's in there among the explanations.
Speaker 2: Why doesn't it Why Why? Because I think what people
Speaker 2: have completely underestimated, and I think it's really clear when
Speaker 2: you compare the Australian market to the US market, and
Speaker 2: what's being impacted in the US is that these hedge
Speaker 2: funds had been riding let's say, the gen Ai way,
Speaker 2: the golp one wave, which we do disgusted at our
Speaker 2: last one, and those share prices are being hit more
Speaker 2: and we're actually seeing that being reflected back into the
Speaker 2: Australian share market with the stocks like Goodman Group, by way,
Speaker 2: of example, which has exposure to data centers getting hit.
Speaker 2: Now you might be sort of saying, like, what does
Speaker 2: little All Australia have to do with the carry trade? Well,
Speaker 2: nothing directly probably, But to the extent that the financial
Speaker 2: system is so intertwined, James, it can no longer be
Speaker 2: a case of when something goes wrong in one part
Speaker 2: of the world, it has no impact. El Sweat. I'll
Speaker 2: give you an example, long term capital management, and it's
Speaker 2: what I always use it, and it came unstuck in
Speaker 2: the Asian currency crisis. And that was the time when
Speaker 2: I was broking emerging markets and they were meant to
Speaker 2: be the best mathematicians around with the best algorithms and
Speaker 2: black box these to call it black box at the time,
Speaker 2: and they hadn't anticipated that Russia would to fault on
Speaker 2: its sovereign debt. Okay, when they did that, the whole
Speaker 2: hedge fund basically blew up. So what started as an
Speaker 2: Asian currency crisis where they were making money and the
Speaker 2: Asian markets were falling, suddenly became oh my gosh, this
Speaker 2: is a Wall Street problem. And you saw the US
Speaker 2: market then responding in kind, and they had to bail
Speaker 2: out LTCM because it became too big to fail. Now,
Speaker 2: the events that you've seen with the carry trade a
Speaker 2: I think through the passage of time, we'll find out
Speaker 2: that carry trade has in fact injected so much money
Speaker 2: into assets overseas that we're probably only seen the tip
Speaker 2: of the iceberg in terms of the young wide potentially
Speaker 2: in the trade. We don't know how much leverage these
Speaker 2: heads funds have and how long it's going to take
Speaker 2: them to rebalance. All we do know is that the
Speaker 2: Bank of Japan came out in response and said, oh, well,
Speaker 2: we won't be raising interest rates anytime soon.
Speaker 1: That's right, so hang on. So this curriage trade is
Speaker 1: not as disturbed as we thought.
Speaker 2: No, on the contrary, it is that disturbed because the
Speaker 2: Bank of Japan came out and said, it's like a
Speaker 2: FED put when markets fall. They've come out and said,
Speaker 2: and I suspect the US. The FED was on the
Speaker 2: phone to them saying, whoa guys, hello. We can't afford
Speaker 2: to have at this point in the cycle one of
Speaker 2: these drawdown events where we go back to what happened
Speaker 2: in the lockdowns.
Speaker 1: What I meant was that if I'm a retail investor
Speaker 1: listening to the show and I hear this, I say, okay, right, okay,
Speaker 1: you know, okay, So all these sort of desk jockeys
Speaker 1: around the world, what my share is and what I'm
Speaker 1: really driving at is I don't want to simplify the
Speaker 1: long term capital management event. But in a way, right
Speaker 1: there were technical.
Speaker 2: Events correct, totally, totally, they don't.
Speaker 1: Fully explain why the market has dropped. And what I'm
Speaker 1: asking you, I suppose what I'm driving at is it
Speaker 1: wasn't much of a drop in the end. It has
Speaker 1: recovered a fair bit so far. It's not a crash.
Speaker 1: It's not even a correction. The fall was seven point
Speaker 1: five percent at its peak on the US, on the
Speaker 1: SMP and ten percent is a correction. But I wonder, Danielle,
Speaker 1: if we were running our shares in the SMSF and
Speaker 1: you were telling me all about this stuff, I would
Speaker 1: simply say, I think I worry sentimental approach. Knowing history,
Speaker 1: watching markets all the way back to nineteen eighty seven,
Speaker 1: I feel it's a dress rehearsal for the for for
Speaker 1: what's what this market is due.
Speaker 2: So you're saying you think markets need to crash. Is
Speaker 2: that what you're saying?
Speaker 1: I'm saying that look. One of the things I sort
Speaker 1: of obsessed with all week, of all the mountains of
Speaker 1: material that I've read and listened to, is Mike Wilson,
Speaker 1: the strategy king right at Morgan Stanley, the king of
Speaker 1: the global market. And by the way, in terms of
Speaker 1: what do people do in Australia, they absolutely dominate the
Speaker 1: top end of financial advice market here. I mean they
Speaker 1: think they have something like a quarter of all entries
Speaker 1: on our top advisor's list. And the Air chief just said,
Speaker 1: very simple thing. He said, longtime average under US sixteen
Speaker 1: times PE, current PE twenty one. He thinks it should
Speaker 1: drop to about nineteen to be right, either the earnings
Speaker 1: have to fly up for all those stocks in the
Speaker 1: US or they have to come down. And this market
Speaker 1: has this market is due to a reversal because of
Speaker 1: the AI excitement which percolates right through the market even
Speaker 1: to our Maybe you know, what do you think of that?
Speaker 1: Of what I'm saying, Well.
Speaker 2: It's funny because you've gone from like it's a storm
Speaker 2: in a tea cup about the unworked. It's the end trade.
Speaker 2: But the markets really need to fall over in a heap.
Speaker 2: And of course there is that narrative out there. It's
Speaker 2: probably been the most distrusted rally in share markets post
Speaker 2: the low.
Speaker 1: I really like that freeze.
Speaker 2: Well it is people just go, this shouldn't be happening,
Speaker 2: and yet you go, us earnings are actually better than
Speaker 2: expected this quarter. They're coming out better than expected. I
Speaker 2: think that whole gloom we're going to mean revert back
Speaker 2: on valuations. I personally don't subscribe to it. I go
Speaker 2: back to the financial system globally has fundamentally shifted over
Speaker 2: the last thirty years. Of course, there are investors, and
Speaker 2: you have to be very careful to differentiate between somebody
Speaker 2: that has ten billion, one hundred billion, or even one
Speaker 2: hundred million versus probably most of your listeners, because those
Speaker 2: people have a completely different take on our set allocation, okay,
Speaker 2: versus most of us who have money in the markets
Speaker 2: and our superannuation in the markets and hedge super funds.
Speaker 2: Have been the biggest buyers of banks over this year,
Speaker 2: which I bet would surprise you because every broker has
Speaker 2: a cell rating on them.
Speaker 1: So I think, Sorry, Danielle, I talked about the Australian banks.
Speaker 2: Yeah, the Australian banks.
Speaker 1: Yeah, yeah, So this is why CommBank is at a
Speaker 1: one hundred and thirty bucks et cetera.
Speaker 2: Correct and nobody expected That's I think this whole big,
Speaker 2: you know, doom gloom. Interest rates are still going to
Speaker 2: go up in Australia. I'm not so sure about that
Speaker 2: when you look at the reset in the markets. Possibly, yes,
Speaker 2: Australian shares had moved too far. Yes, US shares had
Speaker 2: moved too far. Is jen Ai a flash in the pan? Absolutely?
Speaker 2: Not so differentiate between what was possibly exuberants coming into
Speaker 2: certain shares. But I just think be very careful about
Speaker 2: saying markets are going to crash. Loople say markets are
Speaker 2: going to crash, but I will put it out there
Speaker 2: that there is no government and no central bank that's
Speaker 2: going to let that happen.
Speaker 1: Okay, By the way, I would never say markets are
Speaker 1: going to crash, and I would never say the word panic.
Speaker 1: What I would say is that pullback wasn't as big
Speaker 1: as I thought it was going to be, simple as that, because.
Speaker 3: It hasn't finished, necessarily has backstopped everything. That's what I
Speaker 3: was trying to explain, the Bank of Japan has kind
Speaker 3: of backstopped it. Now Again, I.
Speaker 2: Don't want people to be scared because ultimately, at the
Speaker 2: end of the day, it's like it's going to once
Speaker 2: this liquidity draw down, once the liquidity readjusts right, it
Speaker 2: will be about going back to earnings. And if earnings
Speaker 2: are growing, it's a very simple story. Share prices go
Speaker 2: up over time, end of story.
Speaker 1: So let's take that line of inquiry. If that's the case,
Speaker 1: and let's assume that's the key, then we have a
Speaker 1: market that is a bit cheaper this week than last week,
Speaker 1: and is it too early to go bargain hunting.
Speaker 2: Well, it's reporting season, James. So I think in the
Speaker 2: context that that it is probably more prudent to, rather
Speaker 2: than play the casino game of you know, red or black,
Speaker 2: that investors should wait till the results come out. I'll
Speaker 2: give you a couple of examples. Murvak was off about
Speaker 2: twelve percent today because the twenty twenty five guidance is
Speaker 2: lower than expected. Then there is another company, ordinate a favorite,
Speaker 2: They had to reset their earnings guidance down and it
Speaker 2: fell thirty five percent. But now a whole lot of
Speaker 2: brokers have come up and upgraded today. Or Macquarie, which
Speaker 2: are downgraded before, have upgraded and said look now it's
Speaker 2: offering value. So I guess, whilst not giving advice, I
Speaker 2: would say two listeners, wait till look at the company reports.
Speaker 2: There's going to be ongoing volatility and big share price moves.
Speaker 2: So rather than going to the casino and second guessing saying,
Speaker 2: is combat share price going to go up and down
Speaker 2: till well, Telster just go up and down whatever, just
Speaker 2: I think wait and absorb because everybody's going to have
Speaker 2: a different position in terms of the shares they own,
Speaker 2: what time period, et cetera. But I think you can
Speaker 2: expect volatility in this earning season.
Speaker 1: I want to ask you one thing, which was just
Speaker 1: about how our market is just a little bit different
Speaker 1: than the US and earnings. I will just take Combank
Speaker 1: you mentioned there, biggest stock in the market, biggest bank
Speaker 1: in the market than as you to report on the fourteenth,
Speaker 1: which is next Wednesday, and they are expected market consensus
Speaker 1: is that their profit actually will drop a little bit,
Speaker 1: very roughly from ten point something to nine point something billion,
Speaker 1: But at the same time, their dividend is going to
Speaker 1: crawl higher by five cents. What I'm driving out here
Speaker 1: is in our market, the value proposal to the investor
Speaker 1: includes dividends at like four percent dividend yeal. In the
Speaker 1: US the dividend is nothing remotely near that, so the
Speaker 1: promise is price increased. So what I'm going to ask
Speaker 1: you is, when you look at the when you look
Speaker 1: at the results, should the dividends hay out or payment
Speaker 1: be a more important criteria on the ASEX than it
Speaker 1: would be on global shares.
Speaker 2: Well, it really depends on the share James, because obviously
Speaker 2: it's important for being become important portant for the big miners,
Speaker 2: and it is important for the banks. But there's a
Speaker 2: whole lot of shares that don't pay much dividend here
Speaker 2: in Australia.
Speaker 1: For the ones that are the big like literally dividend
Speaker 1: influencers like Common.
Speaker 2: Well, yeah, yeah, of course. Of course in the US
Speaker 2: it's buybacks hmm okay, because they changed the legislation years ago.
Speaker 2: I think it was Bill Clinton that made buybacks more
Speaker 2: attractive than dividends. So yeah, of course, dividend is hugely important.
Speaker 2: Although I wouldn't be surprised unless they really come out
Speaker 2: on a big miss on the dividends or a big
Speaker 2: better than expected on the dividend. I wouldn't expect that
Speaker 2: you're going to get much movement for some of those
Speaker 2: more well known companies. Actually, I haven't had a look
Speaker 2: at Transurban today because I think their dividend might be
Speaker 2: slightly better than expected. But generally speaking, Rio came out
Speaker 2: with a lower than expected dividend the other day and
Speaker 2: the share price didn't really respond, so it has to
Speaker 2: be quite a big change for them.
Speaker 1: Dramatic. Okay, Actually, if I were talking on dividend, then
Speaker 1: before we go to the brick, I wanted to throw
Speaker 1: one other thing out to you, which is I was surprised,
Speaker 1: you know even I think at the start of the
Speaker 1: show there I mentioned, oh, you know, we the distinct
Speaker 1: value proposal of Australian shares as opposed to offshore shares
Speaker 1: is the dividend rate, the dividend yield. But it's been
Speaker 1: dropping and the forecast dividend use for the market is
Speaker 1: under four. It's three point eight. We were always told
Speaker 1: it was four and a half. So to that extent,
Speaker 1: the dividend side of the dealer seems to be feeding
Speaker 1: while the price action is all right, but it's never
Speaker 1: as good as the US. What do you think of that?
Speaker 2: I'm not surprised all of these institutions that are paid
Speaker 2: out to higher payout ratios, too much in dividends and
Speaker 2: haven't invested in the future have to invest now. It's
Speaker 2: a huge problem.
Speaker 1: They catching up with them.
Speaker 2: Yeah, totally, totally. Banks are a classic case in point. Again,
Speaker 2: it goes back to even if you're looking at things
Speaker 2: like cybersecurity and all the attacks that are going on there,
Speaker 2: I mean they have to invest for the future. Oh
Speaker 2: that's the bottom line. I think investors have feasted gorged
Speaker 2: themselves on amazing dividends in Australia and it's typical of
Speaker 2: a cyclical, mature market. The UK is the same. I
Speaker 2: think you'll find James that has quite a high yield
Speaker 2: as well. From memory, for example, tobacco companies. I was
Speaker 2: just recently in London met with a friend of mine
Speaker 2: whose I know tobacco companies on everybody's cup of tea.
Speaker 2: So I'm not suggesting you run out and buy them.
Speaker 1: I know there'd been great investments for a long time.
Speaker 2: I know this, but the dividend built on BAT is
Speaker 2: over nine percent British and American tobacco. Because my friend
Speaker 2: is top rated tobacco analyst in the world, and I
Speaker 2: said how much capital erosion have you had me? He said, oh, yes,
Speaker 2: quite a bit of capital erosion, and I go then
Speaker 2: he explains why. But I guess what I'm saying is
Speaker 2: that some of those more mature industries etc. Have much
Speaker 2: higher yields. But in the case of Australia, if we
Speaker 2: look at our companies that respond or behave in a
Speaker 2: fashion that is more attuned to possibly what investors look
Speaker 2: for in the US, so the car sales area which
Speaker 2: is reporting on Friday, the likes of Wistech Global zero. Now,
Speaker 2: these companies are investing for the future, always upgrading, and
Speaker 2: they don't pay high dividends, and yet their performance capital
Speaker 2: appreciation has been spectacular.
Speaker 1: We won't go down the side allly of the reality
Speaker 1: that the frank dividend regime has a lot too answer
Speaker 1: for here. You know, it really does, because it's steam
Speaker 1: ruled and basically shunted the whole market towards the dividends
Speaker 1: becoming perhaps overly important A story for another day. We'd
Speaker 1: be back in a moment, folks would take shortbreak. Hello
Speaker 1: and welcome back to the Australian's Money Puzzle podcast. I'm
Speaker 1: talking to Danielle O Cooye, author of the Shaplicity book,
Speaker 1: which was a bestseller on shares and terrific book if
Speaker 1: you are getting to know the share market and want
Speaker 1: an introduction to it. She is also an analyst, investor,
Speaker 1: professional investor and writer. I wanted to ask you, Danielle.
Speaker 1: This segment, folks, is going to be choppy, right because
Speaker 1: I'm going to throw different things at Danielle and she's
Speaker 1: sort of a person that you can do this and
Speaker 1: she's going to be able to answer most of the questions.
Speaker 1: You know, this hunt for alternative assets and this which
Speaker 1: I'm terribly skeptical about. Not that I'm skeptical about it,
Speaker 1: I'm terribly skeptical about the business of listed securities on
Speaker 1: the Australian market, where mom and Dad are told, here's
Speaker 1: your way into private credit, here's your way into private
Speaker 1: equity in the very to me, extremely unlikely vehicle of
Speaker 1: a listed share. Have you did you have a look
Speaker 1: at see how those performed in the shock drop earlier
Speaker 1: in the week, and what do you think of that
Speaker 1: fashion of pulling retail investors into I mean, the funds
Speaker 1: are just popping out by the day. Everyone's rushing in
Speaker 1: and launching these listed funds where they say to people, hey, folks,
Speaker 1: you know you can't get at private credit and private
Speaker 1: equity because you're just Joe average. But if you want
Speaker 1: to catch up with the future phone in Australian super
Speaker 1: by this listed shair. What do you think of that
Speaker 1: whole thing.
Speaker 2: Well, I'm going to refer to another guest of yours,
Speaker 2: Will Hamilton, because Will and I used to work together
Speaker 2: and we have a little bit of a joke about this,
Speaker 2: and it's not to dismiss anyone that has put money
Speaker 2: in these forms of asset classes, but we are very
Speaker 2: cynical because we've come from that side of the industry.
Speaker 2: We know that the institutions will give the tell public
Speaker 2: the funds that they think they will like and they
Speaker 2: can sell so in straight off the bat, I'm very
Speaker 2: concerned cynical that whilst there will be good vehicles, there
Speaker 2: will also be vehicles that could tell a very sorry
Speaker 2: story down the track. Now, private credit has been a
Speaker 2: huge growth market, largely to do with banking regulations, so
Speaker 2: the banks have shift out of funding in this area
Speaker 2: and private institutions have moved into it. In my former
Speaker 2: job at Osby's, I was interviewing a lot of private
Speaker 2: credit people. It is growing rapidly, but when you think
Speaker 2: about it, not all debt see mine, credit is created equally, James.
Speaker 2: And if we are going into an economic slowdown, albeit
Speaker 2: everyone's debating the extent of the slowdown, one has to
Speaker 2: question the quality of the credit that people are investing in. Intuitively,
Speaker 2: if you're getting a ten percent plus yield on debt
Speaker 2: versus let's say I bought some A and ZID corporate
Speaker 2: bonds today which are almost yielding about five point nine
Speaker 2: percent versus getting ten percent, you have to ask how
Speaker 2: much risk am I taking for that almost additional five
Speaker 2: percent per annum? And personally for smaller investors it sounds attractive.
Speaker 2: I know a lot of older investors I think, have
Speaker 2: been saying we'll sell our shares, we'll go into private
Speaker 2: credit because we just want the income. But like all
Speaker 2: new fads, I think there's going to be winners and
Speaker 2: there's going to be losers, So you have to be
Speaker 2: very careful. You just can't assume what the underlying asset
Speaker 2: is and if it's going to be okay, and what
Speaker 2: happens if that company goes busted. Now, obviously there's a
Speaker 2: lot of property credit it out there, and property is
Speaker 2: in an immense world of pain at the moment. So
Speaker 2: I think investors have to be incredibly diligent and careful
Speaker 2: about what they're buying. When it comes to private equity,
Speaker 2: investors have to understand that the big boys. They again,
Speaker 2: if you go back to the big investor with one
Speaker 2: hundred million or whatever they have, they don't mind blowing
Speaker 2: up ten million dollars. That's why they'll put it into bitcoin,
Speaker 2: or they'll put it into something else, do you know
Speaker 2: what I mean? And they can buy private Yeah, it's
Speaker 2: petty cash. So it comes down to adisset allocation. If
Speaker 2: you have a good fund manager that is allocating across
Speaker 2: a huge spectrum of new companies in private equity, one
Speaker 2: maybe out of one hundred will be will do really well.
Speaker 2: We hear about the canvas. We don't hear about all
Speaker 2: the ones that end up in the toilets. That's the problem.
Speaker 1: They all talk about the ones. The winner is this
Speaker 1: horse racing, I had a winner in the two thirty
Speaker 1: at whatever Randwick. Yeah, well what about the dozens of
Speaker 1: times you didn't?
Speaker 2: Hey, just one quick thing.
Speaker 1: It just struck me. There it didn't enter your It
Speaker 1: didn't enter your highly sophisticated and experienced investor mind when
Speaker 1: you bought and I don't want to plug any particular bank,
Speaker 1: but when you bought a bank security that you just mentioned,
Speaker 1: don't you mind that these were the guys that are
Speaker 1: financing the private credit people anyway, the funds.
Speaker 2: Yeah, that's true actually, and obviously yes, it was more.
Speaker 2: I obviously have missed something in that. It was more
Speaker 2: a switch out of a floating rate note into a
Speaker 2: fixed rate.
Speaker 1: So I'm taking but the big banks, that big investment
Speaker 1: banks there behind all that anyway, aren't.
Speaker 2: They Well I'm not up to date on that one,
Speaker 2: but it's a financing the credit market, which I guess
Speaker 2: somebody has to, Yeah, because they've taken it off their
Speaker 2: balance sheets.
Speaker 1: Same in the US, they've taken it off their balance sheets.
Speaker 1: Is the lending and then these funds come along, but
Speaker 1: the funds find uced by banks. And we'll put that
Speaker 1: out there just for the moment. All right, Okay, we'll
Speaker 1: take short break. We've got some really good questions from
Speaker 1: Matthew and Joe and Matt and someone who likes to
Speaker 1: call themselves the average punter back in a moment, Hello,
Speaker 1: and welcome back to The Australian's money puzzle. Maybe you
Speaker 1: and I could read them alternatively if you'd like to
Speaker 1: do that.
Speaker 2: Yep, okay. So Matthew has asked, if the market always
Speaker 2: goes up in the long term, why wouldn't a young
Speaker 2: investor always buy a geared ETF. I don't understand the
Speaker 2: long term downside. Ultimately one is just magnifying the long
Speaker 2: term expected market return. The expected return wasn't positive long term,
Speaker 2: it wouldn't buy it in the first place. Great question
Speaker 2: and conversation with my son who at one point watched
Speaker 2: by a triple gid nazdak triple geared. I think so, yeah,
Speaker 2: I stand to be corrected. It might be only double gid.
Speaker 2: Look at the end of the day, in theory it
Speaker 2: sounds great. But when market's four by twenty percent and
Speaker 2: your geared ETF it's gone down by double or triple
Speaker 2: the amount, you might feel as ballsy. So it depends
Speaker 2: on your restolerance, Matthew. Like everything it. People forget James
Speaker 2: that you can have long periods of underperformance in share
Speaker 2: markets from nineteen sixty eight to the early eighties, and
Speaker 2: I'm sure you've discussed reasons why in previous podcast.
Speaker 1: It's come up with that.
Speaker 2: Yeah, yeah, but I think it depends how your risk
Speaker 2: tolerance works. Me personally, women tend to be more conservative.
Speaker 2: I would never consider a gard ETF or a gard
Speaker 2: ETF into a stock like nvideo. Yes, you can make
Speaker 2: lots of money in the short term, but equally you
Speaker 2: could watch your capital eroad rather quickly long term Welsh
Speaker 2: creation is done I think more patiently.
Speaker 1: Okay, Matthew. This is never advised, by the way, of course,
Speaker 1: it's always information. But one thing I want to ask you. Theoretically,
Speaker 1: I suppose would you gear it all? Would you borrow
Speaker 1: to invest on the markets?
Speaker 2: Never?
Speaker 1: No, I see, okay, all right, okay, then your answer
Speaker 1: was very much in keeping with your broader worldview. All right,
Speaker 1: the average punter says, I always listen to your podcast
Speaker 1: from picking up my daughter from school. Actually, you know
Speaker 1: what we should do. We should have it. We should
Speaker 1: we should encourage people to tell us what they do
Speaker 1: when they're listening to the podcast. It's just struck me,
Speaker 1: you know, I hear all sorts of things. That was.
Speaker 1: We had a we had we had a we had
Speaker 1: a listener who used to tell us this. Listen to
Speaker 1: us blowing the leaves during the garden cycling. All sorts
Speaker 1: of things. I wonder, what's the oddest one have to
Speaker 1: be genuine? Of course that let us know. Okay, recently
Speaker 1: says the average punter. I heard Marcus Badley, who's someone
Speaker 1: I must have on the show someday of Marcus today
Speaker 1: saying if the overnight iron ore prices are up, then
Speaker 1: the share prices of iron ore prices like for to
Speaker 1: skull go up when the ASEX opens for trading if
Speaker 1: they're down, vice versa. Is it true? And how would
Speaker 1: I check iron ore prices before the AX opens for trading? Okay, well,
Speaker 1: the AESX opens at ten o'clock for trading these days,
Speaker 1: you can correct. I hang and get this stuff pretty easy.
Speaker 1: The London Metals Exchange would have life prices. There are
Speaker 1: nine hours behind, et cetera.
Speaker 2: We have it on the fn Arena website. James, the
Speaker 2: iron ore price can be a little bit tricky to
Speaker 2: get hold of. It's not traded directly out of London.
Speaker 1: Why is it tricky to get Singapore? So what's the key,
Speaker 1: mar what's the key price market for our and ore?
Speaker 2: I think it's it's traded and Singapore that's the main
Speaker 2: one and they have different features. Yeah, and there's also
Speaker 2: the Chinese Exchange and they usually traded in futures prices.
Speaker 2: Butfn arena dot Com has an updated which you can
Speaker 2: see on the front of the website, updated all the
Speaker 2: muldity prices every morning by about eight point fifteen.
Speaker 1: There you are average punter. All right? Do you want
Speaker 1: to read the question from due and just before we
Speaker 1: do aphic folks, which is the subject of this question
Speaker 1: is the Australian Foundation Investment Company so listed investment fund.
Speaker 1: It's the most famous of them all. I think it's
Speaker 1: the biggest of them all too. Okay, would you like
Speaker 1: to read that one, Danielle?
Speaker 2: Yes, So Joe is asking that he's invested in AFIC
Speaker 2: over the last few years and you can't understand at
Speaker 2: the moment why the net asset's higher than the share price.
Speaker 2: I can understand where this happens for a listed investment
Speaker 2: company based on properties where the underlying valuations may not
Speaker 2: align it to the lick valuations. Interesting one, James.
Speaker 4: I've had a we peak at the asset valuation and
Speaker 4: the latest one that provided it was really interesting, James,
Speaker 4: because the pre tax valuation versus the post tax valuation
Speaker 4: compared to the share price presents a totally different picture.
Speaker 2: So I didn't come away with a very clear response
Speaker 2: to this one, and I'd be interested in your view
Speaker 2: because pre tax the share price is actually trading lower
Speaker 2: than the asset valuation post tax. It's yeah, yeah, which
Speaker 2: is interesting, isn't it?
Speaker 1: Because you got stored Frank dividends.
Speaker 2: Yeah, they do, they hold They've got a lot of them. Yeah, yeah,
Speaker 2: I think so. And all I would say is that
Speaker 2: typically your best to buy when the share price is
Speaker 2: trading at a discount. It should have done quite well
Speaker 2: because it's Lavish's holding is actually Commonwealth Bank, but they
Speaker 2: do tend to move depending on what the shareholdings are.
Speaker 2: Although I don't know what your you've heard gens or
Speaker 2: your view, but I think some of these listed investment
Speaker 2: companies are not necessarily the preferred vehicle for the young
Speaker 2: they can to buy ats And I'm wondering whether the
Speaker 2: flow of funds has impacted on some of these discounts
Speaker 2: to the share prices.
Speaker 1: List investment companies. I would say invariably, but I think
Speaker 1: you'd probably find actually the majority numerically trade below their
Speaker 1: asset value or tangible asset value, and the textbooks will
Speaker 1: tell you buy them when they're trading to out a
Speaker 1: discount to them. The thing is that they never know
Speaker 1: the discount. Most of them never never catch up. Some
Speaker 1: of the good ones do the better ones, and if
Speaker 1: it would be one of them. So that's point one,
Speaker 1: and point two is as Danielle is saying. The thing
Speaker 1: about ETFs is that, especially now with active ETFs, where
Speaker 1: they can really sort of get very close to an
Speaker 1: approximate of a conventional ASX top two hundred listed investment company,
Speaker 1: their fees can be lower and they can go lower
Speaker 1: even still, So that's going on there, but for what
Speaker 1: it's worth. In many ways, it's always the case with
Speaker 1: even really good licks that they trade below the neck
Speaker 1: tangible value of all the shares in them, which is
Speaker 1: kind of ironic. It shouldn't be the case. But in
Speaker 1: verb is I might be corrected. I'll be corrected by that.
Speaker 1: The ones that are trading at a premium will tell
Speaker 1: me very quickly. But if you have a look across
Speaker 1: the board, that's often the case, all right, Mats. Finally, Matt,
Speaker 1: last question, Like many others. I have shares in big
Speaker 1: tech in the US. I don't want to sell, but
Speaker 1: I want to protect against the falling US dollar. What
Speaker 1: can I do as a mom slash dad investor. You're
Speaker 1: probably a dad investor, Matt, look for a couple of things.
Speaker 1: First of all, it's funny we had this conversation the
Speaker 1: other day. Over a very long period of time. The
Speaker 1: hedging doesn't really make an awful lot of difference, right,
Speaker 1: That's the first thing. Okay, second thing is any sort
Speaker 1: of hedging whatsoever. Nothing's free. If you get hedging, you
Speaker 1: pay for it.
Speaker 2: I wouldn't. I wouldn't personally. It's not advice, but Mats
Speaker 2: talk about Greek enough Greek investing overseas with you know,
Speaker 2: even in big tech it's everybody calls the demise of
Speaker 2: the US dollar. But I don't think we're going to
Speaker 2: see the demise of the US dollar in our lifetime. James.
Speaker 2: Everybody calls the Aussie dollar at eighty cents for years,
Speaker 2: and we haven't seen eighty cents in ages.
Speaker 1: You don't think even Trump cannot do it.
Speaker 2: Oh, I think if Trump has a go at trying
Speaker 2: to do some of the stuff that's in Project twenty
Speaker 2: twenty five, you'll see the bond market have conniptions and
Speaker 2: you'll back off faster than the road runner.
Speaker 1: Is your sense of its ability to remain the words
Speaker 1: reserve currency in a strong currency? Is it based on
Speaker 1: the fact that treading as such, but fact that it
Speaker 1: is the reserve currency? And so when things go wrong, ironically,
Speaker 1: even if they're sparked by the US the whole world
Speaker 1: for some money in US treasuries.
Speaker 2: Yes, that's part of it. And it's also because it's
Speaker 2: the collateral that's used around the world those US treasuries.
Speaker 1: Yeah.
Speaker 2: So that's the biggest thing that's my understanding, and it's
Speaker 2: not going to be dislodged anytime soon. Nor is the
Speaker 2: US government in the Federal Reserve going to roll over
Speaker 2: and say take our hedgeomny like that easily. They can
Speaker 2: make life very difficult.
Speaker 1: There's a bottom line where they won't jeopardize their own
Speaker 1: pre eminence in currency markets. Wow.
Speaker 2: They don't want to give up that power anytime soon,
Speaker 2: do they? Because they've I mean, they have weaponized the
Speaker 2: US dollar geopolitically with Russia, and that's what's caused China
Speaker 2: and these other countries to be looking to increase their
Speaker 2: gold holdings and looking to create an alternative to the
Speaker 2: US dollar. But ultimately, James, it's very hard because everybody
Speaker 2: when they go out to borrow whatever they need the
Speaker 2: collateral and you're not going to buy Chinese treasury the
Speaker 2: equivalent and all. Probably is there the liquidity to actually
Speaker 2: do it. So I think the demise of the US
Speaker 2: dollar is overstated. I think if you invest in the
Speaker 2: US you just have to take a long term view
Speaker 2: that over the balance of time, the share price capital
Speaker 2: appreciation of the shares will do you well enough. Trying
Speaker 2: to hedge currencies is even impossible for the big boys,
Speaker 2: isn't it, James, little owner immortals and.
Speaker 1: Matt let me tell you, they get it so wrong
Speaker 1: so often that the chances you'll get right very slim.
Speaker 1: So just yes. So look, it would seem we're not
Speaker 1: talking to you, Matt, We're talking to all the mats
Speaker 1: in the world hedging. You know, really, I don't worry
Speaker 1: about it on particularly if you are a long term investor.
Speaker 1: And as for whether the US will drop just because whatever.
Speaker 1: And you didn't mention Trump, but the narrative at the
Speaker 1: moment is that you know what he plans will weaken
Speaker 1: the US donor don't know about that either, Okay, terrific. Hey,
Speaker 1: thank you very much, Danielle. It was great to talk
Speaker 1: to you today. As always regular guests on the show.
Speaker 2: Pleasure James. Lovely to chat with you and thank you
Speaker 2: so much for having me on.
Speaker 1: Oh you're very welcome and lovely to have you back
Speaker 1: on this show. Okay, folks, as I have asked for
Speaker 1: a week or two, if you are enjoying the podcast,
Speaker 1: thank you, thanks for all the ratings and everything. But
Speaker 1: what would be really good would be if you would
Speaker 1: just mention it to one other person in your circle
Speaker 1: that you like it. That would be our little reward
Speaker 1: and we'd love that. All right, communications, Let's have some more,
Speaker 1: Let's have some questions, observations, even tell us what you
Speaker 1: do when you're listening to the podcast for our own entertainment,
Speaker 1: for the audience's entertainment. All right, the email the Money
Speaker 1: Puzzle at the Australian dot com dot au. Talk to
Speaker 1: you soon.