Affordability or ‘affordability’? April 18, 2025

26:44The obligatory Warren Buffett quote this time is, you pay a high price in the stock market for a cheery consensus. Yes. In other words, when everyone's happy, no one's complaining, no one's worried, the share price is already up, everyone feels good about it, that's when you're going to pay maximum price, right? It's just the way it works because when everyone's happy, everyone's excited, the demand is all there, no one's selling, so the people demanding stocks are going to pay even more because they really want the cool thing. And that's how you get overvaluation, that's how you get a rational exuberance.

27:08So, Matt, I think you are a million percent right. It's a really great point to make is, you know, think as a business owner, right? I've used the example a million times. If you own a cafe and they're ripping up the street outside and your sales fall 40 % because people can't park outside and come in and grab a coffee, you don't sell the thing and go, well, obviously my business sucks, revenue is down, profit's down, this is terrible, it's never going to get you better, what if it falls further? You're like, well, no, I make good coffee, I have good food, I've got good staff, my customers like me, They can't get here at the moment, but they'll come back.

27:36So I'm not going to sell a cafe at a knockdown price just because the last three months of sales and profit were down. And that's not even talking about the share price. We go further and say, well, someone, the business broker comes around every week and says, hey, Scott, your cafe's worth a million dollars this week. Oh, great. He comes around two weeks later. Well, let me have a look at your numbers. Oh, no, your cafe's only worth half a million dollars this week. I'm not selling because it's halving price. I'm like, well, no, I believe in the cafe. I believe in what I do. The road's going to get sealed.

28:00It'll be for people to come back. Why would I sell for a knockdown price? And that's the conviction you're kind of referring to, right? It is. And look, let me be clear. I don't want to paint myself as like I'm just skipping down the road with a rainbow and butterflies around me. I've got not a care. I love you. I mean, I'm human. I definitely go, oh, gosh. But I'm just saying the degree of fear is the tell there. actually on your analogy i i've the more and more i i try and draw these analogies the the more i'm convinced that the absolute alpha analogy for all of these things is a farm right a farm is just such a beautiful and it's it's so like it's a 10 000 year old mental model and i think we all intrinsically sort of just get it it to to pivot to to your example to that it's it's like a farmer who's had you know a drought or not enough rain one year that's it i'm selling the farm it's like no it's that's the business you're in it's you and and you might be that or you might be a internet cafe it couldn't be more different right you can't judge the value of what you own the assets and the potential cash generation capacity of those assets on what happened in a short period of time You just can't do it.

29:17And I think this is – I'm making this point again more and more often, so I apologize for the repetition, but it's more just a reflection of my own epiphany and the lesson being driven home is that I'm – as an investor, I am more and more de-emphasizing profits, which sounds crazy, right? I know how that sounds because earnings are absolutely the driver of value – of share prices. It's like, yeah, it is. But, but again, it's sort of like, it's a, we talked about it recently, right? It's just a bit of a flow. It will, it will, and it will ebb and flow depending on the conditions. And so it can, it can make a crappy business can look really good for a period and a great business can look terrible.

30:01I think the more deeper analysis is just going that one layer below and just sort of saying, yeah, but where do the profits come from? What are the, what generates those profits? Are those pieces still in place more or less? And are the factors that are driving the lower profit, are they more transitory against the backdrop of really great assets that have incredible cash generation capacity, likely to be able to fulfill demand for many, many years into the future? That is great. It's very different to something like, actually, we've got nothing here but a PowerPoint presentation and a bunch of goodwill and some VC backing, which is a world that we were in not that long ago and we'll be back in again.

30:40But it's sort of like, I don't know what my point is, other than to sort of say that these are the times that we all wish for until they occur. And when they occur, we wish that they would hurry up and get over. But every bull market was like, oh, I wish I could get these things cheaper. And it's like, well, here you go. This is what you asked for. This is what it looks like because you never get, to the Buffett quote, you never get a cheery consensus and a bargain at the same time. That's a good point. One last one from me on the volatility stuff. I was, you know, like always, it's the interested outsider who asks the best questions.

31:16And so I've already mentioned I do radio. I'm not doing it to name drop. But I was on James Valentine's show, ABC Afternoons. My mother-in-law heard you actually. She called me up. There you go. Nice. That's Scott. You work with him. He's on the radio. A little bit of feedback. You'll like this. You go, God, he talks fast.

31:36i think we all know that i've already been that i said yeah more than one uh more than one podcast listener said this is the only pod they can listen to they can't listen to a one and a half speed don't speed it up um but yeah he just asked a great question it was like so aren't we are we supposed to be long-term investors and i don't know these fund managers supposed to be building long-term wealth isn't super supposed to be and kind of all like all those questions like yeah so what's got like who's doing what's going on that's like it's it's the perfect question like i said I said, honestly, the people in our industry don't often get it right.

32:06There is no reason to be – and we start with selling, because we start with people who are worried about their super and I completely get it right. It's just that idea. It's like, yeah, I've always got to say I can't guarantee these things because I can't. But share price have always gone up. They've always gone back to a previous high. They've always gone higher than that again. There is zero reason to be selling right now probabilistically. And again, maybe the world ends tomorrow. And when every company in the world is worth zero and we're in the caves, someone's going to throw a rock from across the valley at me and say, you bastard, you told me I'll sell the shares.

32:36Here's the thing, if it isn't going to be that bad, your money you get, it's not going to be worth anything either. So it's, yeah, I think we've probably flogged this one to death, mate. Can I make one more point just on that one there too? Because this is, I think I may have said this a month or two ago, but it's worth remembering. There's a lot of doomers out there and I find myself tiptoeing closer to that extreme, which I've really got to be careful of. Nevertheless, the thing that I think is worth remembering is that even if some of the doomsayers are right, there is a huge distance between a nasty recession and the end of the world and Mad Max Thunderdome, right?

33:18Like huge difference. Think about what our grandparents lived through, right? They were fine. I mean, I don't want to say, oh, they were fine. I was like, well, you know, it was really hard and we ate like offal and lived in a cardboard box. It was hard. But I think that's that you've always got to remember that even if, and I'm not saying they are, but even if things continue to deteriorate and not if we have a recession, we're going to have a recession. If it's not this, it'll be something else. We'll have a recession at some point. We're almost certain to have a pretty bad recession at some point, not because of anything in particular, just because cycles and history and eventually, you know, everything happens.

33:54But it's like even in that scenario, it's likely that farmers will keep growing food there'll be builders out there willing to to to put up new construction like you you will have shelter you will have food you will have medicine you will have all the most important things and i'm not saying it's going to be a picnic but it's like those that have those that haven't overextended themselves those that have made sure that they have put their their wealth into quality assets however we might want to define that actually you're going to be okay you're going to be okay my point being even if the doom is a right as long as you've been sensible you'll relatively be pretty good as well and i think that is worth remembering gives you a little bit more hope for the for the future and and frankly on the other side of that the person who has been prudent long-sighted value oriented actually comes out like comes out really well out of all of this even if they have some pain in the interim so i'd try and put a bit of an optimistic spin on things i love it mate well done i know that it hurts you to do but it does a little bit motley fool money for more subscribe to the free newsletter at fool.com.au forward slash listener let's move on to housing affordability in air quotes um we should comment briefly and uh i'm going to be i'm going to be if you're if you're a die don't the wall labor or liberal supporter uh it's going to hurt but it's going to hurt the other guy as much as going to hurt you so just just be prepared for that um we had we had the two major parties on the weekend announced their affordability in air quotes solutions um which is as dumb as it sounds um so let's start with the lnp peter announced that he was going to make mortgage interest deductible uh for the first x dollars worth of your mortgage interest on homes that apparently was going to make things more affordable now i don't i don't know how many times here at some we're just broken clocks we're just banging on about stuff I don't know how many more times I can say it without driving our listeners nuts and I don't know how I can make this make sense in any other way you've used a beautiful I've used your line so many times they are trying to put the fire out by throwing petrol in them when you say to people there are 10 houses in the street there were 9 bidders what we're going to do is help the first home buyer in the street also be able to bid at that auction so now there are 10 bidders how can the price go anywhere but up It is just absolute madness.

36:22Well, the other thing just on that as well, this would be a different conversation. It would still be the same conclusion, but you'd be a little bit more open-minded to it if this was the first crack of it. I was like, oh, maybe we should try this. This is literally like the 28th time or something like that where they have done some form of artificial stimulus. So I'm not even looking into the future as to what might be, just looking backwards at historical fact. every single time that you have done some version of this, it is only set prices higher. It's all it can do. It's all it can do. So it's not even theory anymore.

36:59It's just historical fact. And now I guess it didn't work the first 28 times. Let's try it again. Yes. And just to make sure I do send a pox on both their houses, Labor is now saying first home buyers can buy a house with a little as 5 % deposit. And here's the thing, right? In isolation, any of those things are good. if they didn't have market... A first-time buyer who needs to borrow, say, 10 % or 20%, yes, housing's further away, right? So is it better for... And you mentioned the first person to get there doesn't cause the inflation when you talk about businesses before. The first buyer who takes advantage of this is going to get a steal.

37:31But then when every other first-time buyer turns up at the auction with all the investors, with all the other upgraders and rebuyers and whatever, whatevers, you end up with the same situation. All you're doing is adding more people. Think about the proverbial auction, right? There's 20 people standing with paddles. You just invite another five people to join the group. There's no more houses being sold. There's no reduction in the demand from other parts of the market. You just literally throw more paddles up at the same auction. And wonder why price go off. But this is where this is. I do love this.

37:59And you know what I'm really happy about? I know you have a disdainful view of economists, and I do too when it comes to their predictions. I think economists are much better explaining than predicting. I think that's, you know, if you do the work to think about how things work, that's a useful exercise. Trying to work out what happens next is dumb. Well, it shows that you don't actually understand how things work. Yeah, that's right. To feel as though you can actually predict a chaotic self-referential system. You don't know what you should know. Yeah, exactly. At least the weatherman knows that predicting four months out is a mugs game, right?

38:31Exactly. So, but I haven't seen a single economist come out and actually praise either of these policies. It's very, very rare you end up with economists who are just absolutely lockstep of this is stupid. And Chris Richardson is fast becoming my favourite economist because he just calls a spade a bloody shovel. And here's the quote. This is from the ABC. Chris Richardson labelled the major party's platforms a, quote, dumpster fire of dumb stuff. And I reckon that is about the most accurate an economist has ever been on anything. Chris is great. I love him. And Saul Eslake, another great economist, called the Coalition's one, it turns out in this case.

39:07Quote, candidate for dumbest policy decision of the 21st century. Now, it's been a long 25 years. That's a pretty tight race as well, mind you. Yeah, there's been a lot going on. It's a crowded field. Oh, mate, it's just madness. So you kind of get... Well, actually, that was the point I was going to make. Despite the stupendous stupidity of these policies and the craven short-term vote buying that it represents, I was heartened that this time around, the reaction was more unanimous, was more clear cut. There was no mincing of words. It was sort of like, even on social media, not from economists per se, but just other people going, yeah, this is dumb.

39:53Like I feel as though that that's the one positive out of all of this is like it has politically had some legs, but it feels as though this time it's. Right? Yeah. Most people, I don't know. I've got to be careful because you sample bias and the rest, maybe just in my little bubble that it but it does feel as though people are going that's not helping that's not helping which is like great like because because you can before you can fix a problem you've got to acknowledge a problem so i would be yes like i would be so much more disillusioned if it was this policy announcements from both parties and then people going yay that that's really the fact that they've both done this and it seems as though maybe a small majority but a majority of people have gone no that's dumb it's like oh yes this is great it is i i will say i have i have had my share on twitter of people with different views to that um some ideological just you know well super sucks anyway so you should be able to use your super or you know well at least the first time i get a chance the the other group though that's just dumb um with respect to one who tweeted at me about that thank you for doing that but still dumb um the uh the The other group is the group, I think, this is where it's, well, firstly, if both majors are doing it, people are like, well, then what do you do, right?

41:06It's like a bad policy and a good policy. It's like there's two bad policies, so now you're screwed. One of them will screw the housing market up further depending on who wins, but it'll get screwed up either way. The hope, by the way, is the independents and miners get some influence, but I'm not even sure that's going to help. What I think is interesting, though, is there's still a group of people who are responding to both those things with effectively just desperation, mate, and this is why it's really sad and wear, you know, a pox on both their houses because I get people to say, well, yeah, it sucks, but it's better than nothing.

41:33And I don't even know if they believe it. I think it's just one of those, you kind of have to, right? Because otherwise you have to give up. And so, you know, as much as we can be optimistic or pessimistic, complete abandonment is really anathema to the human condition, right? It's like, well, there's life, there's hope. And it's a smaller group than those who thankfully realize it's rubbish. And I've got lots of retweets and positive comments on my stuff. I've been banging on about it on Twitter for a while. But it's still like that straight up kind of, yeah I know I know what you're saying but maybe there's a chance maybe I can at least do something and yes I know it's going to get worse but if I can if I can use mine before everyone else does and maybe there's and it's just that honestly it's that magical thinking of I just need to believe right it's X-Files stuff it's just and that's a bit that's really tragic right tragic on a human level more than anything it's just the hope that's being held out because what else do you do because the pollies are too absolutely gutless to do anything meaningful about this it's just it's tragic yeah but yeah I've got to be careful what I say.

42:32As much as I hate it, you know, I mean, anyone listening knows exactly where I stand on all of this kind of stuff. There is something, the phrase too big to fail was thrown around a lot during the GFC. I feel as though that's kind of the situation we find ourselves in with property. Right. So Australia's debt to GDP on federal debt is like 35%, or something is really low compared to other places around the world. It's still too high for them at the record. Yeah, way too – well, and going in the wrong direction as well. But the US is 120-something percentile. But what's very interesting, I just reminded this of the other day, is, again, colloquially when you say the national debt, you might think all of the debt in the nation as a function of something like GDP or something.

43:20What's not captured in that debt to GDP is private debt. and what we see in Australia is that the household debt is massive. I think we're behind Sweden and Sweden's got some sort of financial dimension to it, being the country that they are. And it's sort of like it is at a point where as insane as it is to continue throwing fuel on the fire, could you imagine if property fell 20 %? Yeah. Yeah. Like that, that, that really does spark a very long and deep recession in Australia. Yes, absolutely does. Yes. Because we have all, when I say we have all, you know, at least two thirds of us have got exposure to this asset class.

44:02And some of us, a decent percentage of us are doing it not from as a principal place of residence, but as an investment and at very high degrees of leverage. It's just like, you know me, I would probably say, let it fail. I'm so sorry that you decided to buy an unproductive asset at 10 times leverage. You know, that sounds really dumb. You know, you get what you deserve. But it's like, well, what do you do? What do you actually do here? You certainly don't do what they're doing, right? But you've got to thread the needle somehow. I think you're going to agree with that, yeah. You know, and I don't really know what my point is other than there's a small, very small, tiny, tiny part of me that's almost sympathetic to the follies here because it's like, could you imagine if I was all of a sudden made emperor of Australia?

44:54It's like, yeah, no more support. I'd actually feel good. And I would argue very strongly in 10 years time, Australia is in a much more robust position. And we've got foundations for generational wealth for decades to come. but it's going to be the most brutal crushing recession, if not depression, in the meantime. It's a rock and a hard play situation. We're at the situation where an immovable object is meeting an unstoppable force here, you know, and I just don't know how we get out of it. I think that's right, mate. I think, well, I mean, yeah, there are ways, but that's the problem. You've got gutless politicians, and frankly, the other thing is, to kind of your point, we don't want to hear the answer either, and that's the biggest challenge.

45:34For all of that, we're like, I want you to solve the problem, but I don't want it to be painful. And, you know, I want to say we, different people, different people. I'm not of the let it all crash and burn school, as you well know. I think we can solve for this, but it requires action and it requires an honest conversation with people and it requires a bit of, you know, putting aside a little bit of the selfishness. and again if it makes me sound like Pollyanna maybe it does I rose colored glasses are always rose colored when they're looking backwards and Australia's never been perfect but the kind of kind of more collegial fair go uh in it together stuff has been have been really ripped away over the last 20 or 30 years a lot more individualism and a lot more I'm all right Jack screw you bad luck type stuff that that really is not um particularly becoming I don't think on the national character but that's kind of the only way this does get resolved is a bit of shared pain a bit and frankly a bit you know of um sacrifice and i preferably by this you can afford to make the sacrifice rather than those who can't um that's kind of you know there are there are ways out of this you end up with how do you fix housing affordability you simply have house prices grow slower than wages now i say simply as if it's easy and that's an easy slogan to throw around there are also ways to do it uh you know i will throw a couple out for the sake of it but you start by saying well hang on we've still got more household formation than we have dwelling completions.

47:00That's just dumb. That's just absolutely straight. It's actively making things worse in a completely stupid way that you would never, ever, ever do in any other forum, right? It's the equivalent of share dilution effectively, right? It's like, well, profit's going at 15%, but share dilutions are 20%, so we're all going backwards. That's what we're doing if you want to put it in investment context. Now, there's people, not just shares, and there are individual issues. I've ranted for a long time, and I will continue to, about the level of immigration, not because, and let me be really, really clear for the umpteenth time, immigrants are wonderful.

47:31Immigration is a superpower for Australia. We should take the best and the brightest, the ones who solve the problems that we have or contribute most meaningfully to the national project. That stuff is, you know, and we've been made by, we're all immigrants, right, at some point. The Aboriginal Australians arrived here from somewhere at some point. You know, no one has a bloodline going back to creation or evolution or whatever you want to call it in this particular place. The reality is it's a, you know, it's a, It's a circumstance that none of us should be, you know, technologically of our own eye before we look at the spec and the others to use the religious connotation.

48:02But we can't keep having household formation exceeding dwelling. It doesn't work. You can't do it. I would absolutely, I've said before, I would stop. But grandfather, negative giving for residential property, regardless of structure. I would go back to capital gains tax indexation. I would, and I've ranted about this before, get the treasurer to use the lending buffer counter-cyclically so that as rates, we've already said, There was an article in the paper today, literally this morning, the Sydney Morning Herald. It's a Sydney or New South story because that's what they do. The average Sydney house, I think,$1.69 million up another whatever percent of the house, a couple of months.

48:39Why? Because bloody interest rates got cut and everyone went, great, I can afford to borrow more now. And it's just the madness of that stuff. You start with those things, right? You say, let's not actually have immigration as high as it is. Let's actually peg immigration as a function of dwelling vacancies. Let's get rid of the stupid boondoggles for tax that are making shelter financialized. And let's make sure that when rates go down, people don't just go, great, I'll borrow more money and push prices up, but actually hold that borrowing capacity where it is. They're not difficult solutions.

49:07I don't think they're that controversial, frankly. I mean, I don't know what argument you would have to not do any of those things. I'll give you one. And it's not a good one, but I'll give you one. Okay, I like those better things because that means I'm right, but go on. Yeah, you're 100 % right. But it's a breaking of the social contract, which is I save hard, I put a deposit on a house, and that house doubles every seven years. It grows at 7 % per annum or something like that. That's the social. Why? Because. That's because. But that is just the way it is. So while you're right, what you're saying is, hey, Mr.

49:4744-year-old who just took on a 35-year mortgage, you will only pay this off well past the retirement age and there won't actually be any growth along the way in real terms to make it worthwhile. Is that better than it's going to crash and you're going to lose everything? Yes. Yes, that is better. Much better. But it's also worse than your property will double every seven years. And I'm not even being, I don't, I'm not critical of people of it. I've often made the point that people are just out there trying to live their lives, right? And the value of their money is going down all the time. So they just scramble, gosh, I guess I'll buy an ETF or I'll buy an investment.

50:26I've got to do something, right? Because I'm just going to be bled dry otherwise. The banks know better. So you sort of say that interest rates went down and then we all just borrowed more. Well, we did. But with the willing accomplice of the bank saying, yeah, we will let you borrow more. It's like, wait a second, you guys know that interest rates go up and down. You know that economies go up and down. I feel as though that's where the blame should lie here. That's fair, yeah. And I made the point before, there's something like three quarters of all of the lending banks do for houses. We started this podcast talking about our view, which is just that.

51:10We'll see. History will be the judge. But there's probably pretty good odds of a stagflationary kind of environment. if you were a bank would you be lending out like giving people 5x leverage on an unproductive asset heading into a stagflationary environment like i wouldn't i wouldn't do it like no way well if you're a bank executive who was going to go in five years time you thought you wanted to roll it i said you mean you're a bonus you might exactly yeah exactly and and back to the too big to fail they will do they will do because whatever they have to it's why i laughed when pal said We're not going to, don't rely on us for a bailout.

51:46You will blink. Absolutely, you will blink when time comes. And so will we here, right? But the banks, yes, it's like, well, either I'm not around by the time the cheque is due or we'll just get bailed out anyway, right? In other words, it's just like, I'm just going to keep partying. That is where the finger of blame needs to be pointed. and we've got to remember here, I actually don't even blame the banks too much because that's their incentive structure that we've created for them. Why wouldn't they do that? I would. You know, if I was like, well, I'd like to think I wouldn't actually, but, you know, I'm a craven, self-interested, you know, just after my own personal enrichment.

52:27Yeah, absolutely I would. And that's the incentive that's going to be at play. The government sets the rules. Here's the power that we give the banks, right? We say you're allowed to create your own money. And you can lend it out to whoever you want. We'll put a little bit of restrictions around it. There's certain capital adequacy ratios and we'll do some risk weighting on some of the assets. We'll put buffer and stuff in that there. And, you know, we'll tighten them whenever things get after a crash and then we'll loosen them afterwards so you can do it all again. I'm not even having a go at that per se.

52:58I'm just saying that, although that is a really fun conversation, one day when we have a beer, I will lay that all out for you and bore you so close. But I just feel as though it's perfectly reasonable for us as a society and as our government, as our representatives to say, yeah, okay, we're going to give you this power, but there are strings attached. And those strings are, right? Yes, totally. You can't do this. They can cry over the economy and we need to do this. Businesses can do all of that. They foster these conditions and then basically put a gun to our head and say, well, you have to bail us out because otherwise the alternative is too difficult to contemplate.

53:37And I just feel as though it's like, why do we let them set the agenda and what's appropriate here? We just say, and frankly, if that means that the major banks' profitability is going to be hit, I'm cool with that. They need to be viable. They need to be profitable. I'm not saying let's get rid of that. But you have no right. It's not a God-given right for you to have absolute profit maximization when the risks of your business strategy is born by us, the people who haven't engineered it, haven't created it. Does that make sense? Is that like the most perfectly reasonable thing in the world to say?

54:18It's just like, okay, do all this creation with, you know, fiduciary media and all this kind of stuff and create money out of thin air and get to charge interest on it. It just means there are massive strings attached to that. No, you're right. And this is where, you know, the – I don't get too ideological, but the – I've had so many people – elections are elections and politics is politics, right? we've had we've had the party of in theory the free market called the liberal national party who said well under this government there have been x number of businesses failing fail therefore it's a problem and it's kind of like and you've used the example of heaven without hell a million times and you're 100 right every time the the idea that somehow business failures is a bad thing in itself or that somehow the number is a problem is is the problem the idea that everyone is mailed out for everything because we can't have people fail because because because it creates those problems and i think you know the the challenge and i think here's the other thing mainly we're talking about the managed decline or whatever you want to call it but the the banks are too big to file right now because of where they are and so i don't think they're wrong the the the frankly the gutlessness and the cravenness and the lack of the most polite way i say it's maybe that maybe the police don't understand right maybe maybe that's the case otherwise they're just doing deliberately but you say okay we've got to this point we can't we can't just well you you may want us to send us into five-year depression i'm gonna i'm gonna assume we shouldn't um we can't do that what we're going to do though is make some changes so that we de-risk the economy over the next 10 years we we make housing more affordable over the next 10 years we put things in place and we don't just assume that harming business profit growth is the be-all and end-all because we want value creation, but you're not creating value if you're just taking risk and then building, and I'll say Ponzi, I don't mean Ponzi from a housing perspective.

56:07You're building a house of cards. So, well, if we blow, the house cards will fall over. So what we'll do is we won't blow. We'll ban people from blowing and we'll just keep building the house. Well, yes, you want the house of cards to fall over because that causes misery, but you can at least start by saying, you know what? We're going to slowly increase the capital-adquista ratio over the next 10 years. Yes. We are going to restrict the amount of money you can lend out or we're going to limit the, using the buffer counter-sickly is just bloody said. There's a million ways that... So easy. It is.

56:35Like, it's really... And the thing is, it wouldn't even need... You're probably just scared about being voted out, right? So you don't do that. You say, we're going to put this in place. We're going to do it over the next 10 years. By 2035, we'll solve this thing. Any given year, you're not causing any problems. You're just simply saying, let's slowly just eke out some improvements so we are more robust. We don't have to be anti-fragile, just less fragile, you know? To your point about the capital adequacy ratios, They've been improved. One of the great things from the GFC was they did improve the capital adequacy ratios and the tier one capital ratios and that stuff, which means the banks have to hold more money than they used to.

57:07Leverage has come down, which is great. Right? But you just continue that. You say, well, let's get to 20%. Because it's also exponential. Probabilistically, 1 % to 2 % change is a huge increase in the odds that you don't go broke or decrease in the odds you do go broke, whichever way you want to think about it. Going from 11 % or whatever is now to 15 % probably reduces the risk by probably 80%. Because you've got that capital, think about the odds of those things happening. A really, really bad recession, you'll still be okay. A depression, you're probably okay. Wasn't the Great Depression? Okay, maybe we're stuck getting at some problems at that point.

57:42But at least we're moving by a relatively small amount of change. Think about housing affordability on the same basis. These aren't difficult. To your point, they're dead easy. Don't even have that electoral pain if you make it over 10 years. And I don't know, I'm probably I don't already get it, but you would imagine that both parties with some sort of goodwill could say, look, here's the thing. You're not going to get a benefit out of this. I'm not going to get a benefit out of it. We know it's the right thing for the country. I don't have to, if I let you do it, then you won't get voted out.

58:07So that sucks. Normally is what they, you know, you've got to cash in and I've got to have one too. This time it's just, here's a rule that will take full effect in 10 years time. It won't hurt either of us. It won't help either of us. It's just the right thing to do. Let's pass in a law. It should not be a difficult conversation to have. No, but it's not. But you can imagine the fear mongering that comes along with it. The business council will come out, the banking lobby will come out, and they'll say, Liz, you do this, we can't lend it as much. And just the mechanics of the situation are, it is a loaded term, but there is a Ponzi-esque quality to it in the sense that we need more money to flow into the system to continue to drive prices higher.

58:44So we are by definition limiting that, and that is going to very much impact house prices in a very sensible, long-term, structurally improved kind of way. But as I said at the very beginning there, it's just like it still breaks. This whole doubling every 10 years goes. And it's just sort of like, whoa. And that changes the dynamic too for the investor who's actually making this investment because I'm expecting that. Now I'm overtly being told that I can't expect that. So I'm going to be one less bidder at the auction. Again, prices fall. Affordability improves. you know and i'm just gonna say for precipitously but but that's kind of what we need to sort of happen here but it's it's just it's i can't and then then the real the other you know so it's a very hard needle to thread the other thing is which is really just blows my mind with all of this is that this whole house of cards to use your term is it's backed it's a self-referential collateralized system in the sense that i want to borrow some money cool what's the collateral I'll put up my house for it so I can buy it.

59:48Okay, cool. Value of a house is this. Okay, excellent. Here's some money. Great, I'm going to buy investment property. Now, imagine this at a system level. This drives the property prices up, which means my collateral goes higher, which means it's the old ad, equity, mate, equity. So now I have more equity, which I can then borrow against, which that extra money I can then put into the market, which will drive up the prices, which means I have more collateral, which means I have more equity, which means I can borrow more, and blah, blah, blah, blah, blah, blah, blah. And that's, you know, great when that's sort of happening.

1:00:18If you happen to be on the gravy train, the property ladder, maybe I should use the technical term, if you're on the property ladder early enough. But the thing is about that self-referential nature of the collateral is that it goes both ways. So you could imagine if it was the sort of falls, I actually, here I am going, oh, I'm actually, my LVR is only 60%. So I've actually got a huge buffer. And nothing else changes except the value of your collateral. and all of a sudden now I'm at an 80 % LVR, right? And then the wealth effect things kick in. I'm not even disagreeing with you. I'm not at all.

1:00:54It's just that we're asking for someone to get on that horse and just do a triple backflip, tuck, twist and land perfectly with it. It's very, very, very hard to do. And because of the political reality of it, we won't. But the trouble is every time we play these tricks, we do distortions and we push the problem back, but we also make it a bigger problem. So it's like, we don't have to deal with it now, but down the track, we will still have to deal with it. Or we can try and kick it down the road a little bit further. But each time it gets harder, that's why you eventually end up with a debt crisis.

1:01:36it's not it just that the only time that happens is when the tools at their disposal just simply do not work anymore and that's what happened in the gfc like they tried qe they did everything they threw everything they could at it and it still wasn't enough to stop a precipitous fall in in property in the u.s island spain all of these kinds of places not to mention elsewhere although it was far far far worse um so so that i guess what i'm saying is it's sort of like yes let's do all of those things that you said and let's try our best to get it back on track but the slightest push too far really threatens a big unroll of it and then the only solution is as you say the the the the really brutal pain that we hopefully come out the other side better or we just we just you know tell the DJ to drop the needle on the record and we'll just bail back on the dance floor and let's just not worry about it right now and we'll see still deal with it down the track no good options no good options but there well there are there are there are many there are worse options i suppose there are there are less bad options and there are very bad options and going back to the original where we started which is the weekend's announcements from both politicians were basically let's add to demand because that's we get to pretend there's some that's some sort of a thought that actually doing nothing would be better than doing what they're doing that yes oh yeah absolutely absolutely and one point i go i always make this but i'm going to do it again.

1:02:58You can't, you can't account for the actions of idiots. You can't, but you can account for your own actions. And, and, and again, it's not, I'm not saying, Hey, grab a shovel and go build a bomb shelter and stock it full of baked beans. But I just like, you know, think of, think a little bit about what you actually own and, and think about the structure of your personal balance sheet. You know, how leveraged are you? How reliably can you service that? If If you did lose your job, would you be able to serve for how long? How much of a buffer have you got there? And, again, it's not say – it's as you often say, it's preparation.

1:03:35It's planning and preparation, not prediction. Yep. And I'll just make that point here because it is easy to get very doomerish with what we're sort of talking about, very easy to get doomerish. But you don't have to participate in the folly. and it is very hard to do, particularly when, if, you know, things do kick off for another round because interest rates drop super low levels and a whole bunch of stimulus is thrown. It was a very live chance actually. And you go, well, I'm not going to do that. And then you watch all of the people who do the exact wrong thing get rewarded for it. That is very hard.

1:04:08You know, Oscar Wilde said there's nothing worse in the world than watching your neighbour get rich. Exactly. That's true, right? It is absolutely true. But I would say, despite that, you know, optimize for resilience. And yes, it might suck a little bit when the party's going hard, but you'll be very glad of it. If, not when, but if we do get a little bit of a wobble in the near term, like we definitely will ultimately. But in the near term, I would just, I would be cautious with how I structured things. I'm going to be Pollyanna one more time, mate, which is to say to our listeners, please think very carefully about how you're going to vote on May 3.

1:04:50I'm not going to make a suggestion as to which party, major party you should vote for. What I'm going to suggest is you find a way to put other independents and minor parties ahead of the majors, because right now you've got two parties with both rubbish policies. It's not just about housing, by the way. You know, I even said on Twitter during the week, Jeff Wilson, the founder of Wilson Asset Management, who follows me on Twitter, we had a nice chat, and he was kind of talking about some of the tax stuff that's being done and you know he said oh don't forget this party's doing this thing and and i kind of went yeah i also kind of hope that people vote on not just financial lines because there's a whole lot of other issues and and that stuff i'm gonna say it's more important because financial impact has then social and personal impacts but i will say it's not just about the money um but either way please have a think about i've said this on on twitter a lot between the the lack of action on housing affordability that the absolute gerrymandering of donation laws i'm not going to get into it this isn't the forum for it but basically they they are trying to screw over the minor parties independence and make the parliament less democratic um so my my exhortation to everyone is please put the majors as low on your ballot paper as you feel you can comfortably do if there are absolutely objectionable parties of candidates by all means put them lower and i'm not i can't tell anyone what to vote for anyway i'm just saying put them as low as you can you can stomach um because a if you either act quality independence or minors who actually do end up with representation in parliament then that's great um they will keep the bastards on us to quote don chip um but even if even if even if it's just a case of your local liberal or labor member still gets up and i don't care which order you preference them in down the ballot they will know they didn't get your first first preference vote and that will force them to confront some policy issues that they're both pretending don't exist because as long as we keep voting for one of the majors um then they can do the me too and everything and we kind of feel like we have no choice and we may not and my Party's not going to form government this year, right?

1:06:35But, and I'm not saying they even deserve to, but we won't get different policies. We won't get responsive policies. We won't get people who are listening inside the majors, whether they feel like they should be a little bit less worse than the other guy, and get your vote, just mail it in. So please don't mail your vote in. Please think very, very carefully and thoughtfully about it. Please put the majors, as I said, as low as you can comfortably stomach. There are some objectionable parties out there. I'm not suggesting you put those people ahead of the majors if they're, you know, ranking order of least worseness.

1:07:02But I really honestly think putting, and particularly think about the Senate too, by the way, with the votes for the smaller candidates. I don't care which minor party it is. There's some on the left, some on the right, do what you need to do. But just please have a really solid think about doing that. Yeah, I'm very much personally going, it's not about who I want to win. It's about who do I least want to win. Right. And I will be voting. It's a miserable choice. Isn't that terrible? The other thing I would make the point of too, it's very much been framed over the years that minority government is some tragedy.

1:07:35Yes. It's not. It's a beautiful thing. Like, all it does is it just forces more debate and consideration. Like, it's just harder to get things through. And that's like, oh, but nothing ever gets done. No, that's not true. Of course, things get done. It's just that you have to debate it. You have to present things on its merit. And they have to be more transparently discussed and thought about. and doesn't guarantee any good outcomes because maybe you're making all kinds of self-interested deals back and forth. So there's always the potential for silly, funny bugger kind of stuff. But minority government is not.

1:08:10Actually, I think it's actually a good thing if I could always enforce somehow that that was the case. I don't know if it would be a terrible thing if there was a minority government. But I think if you're not someone who follows it closely, you hear these terms and it just sounds like, oh, well, gosh, I'm not happy with this player. Oh, well, I guess I need to do this. No, you don't. That's a PSYOP and you don't need to fall for it. Absolutely. So, yes, please do vote really, really consciously and thoughtfully. We get one chance every three years. Yeah. The other thing, by the way, is the independents have just been great.

1:08:45Some people love the till. Some people hate them. Some people like Andrew Wilkie or Di Lee in Western Sydney. There's a range of independents. Jackie Lambie in Tasmania. The Greens. I don't agree with a lot of them on a lot of things. But it's generally the case, and particularly, I mean, Jackie Lamb is a great example, right? I only agree with her about two-thirds of the time. But you know she's coming down from the right perspective. She's genuinely trying to improve things where the maids are voting together to lower donation limits so that independents can't stand against them. It is just an absolute gerrymandering of politics.

1:09:17It's an absolute disgrace. Again, I'm not going to go into more detail than that because this is not the forum or the place. But they deserve a royal spanking in this election just for trying to reduce the amount of choice we have as voters when it comes to, again, if you like those parties, if you're a member of those parties, please make them better. Please want them to be better. Please don't just say, oh, they're less bad than the other guy. So that's good enough. That's where the independents have been great. Some of the donation reform stuff they've stood up for, some of the integrity measures in parliament, some of the things they've got passed because they're there.

1:09:50Wouldn't be done without it. And I'm with you, mate. By the way, just really quickly, the Gilliard government was one of the most productive of governments in Australia's history in terms of legislation passed, and that was a minority government. Yep. And it's not pro-Gillard or pro-Labor. It's just a case of it is simply not true. Not is it not theoretically true or probabilistically true. It simply is not the case. Right. It's proven that it was not the case. And can we have a hungover with ratbags? Yes, absolutely. If we have a majority, go with ratbags as well. Yeah. Yep. Nicely said. All right.

1:10:20That's enough. That's enough politics for now. Thank you for listening. we are going to go and have a break for a couple of days, or in my case, about three minutes. And then we'll come back on Sunday with a brand new podcast episode and hopefully some sense of what Andrew was up to on that Sunday morning before we chat. I'm just saying, I'm just saying, I'm sure he's up to some interesting and exciting things. He bagged me for my intro of this episode, so I'm going to hold him to account on Sunday morning. God damn it. That's all I'm saying. That's all I'm saying. Until we chat again, full on.

1:10:47Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.