Good retail sales is… bad news? October 4, 2024

30:13But you're right. You absolutely can't. Lean into it. Lean into the risk is what I'm saying. And I've got to be careful here too because the other angle here is to say, I see a little bit of it where those, maybe, you know, it seems, I don't know, it's a little bit distasteful, but they look at the war and they go, ooh, opportunity, I can make a buck out of this, which just is a bit yuck, right? And I don't want to suggest that. I'm not suggesting that. But I am suggesting that the world is a pretty crappy place at times and will remain that way for a long time. And, you know, it's not to celebrate this and not to only look at it in the lens of opportunity, but just to remember that that is just the way it is.

30:55And how you react to that is entirely up to you. And, you know, running into the bunker, you know, every time that there's a little bit of a shadow on the horizon is just like, you're the one who's going to... You never live. Yeah, exactly. You know, so I don't know. Point made, I think. I like it. No, you've done a good job. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

31:26I do want to talk about retail sales for a minute because we had some really strong numbers out this week. It came out on Wednesday and the retail sales for the month of August were up 0.7 % compared to July. and year on year retail sales growth was 3.1 % which was the strongest yearly growth in retail sales since May 2023. Not exactly the news that people hoped for a rate cut were looking for. The ABS, the Australian Bureau of Statistics did say it was in part because of a warmer winter. So people were kind of getting the spring clothes earlier so a bit of a shift. There was some talk about it being Father's Day but Father's Day is the same every year.

32:08I don't buy that one. I think what it is is retrospective narrative application. Correct. That which I'm about to do because the other thing I think it probably is at least in part likely to be is the tax cuts that were released on July 1. There's more money in the economy, more money being spent. I think whatever combination – and the other thing is, by the way, it doesn't really matter why actually. It just matters that it happens. I guess the why matters if you believe there are some sales pulled forward. We may have a flat September, for example, in which case you go, okay, well, over the two months, it's a more reasonable number.

32:39We're talking about August 30 days. Each day is three plus percent, right? So you've got sales being up 0.7 on a 30-day period when any one day is almost four times or more than four times the size of the overall monthly move. So it's a bit all over the place. Who knows why? It does, though, probably put some context around the amount of money being spent in the economy. In fact, we've got it to spend for whatever reason we spent it means the money is still being spent, and that probably does give the RBA some sleepless nights. Again, whether or not they should be doing interest rates at all, as you've talked about before, mate, is a very valid point.

33:17But considering they're going to make a decision in four weeks now, five weeks, those retail sales were, again, great for retail companies, great for retail workers, great for retail shareholders. It does suggest, though, there's not the same economic weakness that may have been, I think the month previous, it was dead flat, I think. And in fact, food was up and everything else was down. So it's a funny one. It's bouncing around all over the place. And again, I kind of mentioned Mosaic Brands, bring it back to companies here. There are businesses that are making hay. Department stores, sales are up 1.6%, which is kind of where the clothing thing comes from.

33:49Some would say they've fallen so far that it can only go up from here, and maybe that's true. But then again, Mosaic's closing five stores. So again, probably another example of economy versus investing. Just because retail sales are up is not enough to save those mosaic businesses. Others may well come through. But again, as I said, it's more, I think, it's just, we've said this for months or maybe even years now. It's the first time in my professional investing career we've had this good news is bad kind of problem, right? Because we haven't had this cycle of higher interest rates for ages. They've been kind of coming down and coming down and coming down for such a long time.

34:25We haven't had this kind of, when does the RBA cut? when things are weak enough for them to feel like it's justified, in which case good news is bad, and bad news is good, if you want lower interest rates. Now, if you're a saver, you're happy with high rates, but it is an interesting kind of position to find ourselves in. Position? How's my pronunciation going? Position for us to find ourselves in. And again, one month is one month. We're just referencing it because it happened and it's a thing. A bit like conflict in the Middle East, does it matter that much? I don't know yet. We'll find out.

34:54There's one more inflation read to come out before the RBA next meets, But I just thought it was interesting, mate, that the department stores did pretty well. But it does seem like there's money out there being spent, right? It's one of those, if there's reasons for it and we don't know what they are, if you've got the money you spend, if you haven't got it, you don't spend it. It's a bit kind of, you know, macabre, but it kind of is the reality. It does seem at least that some money is being spent by someone for reasons that may be hard to pin down, but are still very real. I think it's easy to pin down.

35:21Go on. It's super easy to pin. I think it's where economists, I fundamentally disagree with a lot of them. I really don't like the value judgment that's placed upon my personal spending decisions. You know, it's like, oh, you can't do that. You're impacting inflation. I joked with you when you went on holidays. Oh, there you go, overstimulating the economy. No, you're not. Like, just like, get it down from their ivory towel. I'll put it that way. And just think, like, let's go from first principles here. People saw something in the shop they wanted to buy and they bought it. Was it the right thing to do?

35:55Well, for them it was. Did some people overextend themselves? Probably. Did some people just have more capacity to do it? Probably. You know, were they wrong? No, they're not wrong. They're not wrong in doing it. You can't tell me if I want to go to the shop and buy a T-shirt and then while I'm there maybe impulse buy a few other things, maybe around the family table we can sort of say, geez, Andrew, you do realize we've got a mortgage payment coming up and there's a discussion to be had. But it's my decision, right? It's our decision. It's not, I think, the idea that some central banker can sit there and wave their finger and go, ooh, careful, you're going to cause inflation.

36:36BS, right? BS. That is completely untrue for almost all consumer goods because we have virtually unlimited capacity to make some more T-shirts and coffee mugs, right? I disagree with you, though. In the short term. That's why inflation is always short term in nature. It is the imbalance that doesn't, until it gets sorted out, creates higher prices. We all know that from housing right now, right? That's the signal. We want that. Great, great. Yeah, but what I'm saying is the spending does create the inflation relative to the level of supply. If you have a growth in demand for a given level of supply, until supply catches up, you end up with higher prices.

37:09I don't see a degree with economists. I would say that's just basic math, though, surely, isn't it? Yeah, I think this is where it gets a bit muddy. we need to probably lay out some definitions here. There's prices going up due to a temporary imbalance between supply and demand. Yes. And there's a structural drive of prices for continually increasing through constant expansion of the monetary base. And there's two very different things there. Yes. It's very important that prices go up. Yes. Because in the case that, something simple, I'll go with my coffee mug example. Everyone decides they want the coffee mug, right?

37:43and the strawman.com Australia's premier online investment club coffee mug available for all good book outlets near you flying off the shelves they're flying off the shelves are they virtual because it's online are they online coffee mugs sure of course yeah let's go with that you know let's not because it's confusing if it's virtual it's like that Arnold Schwarzenegger movie Jingle All The Way it's the last toy on the thing like everyone wants it what should happen what and I say I've got to be careful with the language here but yeah I'll go with that what should happen in a well-functioning economy me prices should go up I've said that I made the point before when it's raining umbrellas should be more expensive right and what it does is it says to the person who make all the group of people and organizations that make it is like oh there's more demand than supply and what do you do what do you do you make more there's a supply side response and things not and at the end of the day everyone gets what they want we have a greater capacity there's more coffee mugs and umbrellas and all of these kinds of stuff out there and prices normalize that's very different to the ongoing structural monetary inflation which never reverts it never reverts like prices are not going back to 2020 levels ever ever and i will i will die on this hill right i will bet my firstborn sorry buddy you know well let's say there was a long time but unless we change our monetary system there it's not gonna like you know so it and And I think that's where a lot of these debates go wrong.

39:10And they miss the difference between price changes due to changing consumer preferences or temporary but very solvable imbalances between supply and demand. The kind of imbalances that you kind of need to signal whether do we need more fax machines? Well, no one's buying any, so probably not. Let's stop making them. Let's stop making them. That's a good thing. That's a good thing. And prices are falling because they've got to clear the warehouse that's still making them, right? And that is very – so whenever a central banker or a bank economist gets out there and tuts about these things, I go, no, you just don't understand how the economy works.

39:52I'm sorry, you don't. If you want to talk about the fact that prices are going up in a sustained and structural and much higher rate than what even the Keynesians would like, that's a different kettle of fish. And let's not point the finger at the mums and dads and you's and me's of the world that are just going about living our lives, spending our money in a way that we see is appropriate. It sticks in my craw. Don't blame people, right? Oh, people are spending too much. We're going to have to punish you for that. No, stop printing money. How about that? How about that as a way to stop inflation?

40:27See what I did there? I turned a very benign economic read into a central bank rant. I can see Bitcoin from here. I'm not going to go there. I think that's right. But I think it's almost like, you know, they show the, we almost did two lines on the inflation graph, right? Because it's almost, there's the structural stuff, which is the ongoing money printing. And again, they're all loaded terms, right? So the expansion of the money supply is probably a lesser motive way to put it, which happens, and as you've said, happens all the time consistently, has done for decades. And that's kind of this, well, I was going to say it's a relatively flat line.

41:00It's designed. It's designed. It's designed to do that. It's not like, oh, look what happened. No, no, no. We engineer it to happen. And then on top of that, there's almost a second, like think about that sort of stacked bar chart. On top of that, there's then the cyclical stuff, which is the bit you talked about, which is the supply-demand imbalances as they kind of net out. And if you think about those two lines independently and then add them together, that does, I think, pretty well explain the last four years of inflation. So there's the underlying bit, which is kind of always happening. There was the extra bit where governments borrowed and central banks printed.

41:31and then there's the supply demand bit which is war in ukraine shipping costs yep and that kind of stuff and you can add then the kind of price price wage spiral to that which is you know or even just price price spiral we talk about wages if it's a separate part of a separate cost and it is but it's part of all of the costs when my you know if i'm running a lawnmower business i've got to pay the i've got to pay the lawnmower more it costs me more to buy the new lawnmower i've got to pay more to put the fuel in the lawnmower um i've got to you know so i charge more to my customer So it's not just wage price.

42:01It's kind of price-price spirals or it's cost-price spirals, what you should really talk about, because all of those things matter. We talk about wage price when we talk about wages, and that makes sense, I suppose. We could talk about oil price spiral or a lawnmower price spiral. The same kind of thing really applies. I think that's where there is the fight against – and again, you're right terminology-wise. Maybe different words for it. We do. We really do. I'll call it excess inflation. You may argue that all of those are excess because you don't need to print money, which is reasonable. But the above structural inflation, the excess inflation, if I call it that, that is what the RBA is talking about.

42:39I think you're right about the blame thing, but I also think if we make a little less emotive, it's still a cause. Is it a blame? Are they bad for doing it in a valued kind of heavy way? No. Is it, though, part of what's keeping inflation higher than otherwise would be? Yes. And that's the excess inflation. But that's okay, though. That's okay. Well, except that then the question is how long it lasts for and what else does it do? So it's the self, what's the one I'm looking for? It's the vicious circle. That's the metaphor I'm looking for. It's the problem, right? Well, you actually raised a really good point with the supply chains resulting from the start of the Ukraine-Russia conflict.

43:20We don't talk about it anymore. You know why we don't talk about it anymore? Because it fixed itself. Yeah. except that it's caused other inflation through the rest of the supply chain further on that's what we had the self-fulfilling problem no i disagree that's why i disagree i think i think i think we had we had these disruptions yeah it pushed prices up economies do what and free markets do what free markets do they solved for it yeah and and but but what makes it so hard is because you've got 12 other things happening at the same time of course and we love to point to the easy obvious things oh ukraine oh that's why prices up the politicians love it it's like oh not what we're doing.

43:56Look over there. Hey, and it's just, it's so, it's such a beautiful example because why wouldn't prices go up? It was really hard to get things shipped there was less supply. This is the stuff you learn in year eight. If you own shipping containers, you're not going to rent them out at the usual price. You're going to say, hang on, there's 15 you who want them. I've only got 13 containers. Guess what? The price is going up. Yeah. And that's, there's no even need to put a value judgment on that. That's just pure rationality. Of course. There's just not enough of it around you know there's 10 of us it's pouring rain i've got four umbrellas who wants it the most that's the way the world that's how i'll set the price at which the the fourth one you know the fifth one drops out of the of the auction it's it's we don't think about it's like house sales right even if even a house for sale is not actually physically being auctioned but like in all those things they're effectively just or they're all slow moving auctions umbrellas are the same i've got a certain number of them i'm gonna keep putting the price up until i can't sell the last one and then i've realized i've just put the price just a little bit too high i'll drop it back down that's how we find equilibrium.

44:51Yes. Same is true of housing. People think, oh, if it's a sales on auction, it's like, well, it's not literally, but the system works. That housing as a group, it's self-referencing based on the amount of supply and the amount of demand and finding its own level. Yep. Understand scarcity, understand supply and demand, and you'll be ahead of 90 % of academic economists trying to get that out. I mean, and it's kind of as simple as that. So my point being is that what happened in response to that? There was less shipping containers, prices went up uh the entrepreneur entrepreneurial spirit and and ingenuity of of our species people stepped and said oh well i've got something maybe i could bring this to market you know what we're going to ship some ships around this way we're going to and they fixed it no one had to solve for it there was an incentive to solve for it the incentive was the higher prices like things that weren't viable at one price is now all of a sudden very viable there is a supply side response and that's fixed.

45:46That problem is entirely fixed. I agree. Except that I still argue until I'm blue in the face. There is then a, the impacts go down through the supply chain further, right? So it costs me more to get my lawnmower to Australia. So I'm a lawnmower retailer. I've had to pay more to get the lawnmower here. So I'm going to charge more for that lawnmower. So the price of the lawnmower would go up. So I'm a lawnmower business and I charge more for my lawns to be mowed because the price has gone up. Yep. And then someone else is paying for that lawn to be mowed and they say, well, the cost of my lawnmower has gone up.

46:21Boss, I need a pay rise. So that goes up. And the boss says, my wage bill has gone up, so I'm going to put the prices up. You're right that at a commodity by commodity basis, I don't mean that as in only commodity products, I just mean product by product effectively. Inflation fixes itself absolutely. Well, it finds that level. Sometimes you can't add more supply, just they're permanently higher priced and that's okay too. There's not so much wheat you can grow. Again, scarcity. There's scarcity. And that's how we clear markets through pricing mechanism. But I do think that it's the vicious circle issue.

46:52The reason we have inflation right now is not because of anything that was done this year. It's the impacts that we're still feeling from those initial causes, plural. As you say, it's not just one thing. But the causes, plural, that started the train off, we've got to try and slow it down at some point. That's kind of where we end up with. I say we don't have to, I suppose. There's no sense of fact we don't have to. But I guess I'm saying the echoes, the ripples, continue for a while until they eventually die down. I think we're living in ripples now, not the stone. The stone in the bottom was three years ago.

47:21The ripples are still kind of moving out from the center. So on one hand, you've got a phenomena where a pendulum swings too far one way and then swings back as itself corrects. Yeah. And so in the example with the lawnmowers, that's all very well and good, but at a point the shipping lanes and the supply chains get fixed. Correct. And then the price goes back down again. We don't have that. We don't have this. It just says, oh, well, something else is going on. And it is the more impactful structural. That's the thing that leads to the spirals that feed on itself because we just inject more and more units into the economy.

47:57Yeah, yeah, right. Injecting more and more stuff, right? So it's sort of – and it's hard because you pick your favorite narrative and you can go with that and look, it's an incredibly messy set of data, but I can layer on the narrative that I want. I'm doing it right now. I'm doing it right now with my preferred narrative, right? Yep, yep, yep. And I just feel as though, as I say, I didn't mean to get into this conversation again, but it does stick in my craw a little bit when central bankers and economists point the blame at ordinary people spending their money the way that they want to spend and then saying you're damaging the economy.

48:31B.S. B.S. That is way too simplistic. And it very conveniently distracts from what other players in this game are doing, which have a lasting and very damaging impact, particularly if you're at the lower end of the socioeconomic spectrum. And I feel a more holistic, nuanced view of things would empower all of us a little bit more. And for us and others to sort of, oh, my God, 0.7 % in September and, you know, oh, inflation. I'm like, whoa, whoa, whoa, whoa. I mean, let's not jump to massive conclusions on – and I know you're not, but I absolutely know that people in the media and certain talking heads are doing that.

49:18I think it just belies – it's either you don't get how it works or you've taken a very cynical, self-interested view and it's in your interest to sort of point the finger anywhere except towards the mirror. I think that there's a third point, just to be a little bit fair to the commentators, which is we know what the RBA said they're planning to do. And unless they change their minds or the data changes, plugging numbers into the equation that the RBA has already drawn for us is not an unreasonable way to at least contextualize the data of that we see which is if retail sales remain high it's probably going to put up with pressure on prices that's less likely to have the rba feeling comfortable after lower rates i think those those um assumptions based on what we know and again assuming they don't change their minds i don't think that's an unreasonable way to go as you said when you get to it's your fault or this is a bigger deal than otherwise might be um there is i think the equation has been written i guess is my view until they change the equation you put the numbers in and go okay well this is This means this is more or less likely over the coming period unless they change what they're planning to do.

50:23But again, it just belies their fundamental misunderstanding. Here I am in my Ugg boots, in my granny flat on Zoom, telling PhD economists how to run the world. I get it. If you guys only knew what I know. But I mean, doesn't it though? Doesn't it? When they say that, you know, the fact that they are looking at that And saying that this is a problem is like, what? It's a problem that if demand rises, that prices also rise? I mean, actually, isn't that how it should work? Now, if it isn't how it should work, you tell me how prices should be set. Because there's only really one alternative there.

51:03And I don't want to get into that conversation either. But it reveals their hand or they're either like, as I said before, You either don't get it or it's very convenient for you to have something else to point at. I don't know how else to say it. It would be different if the RBA said prices are going up without any underlying change in structure. Let me be careful to emphasize the word structural change in demand and supply. It's not just a consequence of the various to's and fro's and messiness of the economy. then then like i don't know i'm kind of lost for words it just it's one of the some some things are so i think when you see them they're so obvious it's just like how can it even be framed in any other different way for them to even say that this is a data point that we're going to hang our massive we're going to set the very cost of money based on whether we think australians bought too much stuff or not now are they buying too much stuff because that's their god-given right to do Are they buying too much?

52:10Are we buying more stuff? Of course, there's just been more money injected into the economy that will never be taken out again or be very hard to take out again. But that's still zero. That's a different thing. I still think about cause and effect. I still think you're still at the beginning, which is what caused it at some previous point. And you don't like central banks either, so we kind of end up in an ideological kind of roadblock at some point. But if you take a view that the RBA exists and the RBA's job is to not have excess inflation. I say excess again, using that separate from the money.

52:422 % inflation is fine. 3 % inflation is fine. More than 3 % is damaging, is their view. And if your job is to impact that, then you're not blaming anyone for doing anything. But what you are saying is, if demand continues to outstrip supply as it is currently, prices will not be able to... The rate of price increases, and I've got to get our language right, will not normalize as quickly as it should. I hear everything you're saying, But I also think if the government's not doing anything and you've got a mandate to get inflation down below under 3%, then it is consumer spending that is the only lever available to you.

53:14And whether it's a blame or a fault or a freedom thing, the simple reality is if I said to you, Andrew, use monetary policy and get inflation down, you would say, well, hang on, people are out there spending and that's not going to get inflation down, so I can't cut interest rates. Yeah, I don't think it's – I think they're both true. I feel like we're at the ripple stage, though, not the rock in the pond. The rock in the pond is excess spending and money printing during the COVID pandemic. I feel like the ripples for that, though, are still coming out. Anyway, let the ripples go and say, we'll have high inflation for longer and we don't care or we're not going to choose to fix it.

53:46Or you say, we can try and fix it by reducing spending using interest rates. I hear what you're saying. I think they're both true in different kind of – because I think we're in feedback loop territory rather than cause territory. You're right. Price won't go backwards. And the inflation won't go to zero because there is continued money printing. But if we don't have to accept it, if the RBA accepts that 2 % to 3 % is desirable and they want to get there as quickly as reasonably possible without causing too much pain, whether it's blaming people for spending, I think it's also just an observation that if spending continues to grow at rates that are in excess of supply, you're going to have longer term excess inflation.

54:24Yeah, true, true. But their mistake is thinking that they need to be involved. like the the the cure is the the symptom is the cure right higher prices is the cure for higher prices you don't you don't we don't god bless your little cotton socks we don't need you to decide what's appropriate and for you to fix it in in that way if you really want to more quickly why not why not do that i mean it'll fix itself it'll fix itself it always does because of the The unintended – it assumes that your moves are going to be effective. And as we've seen, history is replete of it not being effective. So, but, okay, let's suspend disbelief and assume that you get it right this time.

55:06And also the unintended consequences. The unintended consequences – maybe if you put the tinfoil hat on, you could say they're not unintended. But the unintended consequences tend to sort of be – we just get a growing wealth divide. Those with assets do incredibly well through an expanding monetary environment. and those that don't get worse and worse and worse off. And then we point to them and say, you're spending too much. We're going to put in, we're going to make you suffer. We're going to make you pay more on your mortgage because of all this inflation you caused by living your life and buying the things that you want to do.

55:32It's just, it's a madness. It's an absolute, so I just, look, let's not go there again because there's, but it just, it all starts and ends with that proposition that only we can decide what is appropriate and we'll get it right. Don't you worry. And I just, I've yet to see any evidence of that. If someone can point me towards it, I'll happily review that. But it's never worked. It's the definition of insanity, right? Hey, you know this thing and this framework that we hold and the solutions that we try to put forward? Yeah. You know how it's never worked? Yeah. Yeah, it's true. Let's keep doing it.

56:07All right. You know, it's just like it's madness. And I feel it's like anyone who says that is on the fringe and is seen as crazy. It's like, well, what else do you suggest? It's like, again, I've said to you before, it's just like going back to ancient Aztec empires and saying, look, mate, we've always sacrificed the kids and it's rained. And you're suggesting, you're suggesting that we should stop doing that. Like, no, I don't think so. You know, it's kind of, it's a more modern example of that. But in flavor and character, it's exactly the same. We start with a false proposition. and if you want to start with a false set of axioms and derive things logically from there, you're going to be logically consistent internally within the framework and axiomatic foundation that you've built.

56:51But if the axioms are wrong, everything that follows is wrong. And that's, we'll move on. But that's, I guess that's where we're, when you and I are never going to get past this. And that to me is the absolute problem of it. And again, I'll just point out, it feels like it's always been thus. It hasn't, it hasn't. And it's a relatively new phenomenon. But, you know, in our lifetimes and a few generations, it's feel like it's always been there. So, again, we've always sacrificed the kids. It's always done this. And, like, it's very hard for people to imagine that there is a different way. And it's very hard to affect any change when there's a lot of vested interests.

57:27You know, to give someone incredible amounts of power and say, no, you need to give that back is hard. Fair enough. Let's move on to a couple of company-specific stories as we kind of get to the end of the pod, mate. So Qatar and Virgin. Virgin is still a private company, still owned by private equity. Qatar Airways is going to buy 25 % of the company if the Foreign Investment Review Board gives it the tick of approval. Fascinating because Qatar was blocked from putting more flights into Australia by the federal government not that long ago. So going in the inside route rather than the outside route to take a stake in this.

58:02Because, sorry, let's just linger on that point. Why did they do that for? how have you seen foil hat no i'm kidding right well i like it's never it's never been what do you think is better for you like let's forget about every let's think of you d listener what do you want in terms of an airline industry i want reliable safe cheap transport what's the best way to do that add more competition yeah is it i don't give a stuff about how much money Qatar is making. Give me safe, reliable, cheap airfares, please. And the government comes in and goes, nah, we don't want to do that. We want to entrench your monopoly or virtual monopoly power.

58:45And I'm just waiting for someone to go, oh, no, no, no, Andrew, what you don't understand is, and there's never been a follow-on to that sentence as to why that was a rational decision. The argument was at the time that government put forward and was expanded by others was there was some pretty disgusting strip searches done of some female um uh travelers in qatar uh and so this was presumed to be a geopolitical kind of slap down of of that behavior was was the uh argument that was being advanced at the time so qantas have never done anything immoral like that no not the not the airline so qatar isn't the place not the airline so it was so so there are some bad people on the other side of the planet that share a geographic they own the airline okay it's a government-owned airline okay so it was so it was perceived as a slap down of that government by stopping their airline having more more slots in australia so we kicked out all the u.s companies too who are involved in all kinds of atrocities in other parts or you know pick your favorite you know your sovereign state you know you know our friends don't do anything wrong and they already do the wrong thing you know there you go there you go anyway sorry go on i just i just i just make the point here i'm just like how are you helping anyone that just seems like an incredibly a very incredibly convenient excuse is to limit choice and option for the consumer i agree um i get no argument there and i tell you i tell you who was celebrating it more than anyone was quantus going yeah yeah oh by the way and virgin by the way we just happen to be a very major political donor and i don't know easy to put the tinfoil hat on do you know i think yeah well so I think that's probably the most likely explanation.

1:00:23The other one is we have a really strange view in Australia of our, quote, national airline. For God's sake. And actually, I'm not even entirely sure. I think my cynicism is actually not about personal gain for most politicians, Paul Pelosi aside. It's actually, well, it's personally a bit different sense. I think they want to be loved and voted in and get to stay in power and drive the Commonwealth cars. So my suspicion is actually that in most cases, it's actually not, same as the property conversations, right? People say, oh, so-and-so probably has got four properties. And I'm sure that kind of matters to them.

1:00:56I have a very strong suspicion they care more about their jobs than about their personal portfolios, which is, if I do this and you might not like it, you might not vote for me anymore. And I'd lose my job and I wouldn't be popular. I wouldn't get to wield the instruments of power. I would suspect in the, maybe it's donations. Maybe it's too cozy a relationship between the then CEO, Alan Joyce, and the government. And I'm sure that's part of the conversation. I suspect it's that idea of our airline. The number of people who, whenever I tweet about Qantas, tell me, we've got to look after our airline and we need an airline in Australia.

1:01:26It's a really... It's so weird, isn't it? Flyer points are mad. And the fact you pay like 10 grand to upgrade to first class for a 16-hour flight. It's like, you do that maths. If you maybe pay 16 grand, it's a, you know, you buy a secondhand small car for that. but as soon as you think airlines our brains just completely of our bodies i don't know beauty is probably the other one i say that not using beauty products as many people would understand um other beauty maybe you should maybe i don't think that it wouldn't help mate what if i make a silk purse out of a salesy um you can't make with some massive tangent by the way on guitar and virgin but uh airlines people just lose their minds beauty products the same it's like just this this weird kind of yeah the rules don't apply we lose all rationality i think it's that emotional kind of romantic notion of air travel and what airlines are supposed to be and quantis had a wonderful job with the spirit of australia and still call australia home and the flying kangaroo it's a beautiful job in in brand creation right um to your point about safe safe cheap and reliable quantis charge more than most airlines most of the time and they still fill the planes because we pay more because it's quantis and it's the regulators do the safe and reliable for us you don't even need that anymore and yet we still do it so i find the whole thing bizarre but my guess is back to the point my supposition is they the police did it because they care about the political pain of if qantas was allowed to fail or lose money the the hue and cry from the electorate would be our airline is we don't have a national airline anymore other airlines are taking i think that's a jingoism and a bit of nationalism and whatever else you want to throw in there um i could be wrong but my suspicion is that's what's kind of driving those decisions maybe i'm being too generous but i think i'm i'm being cynical i just in a different from a different perspective.

1:03:08If I think about what the Polys, I think probably care most about. Yeah. That and the Chairman's Club lands access. Yeah. It makes no sense. I just don't, I don't, I don't get it. It is, it is, it is a very great position to be in when you can enjoy such public support and political support for a business. I guess our interest, that's the other thing. It's literally not our interest. If you, We shouldn't care. Qantas is owned by individual shareholders. It's not a national airline. Neither is Virgin. Neither is... We shouldn't care which airline. As long as we can get from Melbourne to Sydney safely or from Brisbane to LA, it doesn't...

1:03:50There is no national... No one owns Qantas, individual owned Qantas, but it's not a national airline in any meaningful way, any more than Virgin, any more than, you know, CA and ANSET and Compass have all gone. It genuinely shouldn't matter. And yet we willingly pay more directly for the tickets and then are prepared to pay more because we're not going to slap down a government who says, well, you mightn't like me if airline prices might drop short. Tickets are a little cheaper and that'd be good. But you won't like me if Qantas goes broke, so I'm not going to let it happen. Yeah. So it was the largest during COVID with the other government.

1:04:20Exactly. Both sides of parliament. Exactly the same thing. It's bizarre. Yeah. It makes no sense whatsoever. And I think it's worth just making mention of this because everyone's entitled to their own opinion. And if you feel as though there is something inherently nationalistic about that, then that's your view to express. But if you are more worried about, as I say, choice, safety and convenience and price and all the rest of it, just don't let these narratives sway you. You know, because they're completely nonsensical. So back to the original news point here. What do I think of Qatar taking a stake in Virgin?

1:05:03I think great. I think it's brilliant. I think it's going to make, I think it's going to give us more choice. It's a backdoor into what Qatar wants to do into Australia because they got knocked back in the way that they wanted to do about it. I think Qantas will be forced due to added competition to lower prices. And I think we all win as a result of it. Now, are there some bad people in the Middle East? Yes. Is that relevant in any way? No, I don't think it is as long as the laws of our country are being respected because we, there will always be bad people in other parts of the world. And by the way, in our own backyard, there's plenty of bad people here as well.

1:05:42It doesn't, it just doesn't enter into the conversation or it shouldn't as to the degree that it does. So I'm all for it. I think good on them. I think it, I actually, more generally, I think the foreign ownership of companies is something that we worry about more than we should. I completely agree. because i was gonna go there so keep going well i've used this before in a pod but maybe it was a year or so we did it but it's such a great example if you're old enough to remember back when japan was just really just gunning a lot and we're just gushing australian golf courses and all the kind of particularly in america they bought a lot of land in america and it was all this big worry about oh the japanese are going to own everything but it's just like but it's within the borders of your country yes right they the person that they bought it off was happy to do the deal like ask yourself this if someone from country X choose your least favorite country right and everyone will have their own and someone from that country comes up and offers you ten times the price for your house than what you could get elsewhere very few people are gonna go no thank you that's not for me now because you come from overseas yeah just because you come from overseas now again wherever they may have hailed from originally does that change the rules and regulatory landscape of the jurisdiction that we operate in no can they pick up the house in the land and take it back no yeah what what what's actually changed like what has fundamentally changed here except that the the end owner happens to have been born or is located in a different country it it's no one's been no one's had a gun held to their head and been forced into is two people willingly consciously entered into an agreement, ownership was changed, money changed hands, but at the end of the day, the asset stays in the jurisdiction and the benefits.

1:07:37We actually all benefit, I would argue, by having a much larger market of actors to engage with. Now, if there are some other considerations, maybe there are some places that are just so egregious that you want to make a political strategic stand. Okay, that's fine. That's a different conversation. But you do have to decide where you want to draw that line because things get very insular very quickly. And maybe, look, there are some people that advocate for that and that's cool too. But again, there's always a consequence to that. And the consequence would be far less choice for us in all kinds of manner of things and far higher prices.

1:08:15So just, and I don't know where the exact setting needs to be here, but just be careful what you wish for. Because we could do everything in this country ourselves, but we'll have really crappy cars, super expensive. Oh my goodness, right? Like it just, it just everything, every aspect of your life is worse off. And we can do it by the way. We can make an iPhone. Not that we couldn't, we'd have the technology we couldn't do it. It would just cost 10 times the price because our market's tiny. Yeah, it just, it doesn't, it doesn't make sense. So it's just sometimes we need to step back and just remember that, the colour of the team jersey doesn't really matter a lot of the time too.

1:08:52And I know that for some reason is controversial and people tend to think that you're selling out your country or you're not patriotic and all of that nonsense gets involved. But again, these people can't influence our laws. These people can't. We still get to set the game rules here, right? Anyway. By the way, I used the same, I think it's the same argument with privatisations. People say we shouldn't privatise Telstra because then Telstra will be run badly. So, well, actually, no, the regulators can put whatever rules they want on Telstra. It's not a – the ownership needn't matter if you – well, it would have been run differently in a public hands because this would be done, that would be done.

1:09:26Well, if we want that, we just make the laws that telcos have to do that thing. The ownership is completely irrelevant from the outcome unless you don't set the appropriate regulation. And then if you don't do the appropriate regulation, why is it any more likely to be run better in government hands if you're not going to require those rules to be followed either? I mean, it is an absence of political will, not an ownership structure, either whether it's private, public or, as you say, foreign, local. I always love people saying, you know, a foreign landlord should be allowed to buy Australian property.

1:09:54It's like, well, what makes you think that Australian landlords are any gentler and kinder than foreign landlords just because they're foreigners? I mean, it does kind of give away the xenophobia a little bit of somehow this mythical foreigner who obviously is a bad person. And you can imagine the comic strips that get, you know, the pictures that get drawn and written. Somehow they're bad people, but Australian landlords are wonderful people. or you know as australian big business owners or managers are somehow kinder because they're australian than if they were another country you know and pick your favorite billionaire or least favorite billionaire as you choose um you know to assume just because they're australian they're somehow going to be nicer there's some sort of patriotism in that in that billionaire status sometimes it is and sometimes they're doing good things and that's all great but um often it's not a case of who is the owner back to guitar mate i what i think is fascinating about this one and What I'm really looking forward to watching is what Qatar actually does.

1:10:44Because you go from being the competition, a third player, adding competition, all of a sudden, you mentioned the duopoly, you're now on the inside of the duopoly. Yeah. And so it's really interesting. The game, I don't have a game theory, just the straight out commercial considerations here. If you're a third airline coming to bring it to Qantas and Virgin, you're going to do some very different things than if you're going to benefit from the duopoly. And so Qatar is going to do some code share stuff. Yes, there'll be more flights to Doha. you know i wouldn't maybe it's maybe it's a bigger deal for for some other asian uh airports than it is actually for for australian airlines but you as i said you go from not exactly from uh poacher to gamekeeper but you kind of all of a sudden go from wanting to disrupt the duopoly to being very very very happy for it to continue and you want to make more money out of doing it right and there's there's a really interesting kind of bit of work to be done now maybe they don't maybe airlines aren't known for their rationality somehow they do come and blow things up and not literally i I mean, metaphorically, and start, you know, really making hay in the industry.

1:11:41Maybe they do add a lot of capacity. Maybe they do change prices or change whatever else. But if they just become a strategic shareholder, ironically, Qantas and the government get exactly what they may have already wanted, which is no extra competition. It's, you know, is there a reason for the Treasurer to knock this one back? I don't know. It's going to be really, really fascinating. Can I just, before any, I've probably upset half of the audience, but for those that are upset. I've said the other half, it's okay. Yeah. ask yourself this how much of Qantas is owned by Australians yeah exactly now I just googled it and I say I say it I say it knowing the answer and I'll just and all I'll say is especially more than half a lot still more than half no it's well there there is a um there is a cap there is some act that was passed that limited again why because airlines that's why it's exactly yeah So leaving that aside, there is nevertheless a Qantas Sale Act, which limits foreign ownership to 49%.

1:12:37But according to an SBS article from last year, and who are they referencing? So again, people can Google it themselves. You verify everything we say, by the way, is always a good us and anyone. But you - Especially us. And it's hard to know because when you look at the shareholder tables, what get listed are the custodians. So you'll often see, wow, HSBC owns this much. And like, no, they own it on behalf of clients. So it's a little bit murky. Maybe that's a whole other discussion. But it's probably at least 40 % of Qantas, the national carrier, is owned by those dirty foreigners. So be careful what you get too upset about.

1:13:14And by the way, who cares? Who cares? I own shares in a whole bunch of American companies or indirectly through ETFs, right? So? So, like, I just don't get what is so upsetting about that. Even the 40 % or 60 % owned by Australians, individual Australians who will happily screw you over to make more money at Qantas, not even personally, but who Qantas will do on behalf of. Yes. It's not a nicer airline. It's not a more profitable airline because Australians own it. There's no better customer service because you ask yourself, how is Qantas a better airline because 60 % is owned by Australians if it's 100 % owned by someone else?

1:13:52What charitable endeavours is it engaged in? How much better is the customer service? How much better is the on-time performance? The answer is almost certainly zero based on who happens to own the shares. It's completely irrelevant the way the business is run. It just is. They might be doing things to be nice to Australians because Australia is their market. And so they want to be thought of as a national and so we'll pay them more to fly. That's got zero to do with the shareholders. Absolutely zero. Take Virgin, right? Virgin was publicly listed. Now it's owned by a US private equity mob. At some point it'll be probably listed again.

1:14:27How did Virgin change during that period? I mean, that's your example literally writ large. How is Virgin a different business? It's not. And that's the key. Yep. I'm desperately Googling here because it's another good example. But it's Vegemite. Let's talk. I'll talk about Australians now. It's owned by Bega Cheese, right? Yes. Which has a very large foreign ownership. Yeah, you're right. So, again, we feel better. but but it was it was initially developed 1922 here i've got the data uh in australia well you know go australia we completely stole it off the brits right they called it marmite marmite we called it vegemite and it's like it's australian now but it's a yeast-based extract that we we certainly didn't invent but we've got our own sort of version of it okay whatever uh and then it was owned by craft then it was spun off uh um so it was it was owned internationally then it was brought back by Be Good Chief.

1:15:20This whole trajectory. Now, again, I've skipped over a lot of detail there, but Google it. Google it if you're interested. But ask yourself this, as an Australian who proudly stands behind this corporate banner of Vegemite, for whatever reason, a breakfast spread. And I love Vegemite, by the way. Don't come for Vegemite, dude. You've upset people before. You come for Vegemite, we're going to have hate mail up the wazard. I love it, but I don't care who owns it because as a consumer I've been able to buy it the entire time. And it hasn't been any different. It was no different when it was Australian owned, then US owned, now Australian owned again.

1:15:53It's exactly the same. It hasn't been any different. And if it goes away from our shelves, it will only be a consequence of people not buying it anymore. And there will be all kinds - As far as I can take it away from us, or charge us more because we're Australians or anything else. No, of course not. It's the market. And like, there'll be all kinds of hand wringing and, oh, it's gone. And how disappointing. It's like, well, if more people bought it, it wouldn't be gone. And if people weren't buying it, they obviously didn't value it. Now, this isn't happening, right? I'm sure it's going as strong as it ever did.

1:16:21But that's the point. It's irrelevant as to who owned Vegemite. And just to get so jingoistic about a commercial brand, it just boggles my mind. I just do not get it. But anyway. Yeah. I don't. I will leave room for the fact that where you made the point earlier, maybe this is the motto of this podcast, human beings are human beings. We like belonging. We like symbols. We value rituals. These things matter to people. And we're not saying you shouldn't love Qantas or you shouldn't love Vegemite as brands. I love brands. I love RM Williams, right? I love Akubra. There are brands I just love because I love them.

1:16:59And for, frankly, irrational reasons, right? You like them because you like the product, I would posit. I guarantee you, if RM Williams fell apart after a week of wearing it, you would not hold the same opinion. then no but i also i i'm not well think about pricing power from brands right uh coke coke is not coke is not that much better than pepsi or or diet cola i'm sorry home brand cola to justify the price premium there is a there is an emotional response to coke which goes beyond the product i would argue in almost all brands think about tesla owners right um there's an emotional response that goes far far far past the product whatever they tell themselves uh so i think there is the product has to deliver absolutely no one's in love with a crappy product or crappy brand but on top of that there is a brand premium that exists so i i guess i'm just saying you know people if people wanted to if i would vegemite and it feels makes feel good about themselves that's cool just let's not pretend it's rational yeah so that's that's my argument with qantas right love qantas all you want i got back on a qantas plane after being in the uk for 13 months and i heard the australian accent i'm playing the still call australian home music on the on the over the speakers i was like oh this is so good and so i feel better about qantas as a result i know it's completely irrational i know i was only 24 hours from home in whatever airline i'd flown on and when i walked to sit in the airport or we're in the same arrival.

1:18:11But we're emotional creatures. We should never, ever, ever think we're rational creatures. That is absolute mistake number one, right? We're emotional creatures that find rational answers for our emotions. So, yeah, I'm living room for that. But in the rational world of finance and of business ownership and of what actually matters and doesn't matter, as you've said, I've said, there is no difference in the business itself, the product, just because the owner happens to have a Kiwi accent or a Japanese accent or an English accent or a Vietnamese accent or an Australian accent. It's the same business with the same profit motives run by the same managers, by the way.

1:18:44The other thing is that the owners that work in the businesses, it's not like when the foreigners buy Qantas, they're going to come and all work in the planes. The same people are in the planes, same people are in customer service, same CEOs in the big chair. The ownership is almost entirely irrelevant. And no CEO is going to say, I can make you more money, but I'd rather not because I'm not going to make you more money because you're foreign. I'm not going to do a better job. I'm not going to get my bonus because you happen to live overseas or you reside overseas or you're born overseas. It's just not any part of the product or the service that we enjoy or don't enjoy as the case might be.

1:19:19There is one element we've left out of this discussion. We'll have to do it quickly because of time. Oh, no. I do it to preempt the question or the comment, which will be, yes, but the jobs. So I don't care too much about the foreign ownership, But if they're going to take ownership and then relocate production elsewhere, Australians are going to miss out. And I'm more sympathetic to that view, but it's still wrong. The Forrest is not going to move the jobs any more than the Australians are going to move the jobs. Qantas has already outsourced Lightning to Asia. I'm sorry. I mean, I'm more sympathetic to it, but it's still wrong.

1:19:57It's still wrong, right? I don't know why you might want to believe that's true, but it's not. Yeah. Yeah, Qantas, again, gets held up as this sort of, you know, example of Australian made and owned type thing. It's like, well, they've outsourced everything. Again, people are always going to, again, just bring it back to your own personal sort of perspective. And if you owned a business, you're always going to try and manage costs in the most effective way as possible. It's going to make you more competitive. And again, by being more competitive, if you're able to offer a better price, an equivalent or better product or service at a lower price, you're going to win.

1:20:33You're going to win in the market. And you're going to win in the market because people chose you, not because they like you or where you were born or where the thing was ultimately made. Because you just offer me a better product or service. And that's all I really care about. I need a new pair of undies. Who's selling off? There's 10 different people are making it. This one here fits me the nicest and is the cheapest. I'm going to go for that. And that's the beginning and end of it, really. Now, there will be certain lines which there's a broader context, such as child labor and all the rest of it.

1:21:01But I tell you what, before you shake your fist at that, next time you go into Kmart or Target, ask yourself where all that stuff went and how much exploitation is done. If you want to go to some of the high-end, I mean, fashion industry is disgusting, right? So everything, I would hazard a guess that well over 60 % of the products in your house were made overseas. Most of that would have been made in China. 80 % plus, I would suggest, but yeah. Yeah, so I'm trying to be conservative, right? Yeah, yeah, yeah. And a very significant chunk would have been made in China, and people in that jurisdiction will have enjoyed far less worker rights than what we enjoy here.

1:21:36Yep. So now ask yourself, are you going to boycott anything that doesn't meet your standards? Now, I'm the first person in the line with holding the banner against this kind of atrocities. They're awful. but what people say and what they reveal of their preferences by the way they act are often two very different things. And I'm not saying there's easy answers for this, but it is a little disingenuous to tut, tut, tut, and then go down Main Street and pick up all these foreign-owned stuff that were made by kids in a sweatshop. It's sort of like, do you know what I mean? I 100 % agree. So Bonds was an Australian company.

1:22:17It was owned by Pacific Brands way back in the day. everyone said they wanted to buy Australian made stuff, except no one did. And so bonds realized it couldn't compete making clothing in Australia and charging the price of it. Your point, you see, if your price is lower, people will choose you. That's right. The reverse, which is the same thing, but just from a different perspective, if you don't, people won't choose you. And so there's one which is grow profits, try and get big. The other is just survival. Bonds could not survive producing in Australia. Why? Because we all said we want to buy Australian made and then none of us did.

1:22:49Yep. And so what happened? Well, they said, well, hang on, we're going to go broke. Either we make cheaper undies because people won't buy the expensive ones or we go broke. So it wasn't even a case of them choosing to make more money in this case of, you know, I'm going to go and maximize my property. Oh, they were doing terribly. Yeah. It was a stay in business decision. It was literally this brand ceases to be or we go overseas and produce it. Now, you don't have to buy it so you can choose, well, okay, I won't buy it anymore. That's up to you. It's completely fine. Yeah, totally fine. But the simple reality is it wasn't even a decision of how can I be an evil corporate overlord and make a fortune and profiteer.

1:23:23It was just if I don't do this, we're gone. We're done. And we chose that. Australians chose that because we didn't choose to buy the higher price product made in Australia. And that's not a value judgment. That's just the math. That's what actually happened. And so you don't have a choice. And if we choose differently, speak of R.M. Williams, they sold two ranges of jeans, I happen to know. One is made in Australia and one is made overseas. And they mark them as such. and they charge more for the Australian ones. Yep. And the market will decide at some point whether we're prepared to pay more for Australian-made jeans or not.

1:23:52Ironwinds will either produce them or they won't. They're doing both. And that's kind of – that's literally the market decide. And the price are different as a result because of the higher cost of production. Yep. And by the way, no value judgment. Whatever you personally, dear listeners, decide to do, I'm not going to argue with you. I've got to be careful. Sometimes it gets misconstrued that, you know, are you saying we shouldn't care or I shouldn't care about this? Absolutely. you should care about whatever you care about. I'm not, and, and, but, but there are preferences, stated preferences and what economists call revealed preferences.

1:24:23And, and all I'm saying is, you know, before it's very easy to sort of tut, tut and judge and the rest of it, but you know, actions speak louder than, than words. And if we want to have a debate as to what's appropriate in terms of workplace standards of that, you, you will find me at the front of the line, sticking up for, you know, the, the rights of workers and a fair go. And, And, you know, I'm pretty much anti-exploitation. I think you could put that on me. I'm happy to wear that badge. I'm anti-exploitation, right?

1:24:56So it's not a – what am I trying to say here? I'm not trying to put any value judgment on anyone else. I'm just saying if you're going to have concerns over these things, let them be revealed in your actions. And that's how you vote. It's a different kind of democracy, but it's sort of an economic democracy. It is your voting with your wallet slash purse. And that is going to be consequential if enough people sort of do it. And there are certain things I won't buy for reasons that are personal to me, which probably don't make perfectly rational economic sense. But for me, they're important. Am I right or am I wrong?

1:25:31No, I'm right. I can't be wrong. It's my preference, right? And it might be wrong to someone else when they'll act in their own self-interest according to their own sort of values. But things just get, you just get on a very slippery slope when you do have someone who is imparting value judgments and making decisions on the part of all consumers. The thing is just at the end of the day, what usually happens when that happens is that we collectively tend to suffer and you tend to find that the thing that you're outraged by hasn't been fixed at all anyway. So I guess it's complicated is the bottom line.

1:26:06Certainly very complicated. By the way, we enjoy massively high standards of living because of international trade and things being made overseas. So we also want to be careful what we wish for because plenty of people say we should do this and should do that. The equivalent of a 40 % tax increase. So, you know, if you want to pay 40 % of tax, go for it. But when the rubber hits the road, we're all hypocrites. I'm a hypocrite. Andrew's a hypocrite. Everyone listening is because we say we want this thing. Am I going to pay more for the RM Williams jams? I've got, I think, one pair. The rest are Levi's and RM's produced overseas, right?

1:26:36I love that strategy. I wasn't aware of it. I think that is brilliant. I think it is brilliant. Well, we'll see. It may be silly if it doesn't work, but either way, people can choose. Even if they've just got a very, very small run in Australia because no one ever makes it. You talk about the power of brand. I just think whoever's at RM's who came up with that strategy, because they've obviously wrestled with it behind closed doors. We're an Australian icon, but wait a second, everything's made up. How do we square this circle? And someone just said, let's just do both and let the market decide.

1:27:07yeah stroke of genius no you can't be wrong right it's just like if you if this is matters to you we've got this one but it's a little bit more available and plenty of people and i i'm sure there'll be plenty of people go yeah and i'm happy to do that and you know what will happen if that happens they will increase local capacity as a consequence to again meet that rising demand from that and if they don't no one can complain they didn't give it a red hot go absolutely right it's genius. I think we are done here, mate. We were probably done about 15 minutes ago. But we have finished this particular podcast.

1:27:38Have you got enough energy for Saturday? Yes. Saturday? Sunday. Sunday. Did I say Saturday? Yeah, I think you did. Oh, man. Have you got enough energy for Sunday? I do. There will be no Saturday podcast. For our mothers still listening, there is no Saturday podcast. We'll be back on Sunday morning. Well, which is afternoon, as Andrew likes to say. And after he's done his obligatory ultramarathon. Until then, full on. Cheers. 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.

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