Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby. Welcome aboard everybody. What a really interesting time.
Speaker 1: I want to do a couple of things today and
Speaker 1: I think you'll find both of them very interesting. First
Speaker 1: of all, a great response, I might say maybe a
Speaker 1: storm of response might be the right phrase for last
Speaker 1: week's show on Crypto with Jackie Clark. Now, what we
Speaker 1: did in that show was basically a skeptics corner, okay,
Speaker 1: So we put up somebody from institutional Australia, from the
Speaker 1: conventional world of Australian investing, an ASX board director, a
Speaker 1: family office member, accountant to give a view on crypto.
Speaker 1: And obviously it was a very skeptical view. And it's
Speaker 1: interesting because nearly I think the tempo of the Money
Speaker 1: Pazza's audience has changed, become much more receptive I think,
Speaker 1: and enthusiastic in many ways about crypto, though Maney remains skeptical,
Speaker 1: including Jackie, and she had some very strong points. Now,
Speaker 1: what I want to do today is put the other
Speaker 1: point of view, okay, and again it's institutional Australia. I
Speaker 1: could easily get someone from crypto to talk about crypto.
Speaker 1: Why would I do that? If I ask someone in
Speaker 1: real estate to talk about whether it's a good time
Speaker 1: to buy property, what would they say? If I ask
Speaker 1: a gold miner, is it a good time to buy gold?
Speaker 1: What will they say? This is not the nature of
Speaker 1: the exercise to get people from the crypto world to
Speaker 1: talk about it. It's to get people who are conventional
Speaker 1: investors with a lot of respect from our audience and
Speaker 1: from me, to take a view on crypto. Jackie's view
Speaker 1: was very skeptical, as she also in some ways did
Speaker 1: not go into great detail on it, and I understand
Speaker 1: why because that is a typical response. I don't go
Speaker 1: if I don't believe in gold mining, I don't go
Speaker 1: so deep best to understand all the aspects of gold mining.
Speaker 1: And it's the same with crypto. So who could we
Speaker 1: get to talk about it? And also, very usefully, because
Speaker 1: it's the last show of the year, we're going to
Speaker 1: also have a quick wrap on how the year has gone.
Speaker 1: But first, the most interesting organization I think institution in
Speaker 1: Australia in relation to crypto is not a major crypto
Speaker 1: player or a major crypto exchange, believe it or not,
Speaker 1: it's AMP, and AMP plays that role for the simple
Speaker 1: reason they were the first, are the first major financial
Speaker 1: institution as super fun if you don't mind to invest
Speaker 1: in crypto. They invested twenty seven million dollars a few
Speaker 1: months ago in crypto, substantial investment in many people's eyes,
Speaker 1: you can say, is a percentage of AMP is tiny.
Speaker 1: It's twenty seven million. It's twenty seven million, and they
Speaker 1: put it into crypto, and I want to know why
Speaker 1: they are enthusiastic about it. The ideal person, absolutely ideal
Speaker 1: person to talk for AMP is an old friend of
Speaker 1: the show, an old friend of mine, Shane Oliver, the
Speaker 1: chief economist. I know him for a long time. He's
Speaker 1: been on the show before.
Speaker 2: How are you, Shane, I'm good, James, thanks for having
Speaker 2: me back.
Speaker 1: I never thought i'd have you on the show explaining
Speaker 1: why your organization spent fifty seven million dollars on crypto.
Speaker 1: And I think it's absolutely fascinating that you did. I
Speaker 1: think it's very plucky that AMP did. It's now we
Speaker 1: see sometime later JP Morgan is in there, Walmart is
Speaker 1: in there making investments in crypto, putting money behind it
Speaker 1: first and foremost. Can you explain to our listeners, some
Speaker 1: of who are crypto fans, some who remains skeptical, why
Speaker 1: AMP put twenty seven million dollars into bitcoin.
Speaker 2: I certainly can, and you might some might say that
Speaker 2: I'm in this skeptical camp too, And I have written
Speaker 2: notes on crypto over the years, starting back class decade.
Speaker 2: But I guess even I always thought that there was
Speaker 2: some potential element of value in there, and that relates
Speaker 2: to two things. The use of the blockchain that underpins
Speaker 2: crypto for smart contracts and various uses, and that is
Speaker 2: already evident, and that, particularly in the case of some
Speaker 2: cryptos like Ethereum and Solana and so on, potential uses
Speaker 2: an alternative currency, central bank, digital currencies and so on.
Speaker 2: And also with a bitcoin increasing use as a store
Speaker 2: of value alternative to gold. So I know all the
Speaker 2: reasons for skepticism about bitcoin. In fact, I've got a
Speaker 2: list in front of me from the last Oliver's Insights
Speaker 2: I wrote on it, which was earlier last year. It's
Speaker 2: coin itself. Yeah, it's unlikely it become useful for everyday transactions.
Speaker 2: You can't buy a cup of coffee, whether or if
Speaker 2: you do, you'll pay, it'll take you a lot of time,
Speaker 2: it'll be slow and all that sort of stuff. It's volatile,
Speaker 2: it's hard to value because it doesn't generate rents and
Speaker 2: dibdends like other assets, and of course it's been associated
Speaker 2: with nefarious activities. Are often thought that way. But even
Speaker 2: though I'm skeptical, I think we as an organization AMP
Speaker 2: has responsibility to its members, fiduciary responsibility to look at
Speaker 2: all options, and it could be an emerging asset class.
Speaker 2: It has been around now since what two thousand and nine,
Speaker 2: and so it seems like it's becoming part of the
Speaker 2: furniture in terms of the investing worlds. It's increasingly getting
Speaker 2: acceptance from regulators. They're taking it seriously and regulatory framework
Speaker 2: is being put around it. So it's moving from the
Speaker 2: wild West, if you like, to some degree into the mainstream.
Speaker 2: There's a whole generation out there of digital savvy young
Speaker 2: people investors who are becoming investors, and they're more familiar
Speaker 2: with this. They're probably thinking. In old days they might
Speaker 2: have thought, well, i'm skeptical about the government, I'm skeptical
Speaker 2: about inflation. I want something which is a bit of
Speaker 2: a hedge against that on a long term basis. Previous
Speaker 2: generation might have gone gold is for me. Now some
Speaker 2: of those people are saying maybe bitcoins for me, and
Speaker 2: Bitcoin by free nature has resisted the temptation to weaken
Speaker 2: some of the protocols around it, you know, in terms
Speaker 2: of the about proof of work and proof of stake
Speaker 2: and all that sort of stuff that other cryptocurrencies have
Speaker 2: gone down that path. Bitcoin todd with it to some degree.
Speaker 2: But I think Bitcoin probably has held back a little
Speaker 2: bit because of this view that it wants to be
Speaker 2: seen as something that's difficult to get hold of and
Speaker 2: that preserves its value to some degree. We all know
Speaker 2: that there's something there's a limit on the amount of
Speaker 2: bitcoin that it can ever be mine to twenty one
Speaker 2: million bitcoins, and we're well through that, and so that's
Speaker 2: going to limited supply. But because of all those things,
Speaker 2: you got this. I can understand the skepticism argument. Yes,
Speaker 2: you've got to be cautious, but I can also understand
Speaker 2: that it's becoming part of the investment universe, and therefore
Speaker 2: we thought we had to consider it. We had a
Speaker 2: lengthy debate. I put up all the skeptical arguments is
Speaker 2: to expect that I might in the end even I
Speaker 2: decided we should have a look into this, and we
Speaker 2: did in May last year. As you say, we invested
Speaker 2: twenty seven million dollars in bitcoin when it was then
Speaker 2: priced at sixty two thousand. It was less. It was
Speaker 2: about point zero five percent of our super funds, so
Speaker 2: less than point one percent. Probably close too point one
Speaker 2: percent now because it's gone up in value.
Speaker 1: But it seems to me that between the lines, the
Speaker 1: most compelling argument you've put forward is it a fear
Speaker 1: of missing out.
Speaker 2: No, I wouldn't say that's the argument. I think the
Speaker 2: main argument was that it was becoming part of the
Speaker 2: investment universe, and it's moving from the shadows from the
Speaker 2: wild West into the investing universe. And the last year,
Speaker 2: I want I think one of the big factors in
Speaker 2: our minds was the approval of ETFs by US regulators
Speaker 2: on this front in regards to bitcoin. So Trump only
Speaker 2: came along after we'd made the decision in May. And
Speaker 2: you can argue that when you think about it, it
Speaker 2: does offer some diversification. It's not perfectly correlated with shares,
Speaker 2: and there is some tendency for it as a growth
Speaker 2: asset to go down when shares run to trouble and
Speaker 2: it goes up by more than shares when shares do well,
Speaker 2: but it has an imperfect correlation with shares.
Speaker 3: What is your view on it?
Speaker 1: If we accept it to an asseid class and you
Speaker 1: have clearly and you have put your money where your
Speaker 1: mountains if you like AMP, what's your view? Is it
Speaker 1: correlated or is it non correlated? It started as a
Speaker 1: sort of libertarian completely anti establishment thing where people would say, oh,
Speaker 1: I don't trust the banks, I don't trust the government,
Speaker 1: et cetera. It moves and moves towards the mainstream, that's
Speaker 1: beyond doubt. If the US is talking about a strategic
Speaker 1: reserve with crypto, then it is core mainstream. But I
Speaker 1: want to ask you, as an acid class, do you
Speaker 1: see it or do you know yet whether it's correlated
Speaker 1: or non correlated? In other words, is it a gold,
Speaker 1: a digital gold that we can depend on when things
Speaker 1: go wrong, or is it simply correlated where it just
Speaker 1: flies up when the market's hot and flies down when
Speaker 1: the market's cold.
Speaker 2: Look, I think there is an issue that as time
Speaker 2: goes on it becomes more institutional, it'll be put into
Speaker 2: the growth bucket potentially, and therefore there might be some
Speaker 2: correlation with share markets, and gold has that to some
Speaker 2: degree as well. You think about the initial phases of
Speaker 2: the GFC, gold went down, and it's partly because you
Speaker 2: can see a little bit on the In the last weekend,
Speaker 2: US starts dropping bombs on Iran, investors are a little
Speaker 2: bit nervous they can't sell shares because the share market's closed.
Speaker 2: There was some downwards pressure on bitcoin at that point
Speaker 2: in time, and I think the correlation when I last
Speaker 2: looked at it was something like zero point four percent
Speaker 2: against the share market. It's not one percent, so it's
Speaker 2: not correlating one for one, but there is some correlation
Speaker 2: there with the share market. And that's partly because as
Speaker 2: it becomes more institutional, then investors see it in that
Speaker 2: particular bucket as a growth asset and when they want
Speaker 2: to sell shares, so crypto might get a bit of
Speaker 2: the selling pressure. But in a broader sense, there is
Speaker 2: another way of looking at it, and that is because
Speaker 2: it has the limited supply. I suspect that over time
Speaker 2: it probably offers more of an inflation hedge than shares
Speaker 2: to because of that limited supply, you could always say
Speaker 2: we should also be skeptical of gold. It's only got
Speaker 2: value because we believe it has.
Speaker 3: Become accumulated historical.
Speaker 2: Historical experience that it's got value. But these days it
Speaker 2: doesn't do much. It's not used in teeth. You can
Speaker 2: use ceramics, so the porcelaina whatever it is in your
Speaker 2: teeth these days, so it's a bit different. It's used
Speaker 2: in jewelry. But interestingly, that's a tiny fraction of the
Speaker 2: actual demand for gold, and there's little relationship between drill
Speaker 2: demand and the price.
Speaker 1: So you're seeing that it's just a speculative.
Speaker 2: No, it's a I think it's become what's happening here
Speaker 2: is that bitcoin is almost becoming like a digital version
Speaker 2: of gold. It's a store of value. It's not necessarily
Speaker 2: speculative where people just buy into it on the grounds
Speaker 2: that it may go up, but obviously people hope that
Speaker 2: will occur over time. But you can say, we do
Speaker 2: have gold in our portfolios because it's in their commodity exposure.
Speaker 2: So if bitcoin is becoming part of the mainstream, maybe
Speaker 2: this case to have bitcoin in there as well.
Speaker 1: And the case is more so than it's a store
Speaker 1: of value rather than it's a bit respeculative option.
Speaker 2: Yeah, I would think so, no doubt. Most people say, Okay,
Speaker 2: so it's two thousand and nine, it's gone up exponentially,
Speaker 2: maybe that'll continue. I think you've got to be a
Speaker 2: little bit careful there. There's the old disclaimer that all
Speaker 2: fund managers use. Past performance is not a guide to
Speaker 2: future performance. It was a new asset class when it
Speaker 2: came along in two thousand and nine. If you look
Speaker 2: at it from each look at every four years, it
Speaker 2: goes through a cycle. Each trough to trough in that
Speaker 2: cycle has seen a slowing in the rate of increase
Speaker 2: in the value of bitcoin, or each peak to peak
Speaker 2: is sen a slowing in the rate of increase, and
Speaker 2: I think that's normal. It's just like a startup company.
Speaker 2: Initially you can make huge gains a lot of risk
Speaker 2: around that, but it will slow down over time. But
Speaker 2: I think ultimately it settles down to providing probably somewhat
Speaker 2: steadier gains, although I yeah, we get to see the
Speaker 2: downcycle which will come of course in bitcoin, but it's
Speaker 2: part and parcel of that new asset class.
Speaker 1: Why do you think no other super fund has followed
Speaker 1: you into the market. It's been quite a while now,
Speaker 1: four five months, but extremely lucrative. Right, you had forty
Speaker 1: percent on this particular investment, but most of your peers
Speaker 1: institutionally remain so cautious that they will do it.
Speaker 3: Let's put it that way.
Speaker 2: Yeah, we undertook the investment in May. I think by
Speaker 2: the time it was formerly announced it was November December
Speaker 2: or thereabouts, but that's still six seven months ago. I
Speaker 2: suspect that over time you will see some of those
Speaker 2: super funds invest I think a lot of them had
Speaker 2: probably said we're not going to do it and didn't
Speaker 2: even have any plans. I suspect you probably find there's
Speaker 2: a couple out there who probably do have plans.
Speaker 3: Are you guessing or do you know?
Speaker 2: I'm purely guessing here. I don't have any inside information
Speaker 2: about other super funds.
Speaker 3: All right, okay, And just one other thing.
Speaker 1: Having put in twenty seven million and having made what
Speaker 1: forty percent, do you think AMP will put in more?
Speaker 2: Like As with all asset classes, they're all the precise
Speaker 2: exposers always under review, and we will continue to review
Speaker 2: our exposure to bitcoin along with other assets. So I
Speaker 2: can't indicate either way on that.
Speaker 3: You can't hold it out, though I'm.
Speaker 2: Not gonna roll it out. I'm not going to roll
Speaker 2: it in. It sounds like.
Speaker 1: You're used to talking to journalists, that's clearly obvious.
Speaker 3: Or we'll take a short break. We'll be back in
Speaker 3: a moment.
Speaker 1: Hello, Welcome back to the Australians Money Puzzle podcast. I'm
Speaker 1: James Kirby and I'm talking to Shane Oliver, chief economist
Speaker 1: of AMP, specifically in this first section of the show
Speaker 1: about crypto, and of course Shane works for AMPS, the
Speaker 1: chief e columnists there and they were the first financial
Speaker 1: institution super fund in Australia to make an investment in crypto.
Speaker 1: It's interesting, Shane, self managed super funds way ahead of
Speaker 1: you in that respect. There's a billion according to the ATO,
Speaker 1: there's a billion dollars in SMSF funds in crypto. So
Speaker 1: in that respect it should be no surprise that a
Speaker 1: major fund would sooner or later go into crypto. Now,
Speaker 1: I just want to bring in now some of the
Speaker 1: issues that came up in the first show, and I'm
Speaker 1: going to just read the question which is from Scott,
Speaker 1: but it also reflects observations by Vince and Henry and
Speaker 1: Dean and Stephen and many others who came in and Basically,
Speaker 1: they wanted to take what Jackie Clark said, some of
Speaker 1: her skepticism, if you like, about crypto, and they tackled
Speaker 1: it and said that she was the wrong person to
Speaker 1: talk about crypto. That I totally disagree with that she
Speaker 1: is the right person. She is a classic example of
Speaker 1: someone who is skeptical and doesn't want the organizations or
Speaker 1: the institution she represents to go in there. That's why
Speaker 1: I have Shane on today. His organization has gone in there.
Speaker 1: So there was a couple of observations there that some
Speaker 1: of them are on technicus as I say, which I
Speaker 1: don't think we need even go into, because there is
Speaker 1: still an element I think Shane of belief that if
Speaker 1: you don't believe it, you don't need to know that. Honestly,
Speaker 1: you don't need to know the technicals. But why should
Speaker 1: you go deep into understanding its complexities if you don't
Speaker 1: believe it in the first place.
Speaker 2: Wait, you don't need to. You can take the approach
Speaker 2: of just investing broadly. I'm not an investor in individual things.
Speaker 2: You had a question in there which you haven't asked.
Speaker 2: Do I have it personally? No, I don't have it personally.
Speaker 3: It was on my list story.
Speaker 2: But then I don't have BHP or CBA or any
Speaker 2: other thing. Personally, I'm a macro guy. I invest in
Speaker 2: the big picture, and so therefore I have my money
Speaker 2: and Super and it's in AMP funds, and might have
Speaker 2: some money outside Super and his index funds. But obviously,
Speaker 2: when you buy a property, it's a specific investment, like
Speaker 2: the family home, the one I'm sitting in right now.
Speaker 2: But that doesn't prove that I have a negative or
Speaker 2: positive view on it or not supportive of the decision
Speaker 2: by AMP. The fact that I haven't bought it individually,
Speaker 2: but because I haven't bought other things individually either. But
Speaker 2: I think, just on that SEMSF observation, we had members
Speaker 2: over the last few years have been asking should you buy,
Speaker 2: and Crypto always get a little bit worried because by
Speaker 2: the time they ask, it's usually when crypto has gone
Speaker 2: up in value double to or forty percent. No one
Speaker 2: of course was asking when it collapsed eighty percent through
Speaker 2: one of those downturns. But so it doesn't surprise me
Speaker 2: that SMSF investors are already in there because we had
Speaker 2: members who are interested, and that indicated to us that
Speaker 2: we should be looking at it, which we did. But
Speaker 2: I've lost track of your original question here because you've
Speaker 2: raised a few points there, But hopefully that's covered it.
Speaker 3: I did really a few points. Look.
Speaker 1: One of the things, obviously was a lot of the
Speaker 1: crypto people when someone is skeptical about it, the crypto enthusiast.
Speaker 1: If you don't see you don't understand this, you don't
Speaker 1: understand this, you don't understand how.
Speaker 3: It all works.
Speaker 1: I don't understand CSL. CSL is one of the top
Speaker 1: ten companies in Australia. I don't understand what they do.
Speaker 2: We've had that one from Central Banks as well. They
Speaker 2: don't understand it. On the one hand, I think if
Speaker 2: you don't understand it and you don't feel comfortable, then
Speaker 2: you shouldn't invest as an individual. That's true, but then
Speaker 2: it is also true you don't have to fully understand
Speaker 2: everything to invest in it. And in my super funds
Speaker 2: or my investments outside super well, I haven't bought specific stocks.
Speaker 2: There are some companies in there which I won't understand
Speaker 2: their model and what they're doing and why, but I
Speaker 2: don't need to. And that's the key here. If you've
Speaker 2: got all your money invested in bitcoin, then I think
Speaker 2: you should understand it. But if you've got a well
Speaker 2: diversified portfolio, you just see it part of the investment universe.
Speaker 2: You just got some exposure in there, just like you've
Speaker 2: got some exposure of other things, then you probably don't
Speaker 2: need to have the same degree of understanding. And it
Speaker 2: is a little bit technical when you get into it.
Speaker 2: I've in the interests of finding out what it was
Speaker 2: several years ago. I've read a lot about bitcoin, but
Speaker 2: I don't consider myself an expert. And if you put
Speaker 2: me up head to head with some of the people
Speaker 2: who might be listening to this, who spend a lot
Speaker 2: of time, then they would run rings around me, And
Speaker 2: that's fair enough. I don't disagree with that.
Speaker 1: It's very interesting you see that. So there was always
Speaker 1: that traditional response, if you don't understand it, don't buy it.
Speaker 1: But really there's a point of which that stops. CSL
Speaker 1: would not be where it is today if everyone, yeah,
Speaker 1: it didn't buy it because it didn't understand it.
Speaker 2: That's right. Sometimes you do have to have a bit
Speaker 2: of faith in these things. And I think the broader
Speaker 2: issue is if you don't understand it, you're fair enough.
Speaker 2: Maybe you look into it. That's one way to go
Speaker 2: about it. The other approach is you don't understand it,
Speaker 2: but you think there might be something in it, then
Speaker 2: have it as part of a broad diversified portfolio. Don't
Speaker 2: just put all your eggs into it.
Speaker 1: Very interesting and of course now people can obviously everyone
Speaker 1: listening news now that you don't have to go off
Speaker 1: to some bitcoin exchange and go through all the red
Speaker 1: tape if you like to get involved. You can just
Speaker 1: buy an ETF and the ets are regulated.
Speaker 2: That's incredibly important because it was one of the reasons
Speaker 2: I think a lot of people were skeptical because they'd
Speaker 2: heard it about all the problems on the exchanges, money
Speaker 2: being hacked and all that sort of stuff, and the
Speaker 2: exchanges running into trouble, that this is issue a few
Speaker 2: years ago. I think that was when it was part
Speaker 2: of the wild West, and that's now starting to change,
Speaker 2: which is good. And by the way, we haven't actually
Speaker 2: bought bitcoin, the physical bitcoin. You don't have physical bitcoin.
Speaker 2: We bought futures.
Speaker 3: Was that because that was the only way to do it, chin.
Speaker 2: Or No, It's just the easiest way. As a super fund.
Speaker 2: It was just an easy way for us to do it.
Speaker 2: I mean oftentimes we'll buy we don't buy physical shares,
Speaker 2: will often buy futures on them or maybe the ETF.
Speaker 2: So it's just another way of getting exposure. It's an
Speaker 2: easy way to get in and out. It's quite liquid.
Speaker 2: That's just start and parcels the way we do things.
Speaker 2: Those features are obviously tied to bitcoin, so it's effectively
Speaker 2: Bitcoin exposures.
Speaker 1: So yes, course, yes, yeah, yeah, but it's just it's
Speaker 1: just a particular structure, all right.
Speaker 3: Andrew said.
Speaker 1: The reason that Jackie Clark and allegedly the Governor of
Speaker 1: the Reserve Bank and many others who should know better
Speaker 1: say they don't understand bitcoin is that they want to
Speaker 1: think of it as an investment that should have an
Speaker 1: intrinsic value. It's not, and it doesn't. Bitcoin itself may
Speaker 1: not survive, but now we know how it works, the
Speaker 1: genie won't go back into the bottle. Bitcoin or whatever succeeds.
Speaker 1: It will be better understood when its price goes up
Speaker 1: at the same time as intrinsically valued investments go down.
Speaker 1: This is a core sticking point with many expert investors,
Speaker 1: this lack of intrinsic value. You got over that, how
Speaker 1: did you get over that at a MP.
Speaker 2: As a long time investor and someone in the investment community,
Speaker 2: it does worry me a little bit. It's it's an
Speaker 2: easy to value a property or a share or whatever
Speaker 2: you because there's that that that rent that is delayed
Speaker 2: physical rents, literally rents or dividends. But there's lots of
Speaker 2: investments that we have that don't have that. Warren Buffett, Berkshire,
Speaker 2: Hathaway doesn't pay dividends. So there's lots of examples of
Speaker 2: investments out there that don't have paid dividends. You can say, well,
Speaker 2: don't have intrinsic value, so how can you possibly value them?
Speaker 2: So there are ways around it. Yes, it is a
Speaker 2: sticking point, and I can understand why people have expressed
Speaker 2: that concern, and I've written it down as a reason
Speaker 2: for skepticism in my own notes on this. But I
Speaker 2: think there are rays around it, and you just need
Speaker 2: to accept that there are other investments in your portfolio
Speaker 2: where they're not paying dividends.
Speaker 1: Yeah, Okay, we'll take a short break and we'll be
Speaker 1: back in a moment. Now, San this is a great
Speaker 1: time to have you on the show because it's the
Speaker 1: last episode of the financial year, and we have talked
Speaker 1: on and off over many years. I wonder has there
Speaker 1: been a year it looks like super funds are coming
Speaker 1: in with a return of around nine percent. Inflation in
Speaker 1: our society, in our economy has dropped nicely, the share
Speaker 1: market is looking like ten percent plus.
Speaker 3: Can you recall a year Maybe you just disagree with this.
Speaker 1: Entire contention, but can you recall a year where the
Speaker 1: results were so unconvincing? They're so good that they're unconvincing
Speaker 1: because I cannot see how they are.
Speaker 2: So I think there's been lots of views like that.
Speaker 2: To be honest with you, the old line that chares
Speaker 2: climb a wall of worry, that there's so many things
Speaker 2: to worry about, and yet the share market's done well,
Speaker 2: we can't believe it. I think twenty seven en was
Speaker 2: an example of that that Trump talk over and shares
Speaker 2: did pretty well. Twenty twenty was another fantastic one. We
Speaker 2: had a pandemic and the share market at one point
Speaker 2: there fell thirty percent I think thirty five percent. Global
Speaker 2: Australian shares were down by and yet we had okay.
Speaker 2: It turned out okay in the end, once investors look
Speaker 2: through it. And I think the same thing's happening this
Speaker 2: time around. Put Trump aside, he's a lot of the
Speaker 2: source of uncertain whether you like him or not, is irrelevance.
Speaker 2: So I might say he's tariffs. Ultimately he might be
Speaker 2: good for the US. I might say what he's done
Speaker 2: in the Middle East might be good for the global
Speaker 2: economy in the worlds. But the dust still has to
Speaker 2: settle on that. But by the same token, in a
Speaker 2: big picture sense, we've come into an environment where inflation
Speaker 2: was a problem. In twenty twenty two, we had inflation
Speaker 2: in Australia over eight percent, in the US a nine
Speaker 2: ten in Europe. We've got it down so eventually all
Speaker 2: those countries have inflation somewhere around two to three percent,
Speaker 2: including in Australia, and so we've gone from a world
Speaker 2: of high inflation fears of that interest rates would even
Speaker 2: have to go higher. Now we've gone to a world
Speaker 2: with lower inflation. And we've done that at environment where
Speaker 2: we've managed to avoid a technical recession, if you like.
Speaker 2: We've come close, and there's risk there. But even if
Speaker 2: you look at Australia unemployment what four one four point
Speaker 2: two percent still very low. Similar story in the US,
Speaker 2: so that's why the share markets are celebrating. The environment
Speaker 2: hasn't been so bad. And then, of course you overlay
Speaker 2: Trump on that he caused constant nation with his tariffs
Speaker 2: in April, but then he's backed off a little bit.
Speaker 2: Some people say Taco Trump always chickens out. Maybe not.
Speaker 2: I think that issue will come up again.
Speaker 1: What about the earnings. Maybe re earnings are better than
Speaker 1: we think of. Inflation's falling.
Speaker 2: Well, maybe that is the case. They've certainly surprised in
Speaker 2: the US coming to the last reporting season. For the
Speaker 2: March quarter, the expectation was four percent earnings growth turned
Speaker 2: out to be about ten or eleven percent earnings growth,
Speaker 2: and so US companies just kept surprising. On the upsides,
Speaker 2: Australian earnings have been negative, but there is an expectation
Speaker 2: of some improvements. We are setting the Reserve Bank cut
Speaker 2: interest rates in Australia. We've now got inflation at the
Speaker 2: lower end of comparable countries. Remember all that nonsense last
Speaker 2: year people were building out we've got an inflation problem
Speaker 2: relative to everybody else. We haven't. When you look at
Speaker 2: it on a graph, it's about the same, or we're
Speaker 2: at the low end which is good. So I think
Speaker 2: share markets are seeing that. And when the share market
Speaker 2: thinks of lower interest rates, it thinks that's more people
Speaker 2: putting their money in shares because they're getting less on
Speaker 2: bank deposits. The valuations on shares start to improve, and
Speaker 2: so I can sort of understand why markets have gone up,
Speaker 2: even though it's surprised. The strength of it has surprised me.
Speaker 2: And I wouldn't have thought we would be doing this
Speaker 2: well on Liberation Day, if that's what you want to
Speaker 2: call it, Donald Trump's Liberation Dates.
Speaker 3: Yes, I know it was awfully hard, but here we go.
Speaker 3: I have to ask you, how do you see the
Speaker 3: year ahead? Financially?
Speaker 2: Year ahead, I'm at risk of getting surprised again because
Speaker 2: I reckon returns will slow down. I would have thought
Speaker 2: they would have slowed down a year ago. I didn't
Speaker 2: think they'd be this good. I thought they would be okay,
Speaker 2: But I was thinking, I think a year ago, if
Speaker 2: you look at my report in July, I was looking
Speaker 2: for something more six or seven percent now of super funds,
Speaker 2: and now you're going to get what is probably around
Speaker 2: nine I think chat West the other day financial year
Speaker 2: to date eight point five percent up to May. It
Speaker 2: looks like Journe's turned out to be a reasonable month.
Speaker 2: Touch Wood we still got a few days ago, but
Speaker 2: I reckon returns will slow down to around six seven percent.
Speaker 2: The valuations are a little bit of a concern. The
Speaker 2: p's in the US where we around about twenty five
Speaker 2: times for IT earnings. In and Australia we were about
Speaker 2: nineteen or twenty times for earnings. That's above longer term averages.
Speaker 2: Bond yields are still relatively high, so there's not a
Speaker 2: great equity risk premium in there if you compare the
Speaker 2: earnings yield implied by those pes to the bond yields.
Speaker 2: But by the same token, I think if we avoid
Speaker 2: a recession, and I probably I think we probably will,
Speaker 2: then it turns out okay. So I think somewhere along
Speaker 2: the way we'll get another bet of worries about tariffs.
Speaker 2: Historically in the last twenty years, July is a good
Speaker 2: month for shares, but we know that August and September
Speaker 2: are often a bit rough seasonally, and I suspect that
Speaker 2: that could be tariffs. The tariffs come back into the headlines,
Speaker 2: you could get more vulnerability or more volatility coming out
Speaker 2: of the Middle East, but you've got to be careful
Speaker 2: about that one. The lesson from the events of the
Speaker 2: last few days that unless there's a disruption to oil supplies,
Speaker 2: then eventually markets will just move on to something else.
Speaker 2: And that's what's happened here. Even though I think the
Speaker 2: risks were very high, but it all depended on what
Speaker 2: Iran does. Run back down, but they probably concluded let's
Speaker 2: live divide another day.
Speaker 3: Very content response.
Speaker 2: Yeah, it was a contained response, and they self interest
Speaker 2: lay a role there. I think regime survivability was the key,
Speaker 2: so that could come back as an issue and cause volatility,
Speaker 2: But I think the broader picture is one of constrained
Speaker 2: growth globally. We hear from the IMF and Well Bank
Speaker 2: it's going to be somewhere like two to three percent growth,
Speaker 2: but it's not recession. And if it's not recession, then
Speaker 2: earnings can continue to grow or at least grow. Interest
Speaker 2: rates probably continue to come down. We're going to see
Speaker 2: I think four cuts in Australia, the next one in
Speaker 2: July and then another three after that August, November, and February.
Speaker 2: That will help our market put money in the hands
Speaker 2: of people with a mortgage and those money will go
Speaker 2: and spend that. And I know a lot of people hear
Speaker 2: that and say, well, I'm a self fund of retire
Speaker 2: read relying on money from bank interest. But the amount
Speaker 2: of money in household dead is double, roughly double the
Speaker 2: value of people with bank deposits. The value of money
Speaker 2: in bank deposits, so aims to those with the mortgage
Speaker 2: is actually swamps by two to one the losses.
Speaker 3: So it's twice I see what you mean, Yeah, twice
Speaker 3: to speak.
Speaker 2: And our family twenty five to forty five with a
Speaker 2: couple of kids is far more sensitive to changes their
Speaker 2: income than a fifty five sixty five year old person.
Speaker 2: I'm going to char I'm sixty, but I don't change
Speaker 2: my spending that much given my income. But mortgage is
Speaker 2: under control. That sort of stuff. My mother goes on
Speaker 2: the cruises and that doesn't change much with interest rates,
Speaker 2: But it does for younger.
Speaker 1: Families because they're so funly chuned.
Speaker 2: So there's so famly tuned. You get a slight rise
Speaker 2: at interest rates, they got less money to spend. That's
Speaker 2: bad for the economy. Cut interest rates, they suddenly get
Speaker 2: relief and they could spend a little bit more they
Speaker 2: won't go bond because spend a lot. But I think
Speaker 2: all that points to an okay environment. But as I
Speaker 2: said at the start, the valuations are a little bit stretched.
Speaker 2: That's going to constrain things a little bit. That's why
Speaker 2: I say six seven percent return from super funds, not
Speaker 2: another year of nine or ten or something.
Speaker 3: Okay, interesting logic.
Speaker 1: So the temple, the fundamental GDP if you like economic temples, healthy,
Speaker 1: but the evaluation, because valuations are stretched, that puts a limit.
Speaker 2: Yeah, they are a little bit of stretch, but there's
Speaker 2: the problem with valuations. They're useful guides, but they're not
Speaker 2: very good to time markets with. And a lot of
Speaker 2: people have been saying for the last few years now
Speaker 2: the chairs is too expensive and blah blah blah, and
Speaker 2: they keep going higher. That's because your earnings come in
Speaker 2: and they turn out okay, particularly in the US. But
Speaker 2: valuation is very hard to time markets. So it's a
Speaker 2: risk factor there. At least the market's vulnerable should something
Speaker 2: go wrong. But as we saw in the Middle East,
Speaker 2: that turned out not to be the event, and it
Speaker 2: remains to be seen what happens with tariffs. But I
Speaker 2: reckon this is the big one with Trump. If you
Speaker 2: think about the next financially, it takes us up to
Speaker 2: June next year. He's going to want to get his
Speaker 2: party doing well in the midterms. He doesn't want to
Speaker 2: see a massive defeat for the Republicans because it will
Speaker 2: look bad on him. So he's probably going to as
Speaker 2: time goes by through the next financial year, which takes
Speaker 2: him in the run up to the November midterms in
Speaker 2: the US, he's probably going to want to do things
Speaker 2: a more market friendly. And that's why I think he's
Speaker 2: loaded his tariffs up front and sort of get some
Speaker 2: of the bad news out of the way early, and
Speaker 2: then if he gets more friendly as we come up
Speaker 2: to the midterms.
Speaker 1: Okay, we will see, we will see terrific. All right, Look,
Speaker 1: thank you very much. I have one last thing I
Speaker 1: wanted to just in terms of questions of correspondence, and
Speaker 1: we had a lot, and thank you everyone for the corresponding.
Speaker 3: It was very thoughtful.
Speaker 1: I thought on Crypto and as I say, I thought
Speaker 1: it deserved a second twist, and having had if you
Speaker 1: like the bare case on, I wanted to put the
Speaker 1: bookcase on. I think that would be very useful. Of Course,
Speaker 1: I have crypto people on in the future for them
Speaker 1: all in the past. But I wanted this debate if
Speaker 1: you like to come from outside crypto per se in
Speaker 1: conventional investment markets, which is I think the best way
Speaker 1: to debate it. All right, terrific. One last thing I
Speaker 1: wanted to just read for you. It's from Pete and
Speaker 1: he says, I have my money puzzle bingo card in
Speaker 1: front of me and it has only three things. Number One,
Speaker 1: taxing upon realized gains and super funds is staft. Number Two,
Speaker 1: all the brokers say the Commonwealth Bank is overpriceding yet
Speaker 1: it hasn't fallen. Number Three the three million super tax
Speaker 1: and super is not indexed.
Speaker 3: Can you believe that? Do I win? Says Pete. Pete,
Speaker 3: You're you're in the winner's enclosure. I think that's for sure.
Speaker 3: Very keen alert.
Speaker 1: Listening there from Pete. Thank you Pete, and thank you
Speaker 1: everyone for listening. Keep the emails Rolling the money Puzzle
Speaker 1: at the Australian dot com dot u. Shane Oliver, chief
Speaker 1: economist at AMP, put you onto the gun there today
Speaker 1: in two different ways. Thank you very much, really good,
Speaker 1: very clear, articulate response of course to all the questions,
Speaker 1: which is what I would expect from you. Thanks a lot,
Speaker 1: we'll have you on again.
Speaker 2: Thanks Jans, take care,