Gaming, interest rates… and coffee? December 13, 2024

25:05So, well, why would I change then? I've got Starlink, or I know Starlink, or, you know, well, I could do it cheaper. Okay, well, if you do it cheaper, then you've got all these costs and you've got less revenues. Now tell me how it works. There is a real policy question, I think, and I don't have a really good answer. I mean, the forced breakups of the trusts in the 1800s, I think, by the US government, they broke up AT &T. So their version of Telstra, this is 45 years ago. They broke up AT &T. They said, no, you've got to be in different pieces. You're too big, too dominant. We need you to be separate businesses now so that competition can flourish.

25:35And I do wonder, mate, over the last 40 years of, I will say neoliberalism, it's a horrible, crappy term and it's kind of overused as a pejorative. But we have kind of got to that point, I think, of saying hands-off business, let them do their thing, and that's got its benefits on productivity and output and stuff. I do wonder, and I don't really have a solid view as how to think about this sort of stuff, but because capitalism does tend towards a monopoly, when you get past a point, supermarkets are the same. Who can genuinely start a new supermarket and compete with the big guys? You couldn't, well, could you do it?

26:06Maybe. Is it likely? No. I mean, who's going to try? I don't know. I don't know if you have any thoughts. I don't really have a so what specifically other than as monopolies go from local to regional to state to national to international. At some point you go, where to next? How do you – how do governments – and it's multinational. It's not over one government anymore. It's really hard. Yeah. Gosh. So there are competitors to Starlink. Kuiper built an issue from Amazon, Bezos. They're doing it. And other big players. So look, it's a big boys game, right? Yes. I get that, but, you know, it's not going to be a cottage industry where everyone's got their own internet, low earth orbit internet sort of satellite there.

26:52But if you could have three, four, five players, that's probably enough to do an even two. Like you look at what we've always had two airlines, you know, we've only got four banks. We've got two supermarkets basically in Australia. And, you know, I always advocate for more, but it does, it does at least keep some kind of a check on it. So I would make that point. The other point I would make is that the platforms that they're building relatedly, not Starlink, but SpaceX. And there's a key where there's a whole bunch of sort of private rocket companies, not the big massive ones go to Mars that Musk is building, but like actually pretty small ones that the cost to send a kilo into space, particularly for microsats, is just dropping precipitously.

27:39So hopefully that's the main, because the satellites themselves aren't, I mean, they're the size of a shoebox. Yeah, yeah. You know, some of these things and these microsats and you can, so I do wonder that as everything sort of levels up around it, infrastructure wise, if that does allow for a bit more competition. But yes, I mean, I think in general, I'd go back, going all over the place here, but a bit deeper is that part of the tendency to monopoly is a consequence of preferred access to capital in the sense that Woolies can just borrow at far, far more attractive rates than anyone else. and there's something to – it's almost an indirect vector to mitigate and control some of these things.

28:31Or maybe you just have like set things. It's just like, look, if you happen to dominate because everyone just loves you and you're providing an incredible service, you've got to be careful. I guess we've got to be careful with the assumption that monopoly is always and everywhere bad. It pretty much often is. I was going to say. Right? Maybe the exception rather than the rule, but you're right. But in this, like, so if a company gains a dominant market share by adding incredible value, I'm less concerned with that than one that has done it through exploitative practices and unfairly flexing of market power is a different thing.

29:07Yeah. But it is, yeah, let's face it, it is a challenge. It's hard, right? I just think it gets harder. I think there's something about that government's role of – part of the role of ensuring competition for the benefit of the society is, I think, important. I think where there is no obvious – if there's no competition because there's no return to be made, then fair enough. You can't be screwed. If the provider's not making any money – we've talked about airlines a million times, right? Right. If no one's making any money, then, you know, knock yourself out of the monopoly. The value is accruing to the consumer.

29:44Yeah. They're talking about economic rents or surplus profits. What's the phrase I'm looking for, the other one? Super profits? No, consumer surplus, I think I want to call it. Consumer surplus. I think it is. Economic term basically says, you know, where does the value accrue? And we want companies to be free to do better things and to benefit from that. But when they capture those kind of monopoly-level profits, that's when we – I think it's fair to say those margins suggest a lack of competition rather than any particular great utility you're providing that someone else couldn't provide either at a cheaper price or alternatively with different features.

30:21Why aren't you competing with that company or that product? Because I just literally can't. I think you're right about cost of capital, mate, but I've got to say, you give me free capital, I still couldn't compete with Woolies and groceries, right, for example. I'm sure there are edge cases. I'm sure there are circumstances where the minor player rather than the tiny player. You know, the state-level grocer who's got 15 stores in Geelong and wants to go to Melbourne, they can't compete with Woolies. But if I'm starting up in, you know, wherever I am and say, right, I want to, you know, start a grocery chain in Boweral in New South Wales, I'll open a shop.

30:51Okay, I want all these products, all these overheads, all this whatever. I'm going to try and do better prices somehow even though I can't fractionalise my head office costs and my distribution costs and I can't keep the trucks full because I've only got one delivery point. It's all those things that accrue. And it's a very, very valid objective for a company to want to be that. At some point, we've got to make a call as to where that stops. Again, I don't have an answer. My view is probably something around the levels of profitability, the pure levels of the margins that I'm making. Return on invested capital is probably a good north star.

31:21If you're somehow able to just generate 50 % returns without even trying, you've probably got some market power. There's probably something. Exactly, exactly, exactly. Hey, let's do that right turn that we promised to do 25 minutes ago. And talk about what's happening this week. We might spend a lot of time on it because we talked about rates a lot. And we are, spoiler alert, talking about it in an upcoming episode that we've already pre-recorded. But I thought it was worth talking about interest rates, mate. And we all try and not talk about the concept, but rather kind of the implication. The RBA met this week and decided to keep rates on hold.

31:54And why am I talking about it? A, because it's notable. B, because the RBA changed its language. Now, I'll be really careful here because everyone says, ah, that means X. Nobody knows what the RBA is going to do, not even the RBA itself. The RBA doesn't know what it's going to do. And to whatever degree that is, as you've said before, just because they shouldn't be doing it or don't know what they're doing, they said they're going to be data dependent. They don't know what's coming next, and we'll get to the US in a second. But what they did say this week was, firstly, they took out the previous comments about considering rates going up or down.

32:27And that was kind of the jawbone. That was the, hey, guys, don't forget, we can put rates up. If I have to, I will. Bit of a threat, bit of a warning, bit of a, frankly, just keeping everything on the table because if they did raise rates, they want to at least have said, remember we told you back in August we might do that? This one has taken that away. Yeah. And they've also said that inflation is on track to come down the way they thought. And the third thing they said, and this is the big one, the market thought so, the bond market, was some of the economic indicators are softer than expected.

32:57And that combination of we're no longer considering rate hikes, inflation is coming down as we expect, but the economy is weaker than we thought, got the market to the point where it's now the bond market. I haven't done the numbers, haven't checked the numbers last 24, 48 hours, but the bond market had gone for, here's the other thing about forecast, and I know you talk about this all the time. The bond market and economists said it was going to be June 2024. Then it was going to be November. Then it was going to be February next year. Then it was going to be May or June. The bond market is now saying 50 % chance of a cut in Feb.

33:28Now, the bond market doesn't know anything. The forecasters don't know anything. The economists don't know anything. I'm not saying we should do anything with that information other than it's notable that the RBA did change the words it used, and it doesn't do it accidentally, doing it deliberately and for signaling reasons. So we should pay attention. Well, should we pay attention? Does it matter? No. But if I think about what is likely to happen with rates, if I have a mortgage, you absolutely care. they are saying now the RBA is saying we're closer and the bond market is saying we thought it was going to be May now we think it might there's an even chance it's actually February I thought that was just just worth kind of highlighting and rolling out because it is a meaningful change in the rhetoric it's a meaningful change in expectations doesn't mean it can't change again we've got lots of inflation data GDP data consumer confidence unemployment lots of stuff to come down retail sales your favourite to come down the pike so yeah I just thought it was worth kind of talking about mentioning that at least to say they are indicating that things are more neutral than they have been, maybe even slightly dovish, to use the horrible phrase, basically more likely to cut than raise.

34:31And maybe, maybe it'll be February, maybe later, who knows. But that retroexchange, and that's notable if you're paying a mortgage. Now, I say all the time when I talk about this on the media, please don't take that as a guarantee or a prediction. It's not a forecast, it's nothing. Please also don't set your finances up as if you're going to have a rate cut in February, assume it's not going to get cut. And if you get a cut, then take that as a bonus. Don't start thinking. Assume that you might go up 3 % at some point in the next 40 years for these 40-year mortgages. It's probably just sensible.

35:00It just is a margin of safety. I'm not surprised at all. I mean, I've been saying it all year longer. The reality is that inflation is headed in the direction they want. So the rate of pain is slowing. But it's still getting more painful. If you have that economic view of the central bank does its thing, than these other circumstances under which you would start to look towards rate cuts. Right. Yeah, and, you know, it's coming back, but it's still high, but it's the shadows of, oh, wait a sec, things aren't as rosy as we thought, which has always been my shtick, which is you've got two bad choices here.

35:36You know, an economic bad time, let's call it that, or hotter than desired inflation. And they suck. Both of them suck, you know. I would probably argue the latter sucks. It probably sucks to have it drag out and be water torture that it kind of is. But they will always and forever choose higher inflation over any chance that the economy gets into a wobble. I will die on that hill because I know what the mandate is, but no one wants it on their watch. which explains the last three years of government policy not just central bank policy not just three years the million years of politics but yes more notably in recent time until after 1991 where Paul King said it was a session we had to have and live with that political epitaph for the rest of his days look I think for them to put interest rates up in the near term we would have to see such a surprising uptick in inflation for that to happen.

36:42For it to be that big a concern that, oh, okay, maybe we really don't mind if things get a bit shaky. But it's such a fine line in the sense that it's always a tough thing to balance. It is a 10X tough thing to balance with the debt load that we've got at the moment. So in normal times, whatever that means, it's just sort of like, oh, okay, inflation's running a bit hot. Let's put things up. It doesn't risk cratering half the economy. Well, that's kind of where we're at at the moment, right? Where it's like you, even if things really did get hot on the inflation front, it's like, well, how much can you really raise things?

37:17In fact, you don't need to raise things that much because the debt burden is so big. And again, I'm not trying to paint this as an impossible situation, but you've gone from a, the central bank is operating in an arena where, you know, maybe at one point they just had to walk along a balance beam. Now they have to do a triple reverse tuck flip while they're doing it. Because, yeah, again, the economy is more fragile. The debt levels are much higher. Inflation isn't coming more under control, but I don't think anyone would say is under control. Or maybe an iconocrat would say that, but anyone in the real world is going, hey, things aren't getting better for me at the grocery shop, I can tell you.

37:57That's right. That's right. So, look, all of this is to say, as you said, who knows? I don't know. But it does reinforce my view that it is more likely than not an easing bias, if I could say that. But at the same time, I don't want to use the word stagflation, but there are stagflation-y kind of risks around that in the sense that, yes, we will go that way because of concern over the economic crisis. situation and less of a concern over inflation, which isn't ideal, but we're more now worried about this thing over here. Does that make sense? It does. Absolutely. It makes sense. A couple of thoughts from me.

38:38I've said this before, but the early 1980s, the US Fed chair, Paul Volcker at the time, put rates up before and then during a recession. And he was the most hated man in America for doing it. And it ushered in correlation causation, et cetera, but it ushered in 40 years of low inflation. And there is definitely, if you want to point a stick at the, frankly, I call it failure of politics, but I will say the worsening of politics over the last 40 years' time, it's that that reality could never be imagined at this point, either from central banks or politicians, because our expectations of governments have changed meaningfully.

39:13And you've talked about that a lot, mate. So that's the first thing. Second thing is, speaking of inflation, US inflation actually went up on Wednesday night. We're recording this Thursday morning. So last night outside, but a couple of days ago when you're listening to this. And that's a reminder. They've cut rates and inflation's gone up. And I've said forever, as you've said different things, one of the things I've said forever is the RBA doesn't – they don't want rates to hold off too long. They absolutely don't want to have to come back six months later and put rates back up after cutting them because they cut too early or the resultant impact was higher inflation.

39:44They go, oh, so we cut rates. Turned up it was too early. We've got to put rates back up. Sorry, guys. I mean, you reckon this is bad? You imagine the blowback on a central bank and a government where they have to put rates back up six months later. Third thing is – there's a couple of things. Third thing is the – I think it's the last one. Remember the RBA board changed on the 1st of March. Speaking again as a non-political independent institution, yes, but continue. Continue, please. We got my popcorn. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

40:22I was heartened on the good oil this week. I plugged it the other day, but I'll plug it again. I spoke to Warren Hogan, and one of the things he said, and I hope he's right, because he's not the government's biggest fan, by the way. He gets plenty of grief from some of the government supporters. He's been hounded off social media, speaking of cesspools and cesspits and whatever. But basically he said, you know, he doesn't think any government would be silly enough, and this is not a political view he's saying, No treasurer would be silly enough because the markets, plural, the bond market, effectively, we're talking about here, debt markets generally, would take a very dim view of a badly appointed reserve bank replacement.

41:00So his viewers, and Warren's not Pollyanna. Maybe not as doom and gloom as you, because that's very hard to do, but he's somewhere in between. He's kind of like, you know, so I said to him, I said, look, people are making intro forecasts post-March 1, not knowing who the hell's going to be in the chair. That itself is like, oh, some unnamed unknown people will at some point probably do what I think, do this thing. So who's going to be there? Is it going to be Jack the Ripper or is it going to be Mother Teresa? Because if you don't know, making that forecast is tough. Now, that said, his view was, and I think, I hope he's right, is that the government, any government, again, because it's not political, but he's saying the Treasury wouldn't be silly enough to appoint people to a board who would do things that the market would see as very unreasonable.

41:41And there was some reality to that. We know famously, I can't remember her name, Theresa, help me out, the UK Prime Minister for a while. Theresa May. Theresa May, who had a new treasurer or Chancellor of the Exchequer, as they call them, who basically decided to upend the entire system. And they lasted between about six weeks. This is not hyperbolic at all to say they nearly destroyed the guilt market. Okay, that's slightly hyperbolic. Yeah, well, the only reason it didn't collapse - Destroyed is pretty - Sorry, not destroyed. Well, collapsed. In fact, it did. And the only reason it didn't is because the UK central bank stepped in and bailed them out.

42:19And the government reversed the policies. But if left to the market forces, it would have just been sold off. Defaults would have had bad things, would have happened. Yeah. And that's hopefully the – here's one we prepared earlier for a treasurer who might, in their quieter moments, might say, oh, I can do this and that and the other. Warren's view, I hope he's right. I don't have a strong view because I maybe give less credibility to our politicians doing the right things. Again, plural, I don't care which side of politics I'm talking about here, doing the right things if the politics can possibly help them.

42:50But he's hopeful that he'll appoint the right people on March 1, and I hope that's true. So, yeah, they're pretty powerful people. Like, it's a big job. And that's always been the concern is just sort of like, well, you know, if the right person gets there and if they get the right information and if they make the right decision, then it's really great. It's like, okay. I'm going to make one point. Oh, sorry. I was just going to very quickly on the Volcker point as well. I think it's a good one. But debt to GDP in the US was 30-something percent then. It's 128 % at the moment. So he did the hard thing and arguably the right thing, but he had the luxury to do it, which is just my point.

43:34He found himself in a very different, you know, like he was sort of able to run through the middle of town with a burning torch and not worry about destroying everything because everyone had a bucket of water out the front of their house. I don't know. It's a terrible metaphor. Whereas the RBA and the current Fed are running through it, just everything's tinned to dry and there's not a bucket of water in sight, right? It's just sort of like, oh, be careful, guys. Be careful. Matt, I reckon we're probably done there. I do want to throw you something that was unscripted. You don't know this is coming, so I apologize in advance.

44:03Did you see the story about Claire O 'Neill being on Triple J during the week? Oh, yes, I did. That was a mask off moment, wasn't it? That's what the cool kids called it. That's what it was. I thought it was worth talking about again. It feels like we're being - Glad you're right. I didn't know it was coming, but I'm so glad you raised that. Well, it's kind of - Unsurprisingly, you'll have more of a furview on this one. I'm kind of - I can see both sides of this one. There's the reality and there's the - Sorry? I'm smiling ear to ear already. So Claire O 'Neill was on Triple J. And I got a heads up on this one.

44:36The person who posted this to social media actually tagged me in it when it was posted. And then it kind of went off after that. So I was going to watch this thing kind of slowly explode. And I thought, well, will it go viral? Oh, it went viral to the point where we got it reported. Oh, yeah. Of course it did. Of course it did. Well, it took a while, which is fascinating. Because the actual, the funny thing is the interview was done a couple of days earlier. Right. And kind of went unremarked upon. Right. And it was only when this guy, and the guy who posted it was just, I say just, He's a guy who follows me.

45:02He's a Sparky. I think he's from Sydney somewhere. And he's like, I saw this thing. He just posted the video. It was a Triple J video. He's just kind of going, no one's talking about this yet. It's like, oh, and went. Put it on the radar. Nice work. So, yeah, it was very good. Tell people what happened first. So, Claire O 'Neill appears on Triple J. Who's Claire O 'Neill? Claire O 'Neill is the Federal Housing Minister. Thank you. Federal Housing Minister. Formerly Federal Home Affairs slash Immigration Minister, which is kind of relevant in terms of the housing problems we're having. Anyway, go on.

45:33And so I'm going to, rather than try and summarize it myself, I'm going to just read it from the AFR. This is the quote. Well, actually, I'll start with the intro from Chanticleer, which is in the AFR, because it kind of contextualizes the why. Quote, when Federal Housing Minister Claire O 'Neill was asked on youth radio station Triple J whether she wanted to see house prices come down to give young people a chance to get into the market, she showed she knows where the votes are. That was the first paragraph of the article. Here's what he wrote about. Who wrote Chanticleer? I want to make sure I'm getting this right.

46:06There's no byline on this one, I don't think so. I'm going to say he, but it could be anyone. Whoever wrote Chanticleer. And Claire O 'Neill, you'll love this, mate. My computer just froze. How funny is that? It says, sorry, here's the quote in the, or the paragraph in the article. Quote, that might be the view of young people, she said, of the idea that sustained price falls are actually a good thing, but it's not the view of our government. We want to see sustainable price growth. We want to see more houses come online. We want to see that rental vacancy go up a bit and we certainly want to see more homeowners, end quote.

46:41And we want Santa to be, well, obviously, Israel, but we want to make sure that's true. That's kind of the... So the tweet from Nath underscore Sparky on Twitter, the quote was, huge mask off moment here for Labor. They want prices to continue to go up and get more unaffordable. Lost me as a voter. End quote. You know what I loved about it too is that the interviewer was great. Yes, wasn't he? I'm so sorry. I don't listen to youth radio because of my pedigree and age, but he was brilliant. Whoever you are, I take my hat off because you just did that thing that is not common enough these days for journalists.

47:20Just to ask the question that is plain and is day in front of everyone's faces, like, wait a second, how does that help? That doesn't help. Why would I want that to go up? Stop talking about it's like it's a good thing. And obviously it's all a question of perspective. Yes, and politics. But their perspective is valid. Anyone who does, I've only recently owned, I don't even own it, the bank owns most of the bloody thing. You know, it's sort of like obviously. Oh, and it's not wrong. Like you want prices to come down and then just say, no, we actively disagree with that. And this is where the Santa thing comes in.

47:58We want our cake and eat it too. And I've pointed it out for a hundred years and it's just the most oxymoronic thing. We want affordability to increase at the same time that prices increase. Yes. And it's just like, that doesn't, it just obviously doesn't work. It doesn't work unless wages grow at an even faster rate than that. Which is just a fancy way of saying, well, so price is coming down in real terms. Well, yeah. Yeah. So, so price is coming down. It's good. Well, yeah, but we, can we pretend we're then not coming down by making the nominal value go up and we're doing, and by the way, it assumes that wages will grow faster and they kind of never have, but okay, that, that might happen.

48:39Like it's such a nonsense. And it's just, I think, yeah, it's, it's clearly the political reckoning of, well, homeowners, two out of three people have owned their home or paying off their home and And they've got more political clout than you kids. So sorry. And it's like, yeah, letting them down. We're absolutely letting them down, you know. So Dave, I'm going to say it's Marchese, M-A-R-C-H-E-S-E, was the interviewer from Triple J. So give him that credit you asked for. I just did a quick quick look while you were chatting. So I've got lots of thoughts and some of them are conflicting. And I think I will say that I try really, really hard in public discourse, including this podcast, to kind of not give both sides because it's not a what about, it's not a both sides thing.

49:29The earth is flat. Balance is good. Well, it's not a balance. Context is good. Just showing the arguments on both sides is useful. Yes. I have a view. All about that, dude. That's what Starman's all about. 100%. Bring it on. Give me the devil's advocate then. And that's why it's Australia's premier online investment club. So here's the thing. So the political reality is, as you've already pointed out, right? There are more people who either own their house outright or have a mortgage than those who don't. And for better or worse, and probably for worse, for reasons that we'll talk about, and you've mentioned a million times before, those two-thirds want house prices to go up.

50:03Why? Because we want to be richer. And it's normal. It's natural, right? My number goes up as much as we use that as an insult. I want my share portfolio to be larger. If you propose a policy to me that says, right. Take that. Yeah, yeah. I've got a policy that says your share portfolio will decline by 10 % a year for the next five years. Vote for me. No. Right? And so when two-thirds of people have a home that's donated in dollars and those dollars go up, you feel better. And when the dollars go down, you feel unhappy. And the party who says, and by the way, 2019 was in part, never in full. I've never bought the whole short loss because of negative gearing or franking thing.

50:35I thought it was rubbish. But part of the votes he lost were absolutely for those two reasons. Why? Because he said to homeowners, you will get less tax breaks. and he said to, or investors, and he said to retirees, you will get less tax credits. And they went, that sounds bad. Thank you, but no thank you. So that's the, and so Claire O 'Neill, yes, said the quiet bit out loud, if you like. But remember that for everyone who jumps on Twitter and says, oh, bloody Claire O 'Neill, there's another two people who say, huh, good. I'm glad she didn't say price is going to go down. I'll vote for her.

51:04Or I won't change my vote because she didn't say the alternative, right? I don't even begrudge that. I think absolutely. But just know that what you're saying is I value my own wealth creation over the chance for the next generation to ever own a home. And making a choice. I'm honestly not judging you on that, but not everything is about you. And sometimes you have to sort of consider sort of the broader implications. Now, here's the – and this is where she also – and I'll get to – it's ridiculous in a second. Here's where she was also right. You and I have talked about before, probably the best scenario is for housing going sideways for a long period of time.

51:42For all the reasons of political and economic reality, which is - That's the compromise between both groups, right? Right. And it's probably the best compromise in the sense that it's politically tangible, tenable. It's probably even economically successful because I think - Yes. You may have a different view because we've talked about deflation before, but I think if we saw house prices meaningfully decline for any significant period of time, the wealth effect is real. It's not real in every single quarter point increase. but the confidence I feel to go and spend other money and pay off the mortgage while price is going up a little bit, but I get that done.

52:15When house prices start to fall, I feel like I'm poorer because I get the update from realestate.com and Domain and they say, your house is now worth 10 % less. I'm like, well, shit, that's crap. Maybe I won't buy that new thing. Right, and it's not even justifiable because it's – the thing is, here's the thing. Perception is reality, right? We can say rationally that is not true. Now, you've said a million times before, if you buy and sell on the same market, it doesn't matter. Your house goes up 10%, but the one you buy and goes up 10%, you know better off. House goes down 10%, you chill and buy.

52:41Another one's gone down 10%, you know worse off. But perception is reality. Two-thirds of Australians will feel poorer and will do different things as a result. So we've got to be careful what we wish for. And this is, frankly, this is where Claire Neal gets way too much grief. There'll be people yelling at me from both angles right now, and that's okay because I'm trying to do both at the same time. Is when she says sustainable house price growth, she kind of, again, it was a bit clumsily. but I'm sure if you'd asked her, she meant house price growth a little bit to make people happy but not so much just to keep young first-time buyers out of the market.

53:09And whether that's sideways or up half a percent a year, one percent a year, that would be sustainable house price growth. Is that best for young home buyers? Of course not. They'd rather house prices crater 75 % and go and snap up a bargain. But that's if they can keep their job because unemployment would be, you know, whatever, 15 % by then and you've got to be careful what you wish for. So that's the nuance, I think, in this one. The other thing I want to say really quickly, mate, is I sense a little bit of sexism, frankly, in the attacks on Claire O 'Neill. If you look at what's been said on Twitter.

53:39The female pollies cop it much worse than their male counterparts. You only look at the language. It's not even the fact they got attacked. It's the language they use about the people they would use. That's really noticeable. Is that honestly? There's also the other bit, and this is where I want to just kind of ask people to take a second look at this one, is because you have this presidential politics in Australia, even though we don't have a presidency, and we have ministerial politics which says, oh, the housing minister wants house prices to go up, she should resign, which is what's been said on Twitter.

54:06Anyone who thinks that would solve the problem, like the rest of the Labor Party room actually wants house prices to fall, but the housing minister is stopping them, it's nonsense, right? And so, yes, you could get a political scalp, and that would make the opposition, any opposition, again, who cares, turn the parties the other direction, I don't care, that would make an opposition happy. Yeah, we got a scalp. Yeah, we told that housing minister. At best, Clare O 'Neill misspoke. at, well, sorry, at worst she mispoke, I bet she told the truth, which is actually the government wants this thing.

54:33And so you can have Claire O 'Neill's scalp, but you reckon the next guy from Central Castle or the next girl from Central Castle says anything, don't even say anything different. They say lots of different things. Do you reckon the policy changes of one iota? No, but it does send a message though. I agree. I agree. I think it, well, if there was a, like it's just going to go by the wayside as these things often do. But let's say it stayed in the zeitgeist and it became bigger and bigger. And eventually there was so much pressure that, you know, Alba was just forced to shuffle the decks. I think it does send a – like it just makes – the next time that a party, a politician decides to say something, like they're much – like message received, I would imagine is – or you're completely politically tone deaf.

55:16I get what you're saying. I mean, they're still going to think what they think, but they're at least going to be a bit more clever about how they communicate it. And I think for me, it's not, look, I do it on a weekly basis on this podcast where we log off and go, I said that completely the wrong way. I didn't mean that. So I'm the last person to give her any grief because I'm sure if she had the chance, she would articulate it a bit more. But I think that's the impossible situation that they find themselves in is because it is hard under any, it is hard to, how would her or anyone in that party or anyone who advocates for the position that she has.

55:50Yep. argue for it in a way where a young person would go, oh, okay. Well, I did one house pros to come down, but you make a really excellent point. And I'm being serious here. What is that? Because benefit of the doubt, no, no, no. There's a really good macro, I know some groups get better off, some groups are worse off, but we have to make the decision for the greater good. And we're making this decision for the greater good. And let me draw a line between why that and why it's good for you. And I put it to you that that's impossible because it's just not good for you. So at least it was when, you know, mask off and, you know, said the quiet part out loud and all these sort of phrases, it's kind of like, it's why it's so apt because it is true.

56:34Like, it's just like the reality is we won't do anything about it. We don't want to do anything about it. And you, you know, generation, whatever letter we're up to, are going to take one for the team. And that's the brutal reality of it. So at least it's, I mean, you can see why so many people are switching off politically and so disenfranchised. And there is like, who do I vote for? They suck. They're not going to do anything. They suck. And I would have, again, in a perfect scenario where I got to rehearse a thousand times and think about it deeply before going on there and opening my mouth.

57:12I would have at least put forward the argument that you and I have said before, which is like, look, both situations suck. The biggest compromise that we can all make is that prices go sideways for a long time. So that means that no one's going to lose money, and it means that eventually, in real terms, you're going to gradually – gradually. It's not ideal. Again, it's a compromise. But gradually, in real terms, it will become more affordable to you, and that's the best that we can do. Here's the thing, though, mate. This is where I will throw the criticism because that would be a half reasonable comment to make, except they're not even trying to do that.

57:45No, they're not. And so this is where - It's why it's a mask off moment. It's why it's very telling. Because they're not changing negative gear and they're not changing capital gains tax. They're not changing immigration policy. They're not changing supply policy. They're building a few houses with the Housing Australia Future Fund over five years in theory. They're leaning on governments and making announcements. And this is where, if I have a criticism of this government as a government, not as a political party, I don't care. I'll happily whack the other guys when they're in power again at whatever point that happens.

58:14The simple reality and the simplest reality is that we've got a government who is saying all the words and doing none of the actions. And I don't know if it's political cowardice or unwillingness or inability or lack of interest. Political, sorry, economic illiteracy. Right, whatever it is. When Chalmers says we're doing everything we can to fix inflation, I've said, I have never, I've said this before, I have tweeted this 28 times, 48 times, 158 times. Anyone who says, oh, the government's done this, I say, specifically tell me which policies they've introduced to reduce the pressure on inflation.

58:49While you do that, I'll throw you a dozen others towards you that did the exact opposite. Right. But not a one-off subsidy to bring a price down so you can say we fixed inflation. What are they fundamentally doing to fix the drivers of inflation? Which policy have they put? And no one's going to say, same with the budget surplus, right? What specific policies have they put? Oh, well, yeah, but it's a good number. But what have they done? Like, you're a government. You're in charge of the actions, not the outcomes. What have you literally done? And same with the housing. It's like, you can say, we want sustainable house price growth.

59:18Okay. Which policies have you put in place? It hasn't been sustainable for years. What have you done to change that story? And there is no answer. And this is where they deserve. So, you know, Claire and Neil deserve it personally. The government deserves it as a government to say, you saved this and you have done absolutely nothing. You're hoping maybe possibly happens or more likely, I reckon, you're hoping you get to the election, hoping that people think you are, because that'll do for another three years and we'll worry about it then. There has been no action taken in that direction at all by the government at any point.

59:48Now, the last government didn't do either, by the way, so it poxed on both their houses. But that's why for all of this, when we get back to it, I'm like, yeah, there are real issues here. There are real ways I might go about changing the housing market. When you're doing none of them, you don't get to say I was misquoted or I misspoke or I spoke badly. No, you said exactly what, you know, Even the thing you said you wanted, you're not doing. And that's the bit where I find really, really difficult. Yep. Yep. Oh, it's a disaster. And look, I guess I'll put a pin in it just by saying that what I don't think, despite all of these challenges, even if the government was to change its stance, that it should do something, quote unquote, as opposed to stop doing something.

1:00:34which is, let me unpack that a little bit more, is like there are things that you can do, but really the main thing you can do is stop simulating demand. Stop giving out, stop adding incentives to the mix. So we're not saying you need to go in there and start, like, again, I'm just, I'm very, that top-down approach just typically doesn't work, hasn't historically worked very well for my situation. So while, again, I'm of the view that the market will fix the market itself just because. But I tell you what's not helping is adding more liquidity and more incentive and looser regulation. Like just stop.

1:01:09All I'm saying is just stop doing that. And then we can have a conversation about some proactive things you can do to help on the other side, although Buckley's chance of it's ever going to happen. But just stop doing that. Yes. Stop making it work. Stop making it. Stop helping. I always say like just stop helping. I've had too much help here It's like me trying to help my own play games to get back to where we started Mate let's finish with a bit of an interesting little aside you mentioned to me before before we started recording the price of coffee apparently has gone through the roof Yeah Brazilian weather issues and global supply chain hiccups and yeah So we're going to pay more for coffee and maybe it's time to buy Breville So look I have a little bit of a laugh at this One of our members, Oxi, give me a shout out, just made the observation really.

1:01:58It was an analyst out here and they're basically saying Breville's a good investment because coffee prices have gone up. And the line of reasoning being people – and this is actually observable. We've seen this in some of the data. So people are drinking or buying a coffee out at the cafe less often. And instead they're buying a coffee machine and they're making it at home. A, to save money, but also B, more people are working from home. So I'm not even going out into the world, right? And so that should be good for Breville. And I threw a little bit of shade, not at the member, but the analyst who had put this forward, only because I thought it was very emblematic of the style that these people take.

1:02:40And again, I'll unpack it a little bit. So actually, my first thought was, well, Breville sells up toasted cheesemakers and all kinds of toasters. How big is a coffee machine? as part of their record. That's because you and I are old again. We're harking back to our childhood when the Breville Toasty maker was the Jaffa maker. Yes. Go on. I've still got one. Classic. But it turns out actually coffee machines, they don't disclose it. I had a look, right? They don't disclose exactly what it is. Not that I, maybe if I went further back, but it is significant. It is significant. But still you go, okay, so how much of a dynamic is this?

1:03:16This isn't like literally the world stops going to cafes. It's just like, okay, maybe it's a 5%, 10 % sort of reduction due to this one factor alone. That might drive a one-off boost to coffee machines, which is itself, let's call it to be generous, 60 % of total overall sales. And again, these things, he's got a two-year warranty and lasts forever. You made the point, it's like, well, the actual coffee itself might not be put in the machine by a barista at a cafe, but it's still put in your machine at home. You're still using 30 grams of coffee or whatever you do with it. Exactly. Yeah, but by the way, absolutely bad for cafes at the margin, but not for the – coffee is coffee.

1:03:51If you're still consuming the same volume of coffee, you're still consuming the same volume of coffee. But yeah, and look, is this a negative for Breville? If you can thread that needle, if those series of events comes out. Well, let's say the series of events does play out in that way. And let's see that we do see that their operating profit for the year during this sort of structural adjustment plays out and they get 5 % or 10 % more operating profit than you had otherwise thought. Is that enough? And again, just the framework in which the markets tend to operate is, what's the discounted cash flows of this thing from now into eternity?

1:04:27So you add up, let's just say, you know, bevelize 20 more years and then it goes to zero, which it won't. It'll probably last longer than that. But let's assume that it does. And let's say I've got this series of numbers going out and I've discounted them all back. And then for one of those years and this next year, I increase one of those numbers by 5 % against there's 20 other numbers, even though this year is more weighted because it's discounted back less. I know I'm throwing a word salad out here and a lot of mental maths needs to be done. But when you do the maths, it's sort of like, it might make it half to 1 % or 2 % more expensive on that analysis, if you assume that analysis to be correct.

1:05:02But I point it out because it is very common. And again, it's not a nefarious thing. It's just how these sell-side shops tend to work. What I am selling is a narrative. I need a good narrative. This sounds like a good narrative. Oh, rainforest in Brazil, coffee plantations in Brazil not doing well. Higher coffee prices. People will buy more coffee, drink more coffee at home. Breville will sell more coffee machines. That makes Breville a buy. It wasn't a buy yesterday. I didn't like the business at all. Oh, but this, now it's a buy. And I just thought, give me a break. Now the thing will go to the moon.

1:05:40He'll go, see, I told you something. Exactly. But it won't be right for the wrong reasons, damn it. Correct. I agree with you 100 % as you well and truly know. What I will say, by the way, spoiler alert, we have an episode coming up about investment in narratives. So make sure you keep the pod machine turned on for that one.

1:06:00I'll give it half a bit of a credit as an example rather than the analysis itself, which is that I think the idea of second-order thinking is underrated. Now, I don't think because coffee is going, you should buy Breville, right? By the way, your 5 % increase this year is probably a 5 % decrease next year because the supply chain issues get fixed. The weather is actually favourable. Coffee goes back down again. Then what do you do? You sell Breville. You buy Breville. It's silly. But what I do think is there is an opportunity for our listeners to just use that example as maybe a bad example. I don't know who it was, which analyst it was, so we'd have to worry about getting sued.

1:06:32No, I won't name names. But the second order thinking is important. I think there is some, you know, particularly if you think about, again, we talked about this in an upcoming episode in terms of investment narratives, investment theses, but the second order impact of the and then what is a really, really important one to think through. So, you know, why will that happen? What will happen next? Not about coffee and breville, just in general. That's a really, really useful, yeah, for two reasons. One, second order impacts happen. So let's not forget. But also, first order impact is easy for everybody to think through.

1:07:05If you want an opportunity as an investor, if you have a long-term time horizon, if you are going to focus on the company rather than the share price, if you're not going to play the fundings game, and you're trying to find, hey, everyone knows the third order impact. Coffee prices go up, therefore coffee is more expensive. Cool. We get it. Everyone knows that. What are you thinking about? Again, I don't want to make it about coffee because the analysis is wrong here, I think, like you do. And then what? And so what? What then happens? If you think about that, and you can get a really good thesis around that.

1:07:32when no one else is thinking it. That's some, I'll call it idea arbitrage. You get an opportunity to say, hey, I have an insight that the rest of the market doesn't share. Now, you've got to be right. And again, we'll talk about this in a couple of weeks. But if you are right and you can think a bit more deeply, there is plenty of opportunity to be gained there, I think. Oh, and then ask, and then what? Again, and then do it five more times. Like, absolutely. I mean, many modern analysts are like, you know, if I go and hit this tiger with a stick, it will have a sore nose. That's good first order thinking.

1:08:06The second order thinking there is the tiger turns around and eats you after that, right? You're not wrong. That is absolutely a consequence of that action, but play it forward a little bit, right? Yes. By the way, that's politics in general, right? Let me do this thing. I'm grumpy. I'm going to swing the stick. Yes. You can if we're better at that. Right. Tiger deserves it. He might. That actually is a great, not to get back into that conversation, but that explains a big part of the property market. Things sort of got started. And again, we won't go into why and how and the rest of it, but it's just sort of like, oh, because housing was unaffordable five years ago, right?

1:08:46It was unaffordable 10 years ago, let's face it, right? And it's like, let's fix that. And it's like, well, how can I do it? Oh, we'll give you a grant. Oh, fantastic. First-order thinking. That's right. That is classic first-order thinking. It bids up prices for everyone and makes houses even more. Or unaffordable. It's really obvious when you think about it. Yes. And the thing is, too, it's not like this little podcast that we have is like we're the only two dudes that ever had this take. It's not a hot take. It's like a really, really well-known take from people far more credible than us. I'm not sure I know a single economist who thought a first-time buy-iners grant was a good idea.

1:09:22I just don't know either. Yeah. I don't think anyone did. But again, what you do is when I want to do something, I'm going to pay a certain consulting firm. to tell me that it's a good idea. Hey, we're thinking of doing this. Can you do a report on that? Sure, sure. So what do you want us to say? I'll say that. You've said a million times the easy but wrong answer. Right. When you say to somebody, and this is the same with super for housing, right? Sorry, I won't bang on it about it either. But even when I explain it on Twitter, I still get people come back and say, yeah, but at least it's more affordable.

1:09:51At least I've got a chance. And that's kind of partly lack of second order thing, partly pure desperation. And that's very ugly, right? It's ugly, not on behalf of the desperate, but those who would take advantage of the desperation by saying, I'm going to pretend I have a solution. And you're going to have to choose to believe because you feel so helpless. Otherwise, you're like, well, screw it. The other 99 things didn't work. And this one probably won't either. But on the off chance it does, we might as well try it. I mean, that's a sad state of policy on housing. And that's kind of where, literally because I explain to people.

1:10:20So I get that it looks attractive. But blah, blah, blah, blah. Someone says, yeah, but at least I can buy a house. No, no, you're not listening. I've literally told you what it is. and either for ideological or just desperation reasons. They're like, well, okay, but can I just have a chance? So 40-year mortgages, same thing. Plenty of people came back on Twitter and said, yeah, but at least a little bit cheaper, at least a bit better. You're paying 300 grand over the life of the mortgage more. Yeah, but I might be able to get it. And again, I'm not criticizing them because it's like, that's how bad they are feeling right now of like, well, stuff it.

1:10:48Nothing else has worked, but if nothing else changes, then I still can't buy a house. So I guess this one's worth a go. It's like, it's really not to make your life worse, not bad. It's not even you'll try it and it'll have no impact. It'll literally have a negative impact. And you're still arguing for it because you just, you can't see any other way. I mean, that's just awful, awful, awful. Oh, it's just, what do you do? What do you do? What you do do is you join Blue Sky, Andrew. And I'm only saying this because we had a listener, Raphael. Oh, really? Okay. Raphael, who was, I posted a tweet and he said, thank you, keen listener of both of your pods, but particularly enjoy your rants with the straw man.

1:11:27We need to drag him over here. So I'm just saying, mate, the people are saying they would like you to be on Blue Sky. Whether you will or not, it's up to you. I'm not even on Twitter, but I'm more of a lurker than I very rarely post. And when I do, I always, I hit send and I go, did I just create a hassle for myself or make myself look crazy? Yeah. Can I say, mate, don't ever comment on Bicwell. You give the people you follow. If you're going to comment positively, you're probably okay. Don't give a neutral view on Bitcoin. And don't ever, ever mention Elon because I swear to God, that thing has a tale of about six weeks.

1:12:02Well, this is such a thankless task. That's why I really pull back because it's like I don't care to have an argument with some rando that's not in good faith. It's just I've got better things to do. That's the thing. That's the thing. Hey, but we are on the socials. Andrew occasionally is on Twitter at strawmaninvest or sage underscore simeon. You get me at TMFScottP on Twitter and Insta and what else? Blue Sky. I'm on Facebook at facebook.com forward slash Scott Phillips money. We'll be back on Sunday, assuming Andrew's keen to reprise his appearance as the straw man. I want visual credits for this.

1:12:39Andrew Page as the straw man. I like Raphael's reference. Not only straw man, the straw man. It's kind of like there's something, you know. Again, I'm back to Wizard of Oz. Special appearance by, yes. Playing himself, Andrew Page. All right. That's been a lot of fun. Thank you for the chat, mate. I hope you've enjoyed it, listeners. We will be back this Sunday with some more Motley Fool money after Andrew has finished whatever feat of endurance or strength. Better dream something up now. You've got a couple of days. Until then, fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:13:15General 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 Licence 400691.