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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Sean Aylmer. My guest today is Diana Messine, a

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Speaker 1: deputy chief economist at AMP Deana. Welcome back to Fear

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Speaker 1: and Greed.

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Speaker 2: Hey Sean, good to be back.

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Speaker 1: You've written an article that sums up the last twelve

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Speaker 1: months very very well. The top five lessons you've learned

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Speaker 1: over the past twelve months or so, let's kick it

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Speaker 1: off number one. According to Diana Messina, Politics Matters explain that.

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Speaker 3: I'm feeling like politics is causing an ever increasing impact

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Speaker 3: to share markets and to the economy in the last

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Speaker 3: few years, and I think it really kickstarted with COVID.

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Speaker 3: In the years prior to COVID was sort of most

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Speaker 3: Western colomies were sort of desperate for more fiscal stimulus

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Speaker 3: or even if you're going to put another way, some

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Speaker 3: sort of government intervention because growth was just too low

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Speaker 3: and inflation was quite poor as well, and wages growth

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Speaker 3: wasn't really going anywhere in Australia but also in the US.

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Speaker 3: And then since COVID, we've had this massive kick to

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Speaker 3: government spending consumption and investment in Australia, but actually also

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Speaker 3: it's happened in most other Western countries. And I suppose

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Speaker 3: it's not just it's not just government spending, it's also

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Speaker 3: intervention in the economy through a variety of different means.

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Speaker 3: And in the US, the examples this year have been

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Speaker 3: the direct investment by the government into companies like Intel,

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Speaker 3: much closer relations with tech companies, or the President having

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Speaker 3: dinner with the tech bros or the most important tech

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Speaker 3: tech bros in the US, and obviously what's happened around

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Speaker 3: trade and tariffs.

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Speaker 2: And markets have all moved on that.

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Speaker 3: And as an economist, I think it's quite important that

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Speaker 3: we need to actually forecast what the government's going to

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Speaker 3: do to give us idea about what's going to happen

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Speaker 3: to growth and inflation in the next twelve months. I

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Speaker 3: personally don't remember spending this much time on things like

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Speaker 3: the midioeconomic outlook as I have this year in Australia,

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Speaker 3: or focusing as much on the budget or what the

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Speaker 3: Treasurer is saying. So I think it's just a sign

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Speaker 3: that markets are so much closer to what's happening in

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Speaker 3: the government sector.

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Speaker 1: And is that both an influence and a fiscal thing.

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Speaker 1: So that spending twenty seven percent of GDP in the

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Speaker 1: next few years in Australia, that's relatively high government spending

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Speaker 1: if you exclude COVID, but the influence factor as well.

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Speaker 3: Absolutely, it's it's both, and the influence, I guess, is

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Speaker 3: the harder one to gauge when you're thinking about what's

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Speaker 3: going to be the impact to markets or to the economy.

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Speaker 3: But you know, we try and read that the best

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Speaker 3: way that we can, and I think that just means

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Speaker 3: basically listening to everything that the Treasurer and the Prime

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Speaker 3: Minister is saying, you know, following all the program announcements

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Speaker 3: very closely. So basically just means having to follow what

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Speaker 3: the government is saying at a much closer rate compared

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Speaker 3: to ever before.

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Speaker 1: Okay, less number two take Trump seriously, not literally.

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Speaker 3: I don't remember where I saw this, but I did

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Speaker 3: make it up myself.

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Speaker 1: Oh no, no, no, fantastic claim it absolutely claim.

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Speaker 3: Well, I haven't seen it anywhere else again, so I

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Speaker 3: have been using it a lot, but it's I remember

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Speaker 3: reading it somewhere and it's really stuck with me, particularly

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Speaker 3: in this past twelve months. I mean, our view coming

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Speaker 3: into twenty twenty five was that there was going to

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Speaker 3: be a global trade war, but hopefully it wasn't going

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Speaker 3: to be a complete catastrophe. Yes, tariffs were going to

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Speaker 3: go up, but there would be some concessions made around that.

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Speaker 3: And I think that this sort of theme has played

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Speaker 3: out also through the Taco Trump always chickens out trade

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Speaker 3: and the ultimate sign that the US has made deals

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Speaker 3: with other countries and also impact things like the substitution effect,

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Speaker 3: basically meaning that tariffs haven't hit consumers is as much

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Speaker 3: as feared. So what's happened is although tariff rates in

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Speaker 3: the US were expected to rise from about three percent

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Speaker 3: to over twenty percent, as high as over thirty percent

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Speaker 3: at Liberation Day, effectively they've only risen to about eleven

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Speaker 3: or twelve percent at the moment from this substitution impact.

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Speaker 3: But also I think from a lot of the deals

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Speaker 3: that Trump has made, particularly deals on consumer goods that

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Speaker 3: the US cannot actually manufacture itself, because Trump knows that

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Speaker 3: consumers still have this cost of living concern front and

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Speaker 3: center mind. And that's why we've seen some Democrats do

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Speaker 3: better in some of the regional elections lately.

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Speaker 1: Is that hard though, to take him seriously, but not

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Speaker 1: literally because if normally you do take presidents literally and

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Speaker 1: therefore you can make decisions around that. Now you're just

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Speaker 1: saying that's the direction he's going, but we're not quite

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Speaker 1: sure how severe it's going to be.

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Speaker 3: Well, he speaks in hyperbolic terms, so in a lot

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Speaker 3: of commentary, not just around the economy, but you know,

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Speaker 3: in a lot of commentary around other regional leaders, other

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Speaker 3: global leaders, other people in the administration. It's all quite

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Speaker 3: inflammatory type of retric So I think that's just his

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Speaker 3: style of communication, and we just have to learn how

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Speaker 3: to play it from a market point of view.

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Speaker 1: Okay, number three. In the short run, fundamentals don't always work.

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Speaker 1: I don't think you're allowed to say that as an economist. Yeah,

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Speaker 1: but anyway, go on.

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Speaker 3: But we know, I mean, I can say that because

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Speaker 3: the share market is not rational and we sort of

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Speaker 3: you know, we I think we have spent years trying

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Speaker 3: to figure out is the US of a value?

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Speaker 2: Know?

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Speaker 3: How many times do do fund managers say the US

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Speaker 3: is of a value? It's going to be it's going

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Speaker 3: to be a bad year, or this year in particular,

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Speaker 3: it's been the tech market is so overvalued.

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Speaker 2: Just look at the fundamentals.

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Speaker 3: Compare the mag seven to Cisco back in the two thousands,

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Speaker 3: or what was going on in tech in the two thousands,

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Speaker 3: And we've sent a few examples of that this year.

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Speaker 2: I mean, tech is one of the clear ones.

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Speaker 3: The fundamentals around tech probably make you a little bit anxious,

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Speaker 3: and you probably wouldn't have wanted to be invested in

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Speaker 3: tech at the beginning of the year end. Although the

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Speaker 3: tech sector hasn't had a strong performance in twenty twenty five,

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Speaker 3: it's still been very good and it's expected that that

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Speaker 3: grows likely to continue to some extent in the next

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Speaker 3: few years. The other key example for me this year

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Speaker 3: was gold. The fundamentals around gold should have meant that

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Speaker 3: the rally was much less than the rally that we had.

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Speaker 3: Gold prices are up by about sixty four percent year

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Speaker 3: today after having a pretty good year double digit returns

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Speaker 3: last year, so the fundamentals around gold didn't really make

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Speaker 3: sense either. But we saw a lot of fomo coming

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Speaker 3: into the start of the gold rally, you know the

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Speaker 3: lines at the ABC Gold bullion store. So in the

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Speaker 3: short run, sometimes we can get investor exuberance FOMO playing

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Speaker 3: out more importantly than some of the fundamental analysis. And

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Speaker 3: I mean, for economists, there are so many examples where

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Speaker 3: the fundamentals don't always play out. I think that a

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Speaker 3: clear example of that this year for US has been

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Speaker 3: inflation forecasts. When we put our inflation forecast together, we

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Speaker 3: missed the increased prices in the last three to four

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Speaker 3: months in Australia. I mean, maybe we will find that

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Speaker 3: that was just a one off. I'm hoping that we do,

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Speaker 3: but you know, if we don't, again, it's another sign

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Speaker 3: that sometimes the fundamentals don't tell you these anomalies that

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Speaker 3: can just happen in an economy.

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Speaker 1: Let's number four. I can't believe you're saying this. Don't

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Speaker 1: always listen to what central banks say.

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Speaker 2: I know, I.

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Speaker 3: Sort of worry that I'm not going to be on

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Speaker 3: the RBA Christmas card maybe when I said this, but

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Speaker 3: I sort of tried. I sort of tried to focus

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Speaker 3: more on the FED. We had so much FED speak

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Speaker 3: this year, in particular in the past few months, and

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Speaker 3: I think the Fed's a little bit different to the

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Speaker 3: RBA in a few ways, but the main one is

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Speaker 3: that basically all the members of the Federal Reserve speak

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Speaker 3: to the public, and whether that's the governors who are

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Speaker 3: actually voting on the Federal Open Markets Committee, or just

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Speaker 3: the regional FED presidents which are part of the committee

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Speaker 3: but may not be voting.

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Speaker 2: In that year.

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Speaker 3: We have so much retric coming from the Federal Reserve,

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Speaker 3: and there's a variety of different views at the moment.

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Speaker 3: I think because we're at this point in the cycle

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Speaker 3: where some people are weighing up the greater risks to

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Speaker 3: growth and the lad market, some people are weighing up

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Speaker 3: the higher risks to upside inflation, and we're seeing more uncertainty.

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Speaker 3: So if you listen to every single thing that a

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Speaker 3: FED member said, you wouldn't have been able to make

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Speaker 3: any money if you were trading off it, because the

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Speaker 3: market just bounced around.

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Speaker 1: You'd be very confused. I think if you listen to

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Speaker 1: everything that the FED members said, I suggest do you

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Speaker 1: think that the Reserve Bank this year, it's the first

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Speaker 1: time we've had press conferences after interstrate decisions. Do you

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Speaker 1: think that's worked well?

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Speaker 3: I think you know what I'm going to say here,

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Speaker 3: because I think I've said it before on fear and greed,

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Speaker 3: I personally think it's added to more confusion. And I

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Speaker 3: think the reason I say that is because it was

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Speaker 3: meant to provide us with more clarity, and I suppose

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Speaker 3: it has to some extent in that we know what

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Speaker 3: the Reserve Bank is focusing on, you know, we know

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Speaker 3: that they're really worried about the supply demand dynamics and

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Speaker 3: the economy. Then there was the new estimates on productivity growth,

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Speaker 3: so I guess we've got a bit more clarity on that,

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Speaker 3: although that was published in their statement on Montreal policy too.

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Speaker 3: But for me, the confusion has been sometimes in the

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Speaker 3: tone of the post meaning statement versus the press conference

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Speaker 3: versus the minutes. I have found that there's been a

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Speaker 3: change of tone, and that to.

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Speaker 2: Me is confusing.

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Speaker 1: Okay, the fifth one, High inflation hurts for years.

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Speaker 2: Someone said to me the other day what hurts more,

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Speaker 2: high inflation or heartbreak? And I actually picked inflation, and.

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Speaker 1: Then I thought it a little bit more.

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Speaker 3: And I'm such a geek. This was meant to be

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Speaker 3: I sort of again. You know the fact that we've

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Speaker 3: missed the uptick in inflation in the past few months

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Speaker 3: in Australia a sign that sometimes services prices can remain

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Speaker 3: sticky for a long time, and we had been hoping

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Speaker 3: for a softer pace of inflation this year. We were

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Speaker 3: sort of right on that in the first six months

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Speaker 3: of the year, but then we continue to have this

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Speaker 3: tick up in services prices, and I think also the

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Speaker 3: fact that sometimes you have these parts of goods inflation

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Speaker 3: that can seek through into services and just stay there

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Speaker 3: for years. And obviously cost of living is still a

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Speaker 3: major concern for people because we've had this huge level

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Speaker 3: change to prices.

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Speaker 1: Deanna, thanks for talking to fear and greed.

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Speaker 2: Thanks so much, John.

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Speaker 1: As Diana Messina, Deputy chief economist at AMP. I'm Sean Almer,

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Speaker 1: and this is fear and greed, a Q and a