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Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm

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Speaker 1: James Kirby. Welcome aboard everybody. What a really interesting time.

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Speaker 1: I want to do a couple of things today and

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Speaker 1: I think you'll find both of them very interesting. First

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Speaker 1: of all, a great response, I might say maybe a

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Speaker 1: storm of response might be the right phrase for last

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Speaker 1: week's show on Crypto with Jackie Clark. Now, what we

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Speaker 1: did in that show was basically a skeptics corner, okay,

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Speaker 1: So we put up somebody from institutional Australia, from the

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Speaker 1: conventional world of Australian investing, an ASX board director, a

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Speaker 1: family office member, accountant to give a view on crypto.

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Speaker 1: And obviously it was a very skeptical view. And it's

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Speaker 1: interesting because nearly I think the tempo of the Money

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Speaker 1: Pazza's audience has changed, become much more receptive I think,

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Speaker 1: and enthusiastic in many ways about crypto, though Maney remains skeptical,

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Speaker 1: including Jackie, and she had some very strong points. Now,

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Speaker 1: what I want to do today is put the other

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Speaker 1: point of view, okay, and again it's institutional Australia. I

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Speaker 1: could easily get someone from crypto to talk about crypto.

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Speaker 1: Why would I do that? If I ask someone in

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Speaker 1: real estate to talk about whether it's a good time

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Speaker 1: to buy property, what would they say? If I ask

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Speaker 1: a gold miner, is it a good time to buy gold?

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Speaker 1: What will they say? This is not the nature of

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Speaker 1: the exercise to get people from the crypto world to

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Speaker 1: talk about it. It's to get people who are conventional

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Speaker 1: investors with a lot of respect from our audience and

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Speaker 1: from me, to take a view on crypto. Jackie's view

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Speaker 1: was very skeptical, as she also in some ways did

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Speaker 1: not go into great detail on it, and I understand

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Speaker 1: why because that is a typical response. I don't go

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Speaker 1: if I don't believe in gold mining, I don't go

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Speaker 1: so deep best to understand all the aspects of gold mining.

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Speaker 1: And it's the same with crypto. So who could we

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Speaker 1: get to talk about it? And also, very usefully, because

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Speaker 1: it's the last show of the year, we're going to

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Speaker 1: also have a quick wrap on how the year has gone.

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Speaker 1: But first, the most interesting organization I think institution in

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Speaker 1: Australia in relation to crypto is not a major crypto

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Speaker 1: player or a major crypto exchange, believe it or not,

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Speaker 1: it's AMP, and AMP plays that role for the simple

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Speaker 1: reason they were the first, are the first major financial

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Speaker 1: institution as super fun if you don't mind to invest

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Speaker 1: in crypto. They invested twenty seven million dollars a few

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Speaker 1: months ago in crypto, substantial investment in many people's eyes,

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Speaker 1: you can say, is a percentage of AMP is tiny.

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Speaker 1: It's twenty seven million. It's twenty seven million, and they

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Speaker 1: put it into crypto, and I want to know why

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Speaker 1: they are enthusiastic about it. The ideal person, absolutely ideal

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Speaker 1: person to talk for AMP is an old friend of

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Speaker 1: the show, an old friend of mine, Shane Oliver, the

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Speaker 1: chief economist. I know him for a long time. He's

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Speaker 1: been on the show before.

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Speaker 2: How are you, Shane, I'm good, James, thanks for having

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Speaker 2: me back.

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Speaker 1: I never thought i'd have you on the show explaining

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Speaker 1: why your organization spent fifty seven million dollars on crypto.

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Speaker 1: And I think it's absolutely fascinating that you did. I

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Speaker 1: think it's very plucky that AMP did. It's now we

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Speaker 1: see sometime later JP Morgan is in there, Walmart is

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Speaker 1: in there making investments in crypto, putting money behind it

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Speaker 1: first and foremost. Can you explain to our listeners, some

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Speaker 1: of who are crypto fans, some who remains skeptical, why

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Speaker 1: AMP put twenty seven million dollars into bitcoin.

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Speaker 2: I certainly can, and you might some might say that

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Speaker 2: I'm in this skeptical camp too, And I have written

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Speaker 2: notes on crypto over the years, starting back class decade.

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Speaker 2: But I guess even I always thought that there was

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Speaker 2: some potential element of value in there, and that relates

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Speaker 2: to two things. The use of the blockchain that underpins

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Speaker 2: crypto for smart contracts and various uses, and that is

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Speaker 2: already evident, and that, particularly in the case of some

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Speaker 2: cryptos like Ethereum and Solana and so on, potential uses

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Speaker 2: an alternative currency, central bank, digital currencies and so on.

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Speaker 2: And also with a bitcoin increasing use as a store

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Speaker 2: of value alternative to gold. So I know all the

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Speaker 2: reasons for skepticism about bitcoin. In fact, I've got a

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Speaker 2: list in front of me from the last Oliver's Insights

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Speaker 2: I wrote on it, which was earlier last year. It's

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Speaker 2: coin itself. Yeah, it's unlikely it become useful for everyday transactions.

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Speaker 2: You can't buy a cup of coffee, whether or if

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Speaker 2: you do, you'll pay, it'll take you a lot of time,

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Speaker 2: it'll be slow and all that sort of stuff. It's volatile,

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Speaker 2: it's hard to value because it doesn't generate rents and

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Speaker 2: dibdends like other assets, and of course it's been associated

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Speaker 2: with nefarious activities. Are often thought that way. But even

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Speaker 2: though I'm skeptical, I think we as an organization AMP

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Speaker 2: has responsibility to its members, fiduciary responsibility to look at

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Speaker 2: all options, and it could be an emerging asset class.

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Speaker 2: It has been around now since what two thousand and nine,

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Speaker 2: and so it seems like it's becoming part of the

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Speaker 2: furniture in terms of the investing worlds. It's increasingly getting

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Speaker 2: acceptance from regulators. They're taking it seriously and regulatory framework

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Speaker 2: is being put around it. So it's moving from the

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Speaker 2: wild West, if you like, to some degree into the mainstream.

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Speaker 2: There's a whole generation out there of digital savvy young

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Speaker 2: people investors who are becoming investors, and they're more familiar

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Speaker 2: with this. They're probably thinking. In old days they might

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Speaker 2: have thought, well, i'm skeptical about the government, I'm skeptical

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Speaker 2: about inflation. I want something which is a bit of

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Speaker 2: a hedge against that on a long term basis. Previous

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Speaker 2: generation might have gone gold is for me. Now some

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Speaker 2: of those people are saying maybe bitcoins for me, and

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Speaker 2: Bitcoin by free nature has resisted the temptation to weaken

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Speaker 2: some of the protocols around it, you know, in terms

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Speaker 2: of the about proof of work and proof of stake

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Speaker 2: and all that sort of stuff that other cryptocurrencies have

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Speaker 2: gone down that path. Bitcoin todd with it to some degree.

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Speaker 2: But I think Bitcoin probably has held back a little

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Speaker 2: bit because of this view that it wants to be

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Speaker 2: seen as something that's difficult to get hold of and

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Speaker 2: that preserves its value to some degree. We all know

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Speaker 2: that there's something there's a limit on the amount of

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Speaker 2: bitcoin that it can ever be mine to twenty one

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Speaker 2: million bitcoins, and we're well through that, and so that's

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Speaker 2: going to limited supply. But because of all those things,

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Speaker 2: you got this. I can understand the skepticism argument. Yes,

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Speaker 2: you've got to be cautious, but I can also understand

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Speaker 2: that it's becoming part of the investment universe, and therefore

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Speaker 2: we thought we had to consider it. We had a

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Speaker 2: lengthy debate. I put up all the skeptical arguments is

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Speaker 2: to expect that I might in the end even I

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Speaker 2: decided we should have a look into this, and we

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Speaker 2: did in May last year. As you say, we invested

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Speaker 2: twenty seven million dollars in bitcoin when it was then

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Speaker 2: priced at sixty two thousand. It was less. It was

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Speaker 2: about point zero five percent of our super funds, so

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Speaker 2: less than point one percent. Probably close too point one

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Speaker 2: percent now because it's gone up in value.

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Speaker 1: But it seems to me that between the lines, the

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Speaker 1: most compelling argument you've put forward is it a fear

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Speaker 1: of missing out.

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Speaker 2: No, I wouldn't say that's the argument. I think the

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Speaker 2: main argument was that it was becoming part of the

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Speaker 2: investment universe, and it's moving from the shadows from the

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Speaker 2: wild West into the investing universe. And the last year,

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Speaker 2: I want I think one of the big factors in

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Speaker 2: our minds was the approval of ETFs by US regulators

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Speaker 2: on this front in regards to bitcoin. So Trump only

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Speaker 2: came along after we'd made the decision in May. And

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Speaker 2: you can argue that when you think about it, it

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Speaker 2: does offer some diversification. It's not perfectly correlated with shares,

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Speaker 2: and there is some tendency for it as a growth

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Speaker 2: asset to go down when shares run to trouble and

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Speaker 2: it goes up by more than shares when shares do well,

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Speaker 2: but it has an imperfect correlation with shares.

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Speaker 3: What is your view on it?

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Speaker 1: If we accept it to an asseid class and you

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Speaker 1: have clearly and you have put your money where your

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Speaker 1: mountains if you like AMP, what's your view? Is it

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Speaker 1: correlated or is it non correlated? It started as a

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Speaker 1: sort of libertarian completely anti establishment thing where people would say, oh,

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Speaker 1: I don't trust the banks, I don't trust the government,

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Speaker 1: et cetera. It moves and moves towards the mainstream, that's

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Speaker 1: beyond doubt. If the US is talking about a strategic

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Speaker 1: reserve with crypto, then it is core mainstream. But I

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Speaker 1: want to ask you, as an acid class, do you

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Speaker 1: see it or do you know yet whether it's correlated

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Speaker 1: or non correlated? In other words, is it a gold,

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Speaker 1: a digital gold that we can depend on when things

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Speaker 1: go wrong, or is it simply correlated where it just

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Speaker 1: flies up when the market's hot and flies down when

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Speaker 1: the market's cold.

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Speaker 2: Look, I think there is an issue that as time

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Speaker 2: goes on it becomes more institutional, it'll be put into

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Speaker 2: the growth bucket potentially, and therefore there might be some

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Speaker 2: correlation with share markets, and gold has that to some

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Speaker 2: degree as well. You think about the initial phases of

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Speaker 2: the GFC, gold went down, and it's partly because you

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Speaker 2: can see a little bit on the In the last weekend,

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Speaker 2: US starts dropping bombs on Iran, investors are a little

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Speaker 2: bit nervous they can't sell shares because the share market's closed.

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Speaker 2: There was some downwards pressure on bitcoin at that point

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Speaker 2: in time, and I think the correlation when I last

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Speaker 2: looked at it was something like zero point four percent

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Speaker 2: against the share market. It's not one percent, so it's

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Speaker 2: not correlating one for one, but there is some correlation

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Speaker 2: there with the share market. And that's partly because as

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Speaker 2: it becomes more institutional, then investors see it in that

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Speaker 2: particular bucket as a growth asset and when they want

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Speaker 2: to sell shares, so crypto might get a bit of

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Speaker 2: the selling pressure. But in a broader sense, there is

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Speaker 2: another way of looking at it, and that is because

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Speaker 2: it has the limited supply. I suspect that over time

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Speaker 2: it probably offers more of an inflation hedge than shares

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Speaker 2: to because of that limited supply, you could always say

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Speaker 2: we should also be skeptical of gold. It's only got

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Speaker 2: value because we believe it has.

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Speaker 3: Become accumulated historical.

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Speaker 2: Historical experience that it's got value. But these days it

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Speaker 2: doesn't do much. It's not used in teeth. You can

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Speaker 2: use ceramics, so the porcelaina whatever it is in your

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Speaker 2: teeth these days, so it's a bit different. It's used

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Speaker 2: in jewelry. But interestingly, that's a tiny fraction of the

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Speaker 2: actual demand for gold, and there's little relationship between drill

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Speaker 2: demand and the price.

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Speaker 1: So you're seeing that it's just a speculative.

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Speaker 2: No, it's a I think it's become what's happening here

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Speaker 2: is that bitcoin is almost becoming like a digital version

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Speaker 2: of gold. It's a store of value. It's not necessarily

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Speaker 2: speculative where people just buy into it on the grounds

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Speaker 2: that it may go up, but obviously people hope that

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Speaker 2: will occur over time. But you can say, we do

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Speaker 2: have gold in our portfolios because it's in their commodity exposure.

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Speaker 2: So if bitcoin is becoming part of the mainstream, maybe

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Speaker 2: this case to have bitcoin in there as well.

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Speaker 1: And the case is more so than it's a store

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Speaker 1: of value rather than it's a bit respeculative option.

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Speaker 2: Yeah, I would think so, no doubt. Most people say, Okay,

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Speaker 2: so it's two thousand and nine, it's gone up exponentially,

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Speaker 2: maybe that'll continue. I think you've got to be a

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Speaker 2: little bit careful there. There's the old disclaimer that all

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Speaker 2: fund managers use. Past performance is not a guide to

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Speaker 2: future performance. It was a new asset class when it

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Speaker 2: came along in two thousand and nine. If you look

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Speaker 2: at it from each look at every four years, it

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Speaker 2: goes through a cycle. Each trough to trough in that

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Speaker 2: cycle has seen a slowing in the rate of increase

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Speaker 2: in the value of bitcoin, or each peak to peak

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Speaker 2: is sen a slowing in the rate of increase, and

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Speaker 2: I think that's normal. It's just like a startup company.

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Speaker 2: Initially you can make huge gains a lot of risk

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Speaker 2: around that, but it will slow down over time. But

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Speaker 2: I think ultimately it settles down to providing probably somewhat

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Speaker 2: steadier gains, although I yeah, we get to see the

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Speaker 2: downcycle which will come of course in bitcoin, but it's

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Speaker 2: part and parcel of that new asset class.

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Speaker 1: Why do you think no other super fund has followed

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Speaker 1: you into the market. It's been quite a while now,

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Speaker 1: four five months, but extremely lucrative. Right, you had forty

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Speaker 1: percent on this particular investment, but most of your peers

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Speaker 1: institutionally remain so cautious that they will do it.

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Speaker 3: Let's put it that way.

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Speaker 2: Yeah, we undertook the investment in May. I think by

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Speaker 2: the time it was formerly announced it was November December

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Speaker 2: or thereabouts, but that's still six seven months ago. I

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Speaker 2: suspect that over time you will see some of those

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Speaker 2: super funds invest I think a lot of them had

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Speaker 2: probably said we're not going to do it and didn't

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Speaker 2: even have any plans. I suspect you probably find there's

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Speaker 2: a couple out there who probably do have plans.

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Speaker 3: Are you guessing or do you know?

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Speaker 2: I'm purely guessing here. I don't have any inside information

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Speaker 2: about other super funds.

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Speaker 3: All right, okay, And just one other thing.

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Speaker 1: Having put in twenty seven million and having made what

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Speaker 1: forty percent, do you think AMP will put in more?

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Speaker 2: Like As with all asset classes, they're all the precise

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Speaker 2: exposers always under review, and we will continue to review

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Speaker 2: our exposure to bitcoin along with other assets. So I

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Speaker 2: can't indicate either way on that.

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Speaker 3: You can't hold it out, though I'm.

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Speaker 2: Not gonna roll it out. I'm not going to roll

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Speaker 2: it in. It sounds like.

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Speaker 1: You're used to talking to journalists, that's clearly obvious.

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Speaker 3: Or we'll take a short break. We'll be back in

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Speaker 3: a moment.

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Speaker 1: Hello, Welcome back to the Australians Money Puzzle podcast. I'm

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Speaker 1: James Kirby and I'm talking to Shane Oliver, chief economist

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Speaker 1: of AMP, specifically in this first section of the show

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Speaker 1: about crypto, and of course Shane works for AMPS, the

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Speaker 1: chief e columnists there and they were the first financial

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Speaker 1: institution super fund in Australia to make an investment in crypto.

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Speaker 1: It's interesting, Shane, self managed super funds way ahead of

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Speaker 1: you in that respect. There's a billion according to the ATO,

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Speaker 1: there's a billion dollars in SMSF funds in crypto. So

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Speaker 1: in that respect it should be no surprise that a

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Speaker 1: major fund would sooner or later go into crypto. Now,

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Speaker 1: I just want to bring in now some of the

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Speaker 1: issues that came up in the first show, and I'm

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Speaker 1: going to just read the question which is from Scott,

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Speaker 1: but it also reflects observations by Vince and Henry and

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Speaker 1: Dean and Stephen and many others who came in and Basically,

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Speaker 1: they wanted to take what Jackie Clark said, some of

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Speaker 1: her skepticism, if you like, about crypto, and they tackled

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Speaker 1: it and said that she was the wrong person to

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Speaker 1: talk about crypto. That I totally disagree with that she

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Speaker 1: is the right person. She is a classic example of

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Speaker 1: someone who is skeptical and doesn't want the organizations or

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Speaker 1: the institution she represents to go in there. That's why

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Speaker 1: I have Shane on today. His organization has gone in there.

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Speaker 1: So there was a couple of observations there that some

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Speaker 1: of them are on technicus as I say, which I

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Speaker 1: don't think we need even go into, because there is

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Speaker 1: still an element I think Shane of belief that if

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Speaker 1: you don't believe it, you don't need to know that. Honestly,

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Speaker 1: you don't need to know the technicals. But why should

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Speaker 1: you go deep into understanding its complexities if you don't

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Speaker 1: believe it in the first place.

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Speaker 2: Wait, you don't need to. You can take the approach

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Speaker 2: of just investing broadly. I'm not an investor in individual things.

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Speaker 2: You had a question in there which you haven't asked.

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Speaker 2: Do I have it personally? No, I don't have it personally.

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Speaker 3: It was on my list story.

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Speaker 2: But then I don't have BHP or CBA or any

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Speaker 2: other thing. Personally, I'm a macro guy. I invest in

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Speaker 2: the big picture, and so therefore I have my money

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Speaker 2: and Super and it's in AMP funds, and might have

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Speaker 2: some money outside Super and his index funds. But obviously,

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Speaker 2: when you buy a property, it's a specific investment, like

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Speaker 2: the family home, the one I'm sitting in right now.

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Speaker 2: But that doesn't prove that I have a negative or

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Speaker 2: positive view on it or not supportive of the decision

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Speaker 2: by AMP. The fact that I haven't bought it individually,

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Speaker 2: but because I haven't bought other things individually either. But

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Speaker 2: I think, just on that SEMSF observation, we had members

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Speaker 2: over the last few years have been asking should you buy,

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Speaker 2: and Crypto always get a little bit worried because by

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Speaker 2: the time they ask, it's usually when crypto has gone

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Speaker 2: up in value double to or forty percent. No one

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Speaker 2: of course was asking when it collapsed eighty percent through

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Speaker 2: one of those downturns. But so it doesn't surprise me

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Speaker 2: that SMSF investors are already in there because we had

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Speaker 2: members who are interested, and that indicated to us that

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Speaker 2: we should be looking at it, which we did. But

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Speaker 2: I've lost track of your original question here because you've

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Speaker 2: raised a few points there, But hopefully that's covered it.

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Speaker 3: I did really a few points. Look.

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Speaker 1: One of the things, obviously was a lot of the

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Speaker 1: crypto people when someone is skeptical about it, the crypto enthusiast.

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Speaker 1: If you don't see you don't understand this, you don't

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Speaker 1: understand this, you don't understand how.

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Speaker 3: It all works.

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Speaker 1: I don't understand CSL. CSL is one of the top

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Speaker 1: ten companies in Australia. I don't understand what they do.

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Speaker 2: We've had that one from Central Banks as well. They

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Speaker 2: don't understand it. On the one hand, I think if

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Speaker 2: you don't understand it and you don't feel comfortable, then

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Speaker 2: you shouldn't invest as an individual. That's true, but then

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Speaker 2: it is also true you don't have to fully understand

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Speaker 2: everything to invest in it. And in my super funds

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Speaker 2: or my investments outside super well, I haven't bought specific stocks.

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Speaker 2: There are some companies in there which I won't understand

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Speaker 2: their model and what they're doing and why, but I

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Speaker 2: don't need to. And that's the key here. If you've

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Speaker 2: got all your money invested in bitcoin, then I think

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Speaker 2: you should understand it. But if you've got a well

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Speaker 2: diversified portfolio, you just see it part of the investment universe.

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Speaker 2: You just got some exposure in there, just like you've

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Speaker 2: got some exposure of other things, then you probably don't

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Speaker 2: need to have the same degree of understanding. And it

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Speaker 2: is a little bit technical when you get into it.

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Speaker 2: I've in the interests of finding out what it was

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Speaker 2: several years ago. I've read a lot about bitcoin, but

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Speaker 2: I don't consider myself an expert. And if you put

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Speaker 2: me up head to head with some of the people

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Speaker 2: who might be listening to this, who spend a lot

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Speaker 2: of time, then they would run rings around me, And

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Speaker 2: that's fair enough. I don't disagree with that.

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Speaker 1: It's very interesting you see that. So there was always

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Speaker 1: that traditional response, if you don't understand it, don't buy it.

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Speaker 1: But really there's a point of which that stops. CSL

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Speaker 1: would not be where it is today if everyone, yeah,

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Speaker 1: it didn't buy it because it didn't understand it.

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Speaker 2: That's right. Sometimes you do have to have a bit

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Speaker 2: of faith in these things. And I think the broader

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Speaker 2: issue is if you don't understand it, you're fair enough.

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Speaker 2: Maybe you look into it. That's one way to go

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Speaker 2: about it. The other approach is you don't understand it,

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Speaker 2: but you think there might be something in it, then

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Speaker 2: have it as part of a broad diversified portfolio. Don't

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Speaker 2: just put all your eggs into it.

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Speaker 1: Very interesting and of course now people can obviously everyone

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Speaker 1: listening news now that you don't have to go off

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Speaker 1: to some bitcoin exchange and go through all the red

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Speaker 1: tape if you like to get involved. You can just

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Speaker 1: buy an ETF and the ets are regulated.

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Speaker 2: That's incredibly important because it was one of the reasons

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Speaker 2: I think a lot of people were skeptical because they'd

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Speaker 2: heard it about all the problems on the exchanges, money

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Speaker 2: being hacked and all that sort of stuff, and the

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Speaker 2: exchanges running into trouble, that this is issue a few

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Speaker 2: years ago. I think that was when it was part

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Speaker 2: of the wild West, and that's now starting to change,

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Speaker 2: which is good. And by the way, we haven't actually

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Speaker 2: bought bitcoin, the physical bitcoin. You don't have physical bitcoin.

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Speaker 2: We bought futures.

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Speaker 3: Was that because that was the only way to do it, chin.

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Speaker 2: Or No, It's just the easiest way. As a super fund.

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Speaker 2: It was just an easy way for us to do it.

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Speaker 2: I mean oftentimes we'll buy we don't buy physical shares,

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Speaker 2: will often buy futures on them or maybe the ETF.

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Speaker 2: So it's just another way of getting exposure. It's an

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Speaker 2: easy way to get in and out. It's quite liquid.

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Speaker 2: That's just start and parcels the way we do things.

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Speaker 2: Those features are obviously tied to bitcoin, so it's effectively

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Speaker 2: Bitcoin exposures.

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Speaker 1: So yes, course, yes, yeah, yeah, but it's just it's

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Speaker 1: just a particular structure, all right.

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Speaker 3: Andrew said.

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Speaker 1: The reason that Jackie Clark and allegedly the Governor of

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Speaker 1: the Reserve Bank and many others who should know better

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Speaker 1: say they don't understand bitcoin is that they want to

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Speaker 1: think of it as an investment that should have an

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Speaker 1: intrinsic value. It's not, and it doesn't. Bitcoin itself may

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Speaker 1: not survive, but now we know how it works, the

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Speaker 1: genie won't go back into the bottle. Bitcoin or whatever succeeds.

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Speaker 1: It will be better understood when its price goes up

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Speaker 1: at the same time as intrinsically valued investments go down.

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Speaker 1: This is a core sticking point with many expert investors,

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Speaker 1: this lack of intrinsic value. You got over that, how

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Speaker 1: did you get over that at a MP.

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Speaker 2: As a long time investor and someone in the investment community,

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Speaker 2: it does worry me a little bit. It's it's an

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Speaker 2: easy to value a property or a share or whatever

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Speaker 2: you because there's that that that rent that is delayed

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Speaker 2: physical rents, literally rents or dividends. But there's lots of

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Speaker 2: investments that we have that don't have that. Warren Buffett, Berkshire,

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Speaker 2: Hathaway doesn't pay dividends. So there's lots of examples of

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Speaker 2: investments out there that don't have paid dividends. You can say, well,

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Speaker 2: don't have intrinsic value, so how can you possibly value them?

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Speaker 2: So there are ways around it. Yes, it is a

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Speaker 2: sticking point, and I can understand why people have expressed

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Speaker 2: that concern, and I've written it down as a reason

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Speaker 2: for skepticism in my own notes on this. But I

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Speaker 2: think there are rays around it, and you just need

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Speaker 2: to accept that there are other investments in your portfolio

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Speaker 2: where they're not paying dividends.

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Speaker 1: Yeah, Okay, we'll take a short break and we'll be

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Speaker 1: back in a moment. Now, San this is a great

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Speaker 1: time to have you on the show because it's the

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Speaker 1: last episode of the financial year, and we have talked

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Speaker 1: on and off over many years. I wonder has there

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Speaker 1: been a year it looks like super funds are coming

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Speaker 1: in with a return of around nine percent. Inflation in

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Speaker 1: our society, in our economy has dropped nicely, the share

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Speaker 1: market is looking like ten percent plus.

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Speaker 3: Can you recall a year Maybe you just disagree with this.

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Speaker 1: Entire contention, but can you recall a year where the

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Speaker 1: results were so unconvincing? They're so good that they're unconvincing

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Speaker 1: because I cannot see how they are.

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Speaker 2: So I think there's been lots of views like that.

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Speaker 2: To be honest with you, the old line that chares

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Speaker 2: climb a wall of worry, that there's so many things

435
00:21:33,080 --> 00:21:35,000
Speaker 2: to worry about, and yet the share market's done well,

436
00:21:35,000 --> 00:21:37,440
Speaker 2: we can't believe it. I think twenty seven en was

437
00:21:37,480 --> 00:21:40,560
Speaker 2: an example of that that Trump talk over and shares

438
00:21:40,600 --> 00:21:43,840
Speaker 2: did pretty well. Twenty twenty was another fantastic one. We

439
00:21:43,880 --> 00:21:45,720
Speaker 2: had a pandemic and the share market at one point

440
00:21:45,800 --> 00:21:48,879
Speaker 2: there fell thirty percent I think thirty five percent. Global

441
00:21:48,920 --> 00:21:51,840
Speaker 2: Australian shares were down by and yet we had okay.

442
00:21:52,080 --> 00:21:54,920
Speaker 2: It turned out okay in the end, once investors look

443
00:21:54,960 --> 00:21:56,560
Speaker 2: through it. And I think the same thing's happening this

444
00:21:56,600 --> 00:21:59,000
Speaker 2: time around. Put Trump aside, he's a lot of the

445
00:21:59,080 --> 00:22:02,840
Speaker 2: source of uncertain whether you like him or not, is irrelevance.

446
00:22:03,040 --> 00:22:04,800
Speaker 2: So I might say he's tariffs. Ultimately he might be

447
00:22:04,840 --> 00:22:06,359
Speaker 2: good for the US. I might say what he's done

448
00:22:06,400 --> 00:22:08,200
Speaker 2: in the Middle East might be good for the global

449
00:22:08,440 --> 00:22:11,359
Speaker 2: economy in the worlds. But the dust still has to

450
00:22:11,359 --> 00:22:14,040
Speaker 2: settle on that. But by the same token, in a

451
00:22:14,080 --> 00:22:17,200
Speaker 2: big picture sense, we've come into an environment where inflation

452
00:22:17,359 --> 00:22:19,880
Speaker 2: was a problem. In twenty twenty two, we had inflation

453
00:22:19,920 --> 00:22:22,480
Speaker 2: in Australia over eight percent, in the US a nine

454
00:22:22,720 --> 00:22:25,359
Speaker 2: ten in Europe. We've got it down so eventually all

455
00:22:25,400 --> 00:22:28,080
Speaker 2: those countries have inflation somewhere around two to three percent,

456
00:22:28,119 --> 00:22:31,480
Speaker 2: including in Australia, and so we've gone from a world

457
00:22:31,480 --> 00:22:35,200
Speaker 2: of high inflation fears of that interest rates would even

458
00:22:35,240 --> 00:22:37,639
Speaker 2: have to go higher. Now we've gone to a world

459
00:22:37,800 --> 00:22:41,280
Speaker 2: with lower inflation. And we've done that at environment where

460
00:22:41,640 --> 00:22:44,240
Speaker 2: we've managed to avoid a technical recession, if you like.

461
00:22:44,320 --> 00:22:46,560
Speaker 2: We've come close, and there's risk there. But even if

462
00:22:46,600 --> 00:22:49,600
Speaker 2: you look at Australia unemployment what four one four point

463
00:22:49,600 --> 00:22:51,959
Speaker 2: two percent still very low. Similar story in the US,

464
00:22:52,640 --> 00:22:56,000
Speaker 2: so that's why the share markets are celebrating. The environment

465
00:22:56,480 --> 00:22:58,719
Speaker 2: hasn't been so bad. And then, of course you overlay

466
00:22:58,760 --> 00:23:01,600
Speaker 2: Trump on that he caused constant nation with his tariffs

467
00:23:01,600 --> 00:23:03,800
Speaker 2: in April, but then he's backed off a little bit.

468
00:23:03,920 --> 00:23:06,960
Speaker 2: Some people say Taco Trump always chickens out. Maybe not.

469
00:23:07,320 --> 00:23:08,800
Speaker 2: I think that issue will come up again.

470
00:23:08,920 --> 00:23:11,679
Speaker 1: What about the earnings. Maybe re earnings are better than

471
00:23:11,720 --> 00:23:12,960
Speaker 1: we think of. Inflation's falling.

472
00:23:13,000 --> 00:23:15,439
Speaker 2: Well, maybe that is the case. They've certainly surprised in

473
00:23:15,440 --> 00:23:17,800
Speaker 2: the US coming to the last reporting season. For the

474
00:23:17,840 --> 00:23:21,080
Speaker 2: March quarter, the expectation was four percent earnings growth turned

475
00:23:21,080 --> 00:23:23,359
Speaker 2: out to be about ten or eleven percent earnings growth,

476
00:23:23,760 --> 00:23:26,800
Speaker 2: and so US companies just kept surprising. On the upsides,

477
00:23:27,400 --> 00:23:30,640
Speaker 2: Australian earnings have been negative, but there is an expectation

478
00:23:30,800 --> 00:23:33,920
Speaker 2: of some improvements. We are setting the Reserve Bank cut

479
00:23:33,960 --> 00:23:36,879
Speaker 2: interest rates in Australia. We've now got inflation at the

480
00:23:36,920 --> 00:23:40,160
Speaker 2: lower end of comparable countries. Remember all that nonsense last

481
00:23:40,240 --> 00:23:42,560
Speaker 2: year people were building out we've got an inflation problem

482
00:23:42,600 --> 00:23:44,919
Speaker 2: relative to everybody else. We haven't. When you look at

483
00:23:44,920 --> 00:23:47,240
Speaker 2: it on a graph, it's about the same, or we're

484
00:23:47,280 --> 00:23:50,840
Speaker 2: at the low end which is good. So I think

485
00:23:51,040 --> 00:23:54,159
Speaker 2: share markets are seeing that. And when the share market

486
00:23:54,200 --> 00:23:56,879
Speaker 2: thinks of lower interest rates, it thinks that's more people

487
00:23:56,880 --> 00:23:59,080
Speaker 2: putting their money in shares because they're getting less on

488
00:23:59,160 --> 00:24:03,240
Speaker 2: bank deposits. The valuations on shares start to improve, and

489
00:24:03,280 --> 00:24:05,720
Speaker 2: so I can sort of understand why markets have gone up,

490
00:24:05,760 --> 00:24:08,560
Speaker 2: even though it's surprised. The strength of it has surprised me.

491
00:24:09,200 --> 00:24:11,000
Speaker 2: And I wouldn't have thought we would be doing this

492
00:24:11,080 --> 00:24:14,600
Speaker 2: well on Liberation Day, if that's what you want to

493
00:24:14,640 --> 00:24:16,800
Speaker 2: call it, Donald Trump's Liberation Dates.

494
00:24:17,200 --> 00:24:19,480
Speaker 3: Yes, I know it was awfully hard, but here we go.

495
00:24:19,720 --> 00:24:21,159
Speaker 3: I have to ask you, how do you see the

496
00:24:21,240 --> 00:24:22,160
Speaker 3: year ahead? Financially?

497
00:24:22,200 --> 00:24:25,240
Speaker 2: Year ahead, I'm at risk of getting surprised again because

498
00:24:25,359 --> 00:24:28,280
Speaker 2: I reckon returns will slow down. I would have thought

499
00:24:28,280 --> 00:24:29,760
Speaker 2: they would have slowed down a year ago. I didn't

500
00:24:29,760 --> 00:24:31,840
Speaker 2: think they'd be this good. I thought they would be okay,

501
00:24:31,920 --> 00:24:33,639
Speaker 2: But I was thinking, I think a year ago, if

502
00:24:33,680 --> 00:24:36,840
Speaker 2: you look at my report in July, I was looking

503
00:24:36,840 --> 00:24:39,200
Speaker 2: for something more six or seven percent now of super funds,

504
00:24:39,200 --> 00:24:41,320
Speaker 2: and now you're going to get what is probably around

505
00:24:41,440 --> 00:24:44,000
Speaker 2: nine I think chat West the other day financial year

506
00:24:44,040 --> 00:24:45,840
Speaker 2: to date eight point five percent up to May. It

507
00:24:45,840 --> 00:24:47,840
Speaker 2: looks like Journe's turned out to be a reasonable month.

508
00:24:47,960 --> 00:24:50,199
Speaker 2: Touch Wood we still got a few days ago, but

509
00:24:50,560 --> 00:24:53,959
Speaker 2: I reckon returns will slow down to around six seven percent.

510
00:24:54,280 --> 00:24:56,280
Speaker 2: The valuations are a little bit of a concern. The

511
00:24:56,320 --> 00:24:59,000
Speaker 2: p's in the US where we around about twenty five

512
00:24:59,040 --> 00:25:01,520
Speaker 2: times for IT earnings. In and Australia we were about

513
00:25:01,640 --> 00:25:04,879
Speaker 2: nineteen or twenty times for earnings. That's above longer term averages.

514
00:25:05,240 --> 00:25:07,840
Speaker 2: Bond yields are still relatively high, so there's not a

515
00:25:07,880 --> 00:25:10,480
Speaker 2: great equity risk premium in there if you compare the

516
00:25:10,520 --> 00:25:13,400
Speaker 2: earnings yield implied by those pes to the bond yields.

517
00:25:14,080 --> 00:25:16,760
Speaker 2: But by the same token, I think if we avoid

518
00:25:16,760 --> 00:25:20,000
Speaker 2: a recession, and I probably I think we probably will,

519
00:25:20,160 --> 00:25:23,640
Speaker 2: then it turns out okay. So I think somewhere along

520
00:25:23,640 --> 00:25:25,920
Speaker 2: the way we'll get another bet of worries about tariffs.

521
00:25:26,359 --> 00:25:28,840
Speaker 2: Historically in the last twenty years, July is a good

522
00:25:28,880 --> 00:25:31,680
Speaker 2: month for shares, but we know that August and September

523
00:25:31,680 --> 00:25:35,240
Speaker 2: are often a bit rough seasonally, and I suspect that

524
00:25:35,240 --> 00:25:38,280
Speaker 2: that could be tariffs. The tariffs come back into the headlines,

525
00:25:38,720 --> 00:25:41,640
Speaker 2: you could get more vulnerability or more volatility coming out

526
00:25:41,640 --> 00:25:44,480
Speaker 2: of the Middle East, but you've got to be careful

527
00:25:44,480 --> 00:25:46,960
Speaker 2: about that one. The lesson from the events of the

528
00:25:47,000 --> 00:25:51,000
Speaker 2: last few days that unless there's a disruption to oil supplies,

529
00:25:51,560 --> 00:25:54,200
Speaker 2: then eventually markets will just move on to something else.

530
00:25:54,240 --> 00:25:56,480
Speaker 2: And that's what's happened here. Even though I think the

531
00:25:56,600 --> 00:25:59,119
Speaker 2: risks were very high, but it all depended on what

532
00:25:59,160 --> 00:26:02,880
Speaker 2: Iran does. Run back down, but they probably concluded let's

533
00:26:02,960 --> 00:26:04,560
Speaker 2: live divide another day.

534
00:26:04,680 --> 00:26:05,800
Speaker 3: Very content response.

535
00:26:06,000 --> 00:26:09,200
Speaker 2: Yeah, it was a contained response, and they self interest

536
00:26:09,240 --> 00:26:12,280
Speaker 2: lay a role there. I think regime survivability was the key,

537
00:26:12,720 --> 00:26:15,680
Speaker 2: so that could come back as an issue and cause volatility,

538
00:26:15,760 --> 00:26:19,840
Speaker 2: But I think the broader picture is one of constrained

539
00:26:19,840 --> 00:26:23,240
Speaker 2: growth globally. We hear from the IMF and Well Bank

540
00:26:23,440 --> 00:26:25,399
Speaker 2: it's going to be somewhere like two to three percent growth,

541
00:26:25,400 --> 00:26:27,840
Speaker 2: but it's not recession. And if it's not recession, then

542
00:26:27,880 --> 00:26:31,240
Speaker 2: earnings can continue to grow or at least grow. Interest

543
00:26:31,320 --> 00:26:33,840
Speaker 2: rates probably continue to come down. We're going to see

544
00:26:34,000 --> 00:26:36,600
Speaker 2: I think four cuts in Australia, the next one in

545
00:26:36,680 --> 00:26:40,240
Speaker 2: July and then another three after that August, November, and February.

546
00:26:40,640 --> 00:26:43,199
Speaker 2: That will help our market put money in the hands

547
00:26:43,240 --> 00:26:46,399
Speaker 2: of people with a mortgage and those money will go

548
00:26:46,440 --> 00:26:48,000
Speaker 2: and spend that. And I know a lot of people hear

549
00:26:48,040 --> 00:26:50,000
Speaker 2: that and say, well, I'm a self fund of retire

550
00:26:50,000 --> 00:26:52,040
Speaker 2: read relying on money from bank interest. But the amount

551
00:26:52,080 --> 00:26:55,399
Speaker 2: of money in household dead is double, roughly double the

552
00:26:55,480 --> 00:26:58,200
Speaker 2: value of people with bank deposits. The value of money

553
00:26:58,359 --> 00:27:01,440
Speaker 2: in bank deposits, so aims to those with the mortgage

554
00:27:01,560 --> 00:27:04,200
Speaker 2: is actually swamps by two to one the losses.

555
00:27:04,280 --> 00:27:07,000
Speaker 3: So it's twice I see what you mean, Yeah, twice

556
00:27:07,040 --> 00:27:07,479
Speaker 3: to speak.

557
00:27:07,680 --> 00:27:10,520
Speaker 2: And our family twenty five to forty five with a

558
00:27:10,560 --> 00:27:13,400
Speaker 2: couple of kids is far more sensitive to changes their

559
00:27:13,440 --> 00:27:16,920
Speaker 2: income than a fifty five sixty five year old person.

560
00:27:17,000 --> 00:27:18,760
Speaker 2: I'm going to char I'm sixty, but I don't change

561
00:27:18,760 --> 00:27:22,240
Speaker 2: my spending that much given my income. But mortgage is

562
00:27:22,320 --> 00:27:24,800
Speaker 2: under control. That sort of stuff. My mother goes on

563
00:27:24,840 --> 00:27:27,600
Speaker 2: the cruises and that doesn't change much with interest rates,

564
00:27:27,640 --> 00:27:29,800
Speaker 2: But it does for younger.

565
00:27:29,560 --> 00:27:31,359
Speaker 1: Families because they're so funly chuned.

566
00:27:31,520 --> 00:27:33,440
Speaker 2: So there's so famly tuned. You get a slight rise

567
00:27:33,480 --> 00:27:35,360
Speaker 2: at interest rates, they got less money to spend. That's

568
00:27:35,400 --> 00:27:38,600
Speaker 2: bad for the economy. Cut interest rates, they suddenly get

569
00:27:38,600 --> 00:27:40,800
Speaker 2: relief and they could spend a little bit more they

570
00:27:40,800 --> 00:27:43,320
Speaker 2: won't go bond because spend a lot. But I think

571
00:27:43,359 --> 00:27:45,960
Speaker 2: all that points to an okay environment. But as I

572
00:27:45,960 --> 00:27:48,440
Speaker 2: said at the start, the valuations are a little bit stretched.

573
00:27:48,480 --> 00:27:50,160
Speaker 2: That's going to constrain things a little bit. That's why

574
00:27:50,200 --> 00:27:52,639
Speaker 2: I say six seven percent return from super funds, not

575
00:27:53,240 --> 00:27:55,320
Speaker 2: another year of nine or ten or something.

576
00:27:55,520 --> 00:27:56,720
Speaker 3: Okay, interesting logic.

577
00:27:56,840 --> 00:28:02,080
Speaker 1: So the temple, the fundamental GDP if you like economic temples, healthy,

578
00:28:02,280 --> 00:28:06,280
Speaker 1: but the evaluation, because valuations are stretched, that puts a limit.

579
00:28:06,359 --> 00:28:08,880
Speaker 2: Yeah, they are a little bit of stretch, but there's

580
00:28:08,920 --> 00:28:13,040
Speaker 2: the problem with valuations. They're useful guides, but they're not

581
00:28:13,119 --> 00:28:16,119
Speaker 2: very good to time markets with. And a lot of

582
00:28:16,119 --> 00:28:17,720
Speaker 2: people have been saying for the last few years now

583
00:28:17,720 --> 00:28:19,920
Speaker 2: the chairs is too expensive and blah blah blah, and

584
00:28:19,960 --> 00:28:22,399
Speaker 2: they keep going higher. That's because your earnings come in

585
00:28:22,440 --> 00:28:25,199
Speaker 2: and they turn out okay, particularly in the US. But

586
00:28:25,359 --> 00:28:28,240
Speaker 2: valuation is very hard to time markets. So it's a

587
00:28:28,359 --> 00:28:31,040
Speaker 2: risk factor there. At least the market's vulnerable should something

588
00:28:31,080 --> 00:28:32,800
Speaker 2: go wrong. But as we saw in the Middle East,

589
00:28:33,400 --> 00:28:35,840
Speaker 2: that turned out not to be the event, and it

590
00:28:35,880 --> 00:28:38,200
Speaker 2: remains to be seen what happens with tariffs. But I

591
00:28:38,280 --> 00:28:40,880
Speaker 2: reckon this is the big one with Trump. If you

592
00:28:40,880 --> 00:28:42,640
Speaker 2: think about the next financially, it takes us up to

593
00:28:42,680 --> 00:28:45,160
Speaker 2: June next year. He's going to want to get his

594
00:28:45,320 --> 00:28:47,880
Speaker 2: party doing well in the midterms. He doesn't want to

595
00:28:47,880 --> 00:28:50,400
Speaker 2: see a massive defeat for the Republicans because it will

596
00:28:50,400 --> 00:28:53,040
Speaker 2: look bad on him. So he's probably going to as

597
00:28:53,120 --> 00:28:56,120
Speaker 2: time goes by through the next financial year, which takes

598
00:28:56,160 --> 00:28:58,120
Speaker 2: him in the run up to the November midterms in

599
00:28:58,160 --> 00:28:59,960
Speaker 2: the US, he's probably going to want to do things

600
00:29:00,040 --> 00:29:02,440
Speaker 2: a more market friendly. And that's why I think he's

601
00:29:02,480 --> 00:29:04,840
Speaker 2: loaded his tariffs up front and sort of get some

602
00:29:04,920 --> 00:29:06,760
Speaker 2: of the bad news out of the way early, and

603
00:29:06,800 --> 00:29:08,840
Speaker 2: then if he gets more friendly as we come up

604
00:29:08,880 --> 00:29:10,479
Speaker 2: to the midterms.

605
00:29:09,960 --> 00:29:13,560
Speaker 1: Okay, we will see, we will see terrific. All right, Look,

606
00:29:13,600 --> 00:29:15,240
Speaker 1: thank you very much. I have one last thing I

607
00:29:15,280 --> 00:29:17,520
Speaker 1: wanted to just in terms of questions of correspondence, and

608
00:29:17,560 --> 00:29:20,120
Speaker 1: we had a lot, and thank you everyone for the corresponding.

609
00:29:20,120 --> 00:29:20,880
Speaker 3: It was very thoughtful.

610
00:29:20,920 --> 00:29:23,000
Speaker 1: I thought on Crypto and as I say, I thought

611
00:29:23,000 --> 00:29:27,000
Speaker 1: it deserved a second twist, and having had if you

612
00:29:27,200 --> 00:29:28,960
Speaker 1: like the bare case on, I wanted to put the

613
00:29:28,960 --> 00:29:31,280
Speaker 1: bookcase on. I think that would be very useful. Of Course,

614
00:29:31,320 --> 00:29:34,400
Speaker 1: I have crypto people on in the future for them

615
00:29:34,400 --> 00:29:36,360
Speaker 1: all in the past. But I wanted this debate if

616
00:29:36,400 --> 00:29:39,960
Speaker 1: you like to come from outside crypto per se in

617
00:29:40,360 --> 00:29:44,120
Speaker 1: conventional investment markets, which is I think the best way

618
00:29:44,160 --> 00:29:46,840
Speaker 1: to debate it. All right, terrific. One last thing I

619
00:29:46,880 --> 00:29:49,840
Speaker 1: wanted to just read for you. It's from Pete and

620
00:29:49,880 --> 00:29:53,000
Speaker 1: he says, I have my money puzzle bingo card in

621
00:29:53,040 --> 00:29:56,800
Speaker 1: front of me and it has only three things. Number One,

622
00:29:57,240 --> 00:30:01,560
Speaker 1: taxing upon realized gains and super funds is staft. Number Two,

623
00:30:01,920 --> 00:30:04,520
Speaker 1: all the brokers say the Commonwealth Bank is overpriceding yet

624
00:30:04,560 --> 00:30:08,160
Speaker 1: it hasn't fallen. Number Three the three million super tax

625
00:30:08,240 --> 00:30:09,600
Speaker 1: and super is not indexed.

626
00:30:09,880 --> 00:30:13,280
Speaker 3: Can you believe that? Do I win? Says Pete. Pete,

627
00:30:13,320 --> 00:30:16,440
Speaker 3: You're you're in the winner's enclosure. I think that's for sure.

628
00:30:17,600 --> 00:30:18,960
Speaker 3: Very keen alert.

629
00:30:18,960 --> 00:30:21,320
Speaker 1: Listening there from Pete. Thank you Pete, and thank you

630
00:30:21,400 --> 00:30:24,640
Speaker 1: everyone for listening. Keep the emails Rolling the money Puzzle

631
00:30:24,640 --> 00:30:27,360
Speaker 1: at the Australian dot com dot u. Shane Oliver, chief

632
00:30:27,360 --> 00:30:29,960
Speaker 1: economist at AMP, put you onto the gun there today

633
00:30:30,280 --> 00:30:33,360
Speaker 1: in two different ways. Thank you very much, really good,

634
00:30:33,480 --> 00:30:36,200
Speaker 1: very clear, articulate response of course to all the questions,

635
00:30:36,200 --> 00:30:38,080
Speaker 1: which is what I would expect from you. Thanks a lot,

636
00:30:38,120 --> 00:30:39,040
Speaker 1: we'll have you on again.

637
00:30:39,240 --> 00:30:40,400
Speaker 2: Thanks Jans, take care,