Is the Buffett Ratio flashing ‘Sell’? November 22, 2024

23:52And, you know, there are certain big picture stuff where it's like, none of this guarantees anything. It's probabilistic as you say, but it's sort of enough goes onto the positive side of the ledger. And undoubtedly always there's always negatives like every everything has a few hairs on it yeah but but you sort of you form this holistic view where you go gosh geez on balance the odds are pretty good you know and and and if i'm if i'm wrong gosh there's not a huge amount of downside and if i'm right there's a there's a lot of upside you know and i look i said at the start of this pot i've had a good good run recently it's interesting about that right is that you look at there's a bunch of dogs in my portfolio.

24:33I can't tell you how many bad things, with hindsight, I can look to and go, what was I thinking? Actually, no, it's not even, I'll sound a bit arrogant here, but I don't kick myself for what was I thinking. It was kind of like, well, it didn't work out as I expected, but of course - Yeah, correct. I was thinking probabilistically I might win if these things worked. I thought they were going to, but I knew I might be wrong. I'm not King Midas, right? Not everything I touch is going to turn to God. It's implicitly understood at the get-go. But if you spread that around, and I like to think of it as I'm a target rich environment, right?

25:06I'm playing with some loaded dice here. I think all of these have a good chance of winning in the future, just being bigger and better businesses. And I don't think the market's fully recognized the value. I'll be wrong probably on four, five, six out of 10. But the ones that go right, again, when you've got that asymmetrical potential, so A, you were right, but being right is much more upside than downside. You find it just tilts the whole thing. It tilts the whole thing in your favor. And something else I'm trying to get better at too is letting those winners continue to win. Not being a momentum trader on price or anything, but gosh, the business is performing well, right?

25:47Is it a little bit overvalued if I dust off the spreadsheet? And yes, I'm having this, it's come up on straw man a bit recently with catapults doing really, really, really well. I have to mention that. It's like copped it for years. That is a humble brag. That's an outright brag. Put that in your pipe and smoke it, Twitter.

26:08But, you know, it's probably a little bit overvalued. I need to sort of dust off some assumptions. But what am I worried about here? It's like they've just had some results and they're continuing to grow really strongly. They're finally producing free cash flow. Operating leverage is starting to kick in. I don't know. I'm not buying elite sports. It might surprise our Sunday mailbag listeners, but I'm not sporting the super elite analytics trackers. You don't need those things, mate. I don't know. Exactly. But clearly the people who are in the market for it do, and the retention is through the roof.

26:44Not only that, they keep buying a broader set of their products, and more teams keep going, and the network effects get stronger. And I'm going to get in there and say, well, it's 10 % above my calculation of intrinsic value. It's a nonsense, right? Yeah, I don't know where my rant is going with all of this. Other than it's really just to try and, I guess, position yourself and understand what success is going to look like. And success is going to look like making a lot of bad mistakes, doing a lot of bad timing, but just making sure that you're there in the right place where you've ticked the big boxes to your point.

27:21Here are the main things. And yes, if you're going to start quizzing me on some arcane detail that's hidden in the notes of the financial statement, you've got me. I'm not going to know all of that kind of stuff. But holistically, I've got the bigger picture stuff in place. And then once you've done that, then the really hard part starts, which is just sitting on your hands and keeping yourself away from the buttons. Yeah, totally. I think being sensible, doing the sensible things well often enough. That's it. Honestly, I know I talk about it all the time. And I'm going to run out of things to say, but it's actually just this one thing, that Zen state of whatever.

28:00ASOP was right. Investing should have stopped at that point. The tallest piece of the hair. Done. That's literally it. If you take that in, you don't day trade. If you take that in, you don't try and time the market. If you take that and you don't try and guess what the other guy's going to do, if you take that and you're not trying to make money with margin or you're not trying to get there, the tortoise wins. That's literally it. Three words, the tortoise wins. That's Investing 101, right? And I think it doesn't sound sexy and it's not going to sell lots of trading software and hell, it might never sell Motley Fool subscriptions at some point, but that's still the truth.

28:35It's just what the tortoise wins, right? Which is why it's so rare, though, because it's so easy to sell. I don't think anyone listening to this is going, wow, this is groundbreaking insight, guys. Well done. But that's the point. Yeah. That is almost stripping it back. It's not adding to it. Yeah. There is nothing groundbreaking. You said, again, maybe on Sunday or last week, there is nothing groundbreaking in investing. Like, that's the point. When someone says I've got a new idea, it's like, that's the first sign they probably don't. You know, it's almost by definition. If you can do the simple thing consistently in the face of a majority who think you're crazy or maybe not crazy but just, you know, not interested, disagree with you, which by the way is an implicit, like it has to be that way for you to get a bargain.

29:17That's right. I want a bargain and I also want everyone to agree that this is the best stock in the world. Like, okay. Like there doesn't happen that way, right? And so it's lonely and it's brutal. Like the waiting is, it kills you, you know? Again, I'm doing my little brag on Catapult, but God, man, that was a long road. I can tell you, man, And I rode that thing from 50 cents to$4 back to 70 cents. And, you know, just awful. But it was just, you know, in this specific example, I think for anyone who's had a good long-term success with a business, which is focusing on the big picture. The North Star is continuing to grow.

29:57They've mismanaged some stuff. But overall, there's still pictures still, you know, okay, now it's like 45 % cheaper than it was a month ago. What am I doing? I'm actually doing nothing. There is nothing to do. in this scenario. I can shake my fist at the sky and whinge and complain, and why doesn't the market get it? But that's just how it is. And that's super hard. It's super hard, particularly when, like, how long does the last year feel to you? Yeah, I know. And a year is a blink of the eye, right? Well, it's also, it took forever, but it's also just yesterday. Yes. While it's going, it's like, oh, my God, we're still going through this.

30:27And you look back and go, huh, that was quick. And that, again, a bit of perspective. That's one of the benefits of getting older, is realizing how quickly these things do actually go. Yep. You remind me of Kipling's poem, mate, If All About You Are Losing Their Head and Blaming It On You. And that's kind of, you know, if you can keep your head when all men doubt you, it's the start. It's such a great poem. It's so fundamentally important. Hey, speaking of losing our heads, I thought we'd just briefly touch. We've kind of talked a lot about the US election, Donald Trump. We've talked a lot about tariffs and about the market.

30:59We will continue to do so. It'll be the topic that we cannot get away from, is my prediction. And so that's kind of why I wanted to raise it. And I had someone ask me on Twitter, just, hey, Scott, do you reckon there'll be a market crash when tariffs are announced? And I sort of said, look at that reckon, but it's not really a prediction. I'm not doing anything differently. And then my inquisitor came back and said, I'm interlocutor, as I like to say, I like that word, came back and said, well, actually, I've got a mate who's a big financial planner. He reckons it's going to be a big crash. And I kind of thought it was just not that single piece of feedback.

31:31And he might even be right, by the way, so I'm not bringing it up to disagree with him. I don't know who it was, so it's easy. I thought it was worth talking about, mate, in that context. And I thought it was interesting in the context of actually breaking down the question. So, and I'll throw a couple of bits and pieces of the question, and I'll get you answered it, and I'll throw my thoughts in at the end. But it was, so firstly, it was like, what do you think? So firstly, no one knows, right? So that was kind of the first bit. Second bit was, is the market going to plummet? And it kind of – I stopped myself because when we see the bloodbath headlines in the SMH, the market's fallen 2.5%, right?

32:08After rallying 87 % in the last whatever. For some people, that's a genuine plummet. And so checking my language and the – not checking my privilege, it's a whole different thing. Checking my language when it comes to what I assume and making sure we're kind of defining our terms is important. So I said, I don't think so. And then it occurred to me, maybe he's actually saying, will the market fall 2 %? In which case, yeah, maybe. And so, you know, what plummet is to me and what plummet is to someone else are really different. Yeah. Then there's the announcement about tariffs. And again, it's, well, what tariffs?

32:42Will there be 10 % of everything going into the States? Will Australia get a leave pass because we're friends? Will it be on China? How much of Australia's import to China will that impact? We don't know. if there is a fall, a plummet, a fall, a crash, a small decline, for how long will that last? And is that consequential? And there's just so many different kind of moving parts to that question. And I think why I wanted to kind of raise it was exactly that, that there is so much assumed and implied in that question. And part of it is getting our language right. The other part of it is, and you've kind of inferred this already, is just thinking about what does a plummet actually mean and how big a deal would it be if it happened and would it be something to be scared of because the last last point i wanted to make and i'll throw you is if it all does happen for how long will it happen and could i time it but the other side is but what if it actually i think it's going to it actually doesn't and so you've got all that happening in a really simple question a very straightforward question a question that if you're prone to worrying about big potential fears.

33:48We've talked a lot about the whole, you know, out of every 100 dooming global headlines, one might come to pass. It all might happen or none of it might happen, in which case it might go up and you miss that as well. So in one really simple question, there's five or six different stepping off points and teachable moments, as they say. I'm liking my little inverted commas or italicised phrases today. Your thoughts, mate, on a Trump tariff crash and maybe what else we could and should and would think about that sort of scenario and if and how we should think about it. Look, was it Lynch who said more money has been lost in preparation of bear markets than in bear markets themselves?

34:30I think it was Hazel actually. Was it? I think it was his own line. I could be wrong. Oh, really? Oh, well, well done to him. It's a great line. Yeah, it's a good line. And it's true. Yeah. So say it slowly. That more money has been lost in preparation of a bear market or in anticipation of a bear market than has been lost in bear markets themselves. And they mean in that place, not actually lost, lost, but gains foregone, right? Yeah. So, look, I think the market's toppy. I go to cash. The market rallies another 30 % and then has a 10 % fall. Right. So, I avoided being in the market during the 10 % fall, so I feel like I've made a win.

35:06But I've lost the 20 % that I actually – 30 minus 10. So, it doesn't exactly work that way because math is different, but I'm keeping it simple. I've lost a 20 % upside while I also avoided a 10 % fall. Yep. So when you chart your performance out relative to the index, it's underperforming. Yeah. And it just tends to do it because there's always something to worry about and there's always a bear market around the corner. And not just there's always a bear market seemingly around the corner. No, there's actually one around every corner. Walk around the corner, there's a big nasty bear waiting for you almost every time, right?

35:35Like it's sort of going to happen. We have a correction every 13 months in the US apparently. Right. I'm afraid I hate, of course. Boy, I hate. but the market falls 10%. 10%, right? No, 10%. Every 13 months, the market falls 10 % from its recent peak. Yeah, and 20 % falls are pretty common as well, right? Yeah, that's right. So it's just, it's not that I'm going to pick on the financial plan over having that view. There's a lot to be bearish on. You know me, gosh. Yeah, that's right. Not polyamory. He's got nothing on you. Yeah, exactly. He's probably on Mary Poppins over there. You're feeling bearish.

36:05Let's have a beer. I'll give you some things to worry about. I'll give you a beer. Then I'll give you a Mogadon so you can just, you know, I'm fully invested though. I'm fully invested, you know, in spite of that. Markets do weird things, right? Here's the other thing. When someone says the market's going to crash or we're going to have a recession or whatever, when this happens, and the person has looked at the headlines and they're looking at what's being written about Trump and they're looking at the tariffs and, you know, I think across the board, most people recognize it's a terrible idea and it's going to be bad for a lot of business and inflation and all the rest of it.

36:42You're not the only dude who's across this insight, right? Like you've got to come back to the idea that markets are reflexive. There are very, very well-resourced, sophisticated institutions who know exactly what Trump's agenda is, who have gamed this through, who have models on supercomputers that have played this through 15 ,000 different varieties and flavors and who are hedging. And again, all of that sort of nonsense kind of stuff. But the point is markets are forward-looking. They're always forward-looking. Now, if you were the first person - Not always right, by the way, but always forward-looking.

37:17Yeah, that's a very important point. Not that BlackRock knows what's going to happen, but they're positioning in anticipation of things. What they think will happen. And for you to anticipate the same thing and come to that realization six months later, it's not going to help you. And it never does sort of help you. So, again, everyone wants their cake and eat it too. What's the best performing asset class? Shares. Oh, I want that. Oh, it's really volatile. Oh, I don't want that. Can I have the really great returns and no volatility? Like, well, yeah.

37:52Concerned. Well, be careful what I say because you're an audience listening. That's right. Thank you. You know, I'm trying to think of some other completely infeasible, unrealistic expectation. It just doesn't happen that way. The market is the best performing asset class historically because it's the most volatile. Like it has to be that way. And again, you just have to make your – we started – we talked about this earlier in the pod. Make your peace with it. And you often say, well, a lot of people won't because people have different temperaments. And that's cool too. Just know yourself. I know I'm going to panic.

38:33I'm going to get it wrong. You know what? Shares aren't for you. And I don't say that in a condescending way. It's just not for you, right? But if you can reconcile that brutal reality, then the spoils and benefit will flow to you as they deserve to. Is it good that we have a system where patience and fortitude are rewarded? I think that's a nice element of investing. Those that get rewarded tend to be the ones that have the – what's the word for it? Temperament? Temperament. Yeah, the better temperament, but also the better characteristics that you want for capital allocators, not short-term speculators who were just trying to make a quick buck on pump and grift.

39:27No, but people who were trying to make capital allocation decisions based on the direction they want the world to go and where they see it's going and all these kinds of things. And then the ability to sort of see it through and not react. I think you deserve the gains if you can pass that test. And it's a very hard test to pass. And I'm not for a second sitting here going, I figured it all out. I wrestle with it on a daily basis, but it is something that you do have to work on. And if you can, I guess we're just trying to encourage you, dear listener, to hear these words. And like, yeah, maybe it's going to be a recession.

40:01Yeah, probably going to be a bear market. Yeah, it's going to be super scary. Just invest anyway. Because we've been here before. We've been here before. I guarantee you, I've said this last week as well, every potential bear market is a risk. Every past bear market is seen as an opportunity. Absolutely, yeah. And that's what you'll regret. That's what you will regret. You'll sell too early. You won't buy back in soon enough. You'll look back at the whole affair and go, oh, gosh, I really screwed that up. Next time, I'm not going to do that. And if you're me, you'll do it about 20 times before the lesson starts to dawn on you.

40:33And that's it. It's an eternal process of self-improvement. That's the other thing about investing, right? You don't arrive at that unless you're Warren Buffett at 13. The rest of us kind of work our way through or make fewer mistakes over time, hopefully, do more of the right stuff over time, hopefully. Eventually, again, investing is actually relatively forgiving as long as you get the basics right. Yeah. As long as you're diversified, as long as you're adding money regularly, as long as you're not using leverage, it's remarkably forgiving. Yeah. If you go back to square one, you're screwed.

41:01I'm going to be really, really clear here. I'm not saying go and take whatever risks you want. It will spank you on the backside if you let it. If you do it properly, it's really, really, really forgiving. Yep. Hey, mate, let's go public policy for a second. And I'm going to turn the - What dumb thing has the government done now? I thought that's not a rhetorical question this week. Let's wind the rant machine up to 11, because sometimes the news fairy arrives, as I'm wont to say, and as our former US colleague Chris Hill would always say. The news fairy arrived this morning, we're recording this on Thursday, the 21st of November.

41:35And I got a message of all things from a radio host at six o 'clock this morning before I'd even opened my phone and said, hey, can we talk about Chalmers and the Future Fund? And I was like, oh God. What's he done? Well, right. So I opened the phone. Look at me. Jim. What did you do? What have we said about messing with the Future Fund, Jim? Well, the problem is what he has done, mate, is he's basically dumped 20 plus years of bipartisan agreement not to screw with or mess with the mandate of the Future Fund. And he's now apparently, reportedly, and I believe actually by the time we're talking about this, I haven't, I've said this in the headlines since we've been chatting, but has actually commented now publicly.

42:17It was reported this morning by the AFR. Has now been publicly confirmed, apparently, that he is instructing the Future Fund to invest in housing and to invest in renewable energy generation. Now. What's wrong with that? Well, you hate low-cost housing, don't you? You hate green energy, Scott. I do. I love pollution so much. You are the problem. I am the problem. How could you possibly be against that? Well, for two reasons, right? Let's say that's all true. And let's say I think as a result, Jim Chalmers should mess with it. And then let's say the next treasurer who will come from his mother party, so I don't offend anybody from, you know, the Australian party, let's offend Clive Palmer because, hey, that's just fun.

43:00Clive somehow sweeps the power next election and decides that what he's actually going to do is pull down all the wind turbines, blow up the dam and the snowy river and replace all the energy generation with new coal-fired power generation. He's going to use the future fund to do it. And all those people who said, yay, Jim, go and do your thing, all of a sudden go, but you can't use the future fund for that. And that is kind of the point. The thing about principle is it matters whether or not you agree about what's being done. Sorry, it doesn't matter. The principle is the same, whether it benefits you or it does not.

43:34Now, what is the future fund? The future fund is a government-owned - Is it kind of like a fund for, I don't know, For the future? It is, but even within that, right, it's still kind of a slight misnomer. People say, we've already got a sovereign wealth fund. It's the future fund. I'm like, I mean, yeah, kind of. By definition, is it owned by the government? Yes. Is it a wealth fund? Well, I guess. So, yeah, it's kind of a sovereign wealth fund. What it actually really, really specifically is, is a fund that exists to maximize returns so that we can pay public servant superannuation. That's literally what it is.

44:09That's the mandate, yeah. And there's a couple of, there's a Housing Australia Future Funds in there as well. And there's an Aboriginal Torres Strait Islander Fund. And there's something else. I mean, it should be beefed up to a sovereign welfare. Right, exactly. Absolutely, it should be. And even if it was, I'd still have an issue with it. But for now, at the very, very least, and by the way, here's the other, I really want to use words I'm allowed to use without slandering someone, so I'm not going to. So insert word here. I will always and forever testify that I didn't mean it that way. But if you think I meant the words that I'm not saying, but you think I probably am meaning, then you are very, very welcome to believe that because Jim Chalmers also said, oh, and by the way, it won't hurt returns.

44:46Now, I want to - Another cake and eat it too. I've got a thought exercise for you. If you're the future fund, are you already trying to maximize returns or not? I'm going to assume that whether they're actually managing or not, I'm assuming they've got a target internally of actually making money. I think that's probably what they're there for. Yeah. And if you could do that by investing in renewables and housing, do you reckon they're like, no, we don't want those returns. We want to make less, not invest in that stuff that's giving us better returns. We're going to avoid housing and renewables unless the treasurer makes us do it because we don't want to make money.

45:20We don't want to achieve those returns. We want to make less money than possible. Or we were just not aware of it. It's like, what? What's that? Oh, thanks, Jim, for the phone call. I hadn't considered this before. Oh, possibly. They're not investing in those things because Thunderbolt time, maybe it's not the way they're going to maximize returns. So when the treasurer says, I'm going to make them do something they're not already doing and it's not going to hurt returns, I'm going to say, Jim, guess what? There's fairies at the bottom of the garden. You're welcome. Because that is just absolute baloney.

45:53If the treasurer believes it, he needs better advisors. If he doesn't believe it, he needs to use different words. There is no way in which all of a sudden, magically, there's this asset class out there that only the treasurer has been able to find. All those boffins at the Future Fund didn't find it, couldn't realise, oh, yeah, that's right, renewables. Money. Oh, yeah, we should make money. We should actually maximise our return. It's just garbage. And it's just, it's treatise like mugs, right? And so, yes, I'm ranting absolutely because the Future Fund is there to make sure we funded, fully funded, public service super.

46:26And here's the thing. If we haven't, the taxpayer's on the hook. This is not a victimless crime here, right? It's not like, well, oh, we've got so much money. we can throw some over here and throw some over there and there's no implication if the future fund does not meet its objectives does not deliver on its mandate because it hasn't got enough money guess what we're paying you're paying i'm paying every listener now is paying for that because the treasurer decided something else and if you think those objectives are worthwhile as you say ram because i'm a horrible anti-greenie and anti anti-housing i hate social housing i hate people having somewhere to live because i'm like that you've heard me on the podcast before i hate those things.

47:02Here's a random idea too. Maybe the government could actually do it by itself. Maybe it wouldn't need to siphon off money out of the Future Fund to do what it can't be bothered doing under its own steam. The government has the biggest balance sheet in the country. It can do whatever the hell it wants. It's effectively got an infinite balance sheet if you want to get down to it. Right? And somehow the government, the only possible way it can achieve those aims is by using the Future Fund. Oh, and by the way, it's not going to hurt the Future Fund's returns. I mean, it literally is. It's a complete nonsense.

47:33It is just... And look, someone said on Twitter this morning, effectively said, the government is inventing new and strange ways to try and not get itself re-elected. It is just stupid economics. It is just absolutely... If they're lucky they've done their research and they've realised that enough Australians are financially ignorant enough to believe they're a failure to the bottom of the garden, or it's crap policy. The research they've done is they've got to a bunch of focus groups and the focus groups have said, we care about the environment and we care about housing, which is like me too, right?

48:07Yeah, right. Same. Like obviously they're big issues that we need to address. So they've gone, this is tested really well. We should make an announcement that sounds like we're doing something about it. I mean, it's as cynical and a craven as that. I mean, I don't know how many times I've said it on the pod before. The future fund, and broadly, keep an eye on this coming down the track, superannuation as well, it's too big a honeypot for government not to raid, particularly one that's growing its debt at a rate of knots and budget deficits as far as the eye can see. It's just sort of like, hey, there's a big pile of money over here.

48:47Maybe we could be seen to be doing something, but not really doing anything, by tapping this and dedicating a whole bunch of money to non-productive low return investments. Now, again, there is a lot of things government can and should do here. Policy-wise, you could really incentivize more renewable energy. You could really incentivize more supply and less demand, as we've often talked about when it comes to housing. There's 50 ,000 different things that could be done to do it. But taking a for-profit fund that has a mandate to provide for the pensions of people and directing it into – well, almost – unless the people who are running it are that terrible at it, to subpar return investments is just an affront.

49:31And you're right. It's the taxpayer that will wear it. It's the taxpayer or it's the poor people that wear it, as they always do, as they always do. And it's just... And this is from the left. This is from the left. Exactly. My God. I don't... I really don't like being cynical. Like, I'm not that guy. You know that. You're the doom and gloom guy. I'll wear that hat. Maybe. There's a 1 % chance, right? And you're like, dude, come on. Yes. But you look at that and you kind of think... I mean, it's on housing, right? The thing that no people's would ever say, because they don't ever say it, right?

50:06But if you were to still this whole thing down, it's, I'm sorry your housing's too expensive, but I like my job. Yep. That is literally it. That is the only answer. And I kind of want to make it affordable, except I don't want my prices to go down. But that's the voter. I'm talking about the politicians specifically. I'm talking about them too. You know what? I might be completely wrong, speaking of Pollyanna. I don't reckon the polis care as much about their portfolio as they care about their jobs. If you made them sell a house, sell an investment property, or give away the best property or keep their job, they choose their job because they like the pound, they like the salary, and they like the comm car and all that sort of stuff.

50:44I could be entirely wrong, but that's my - Look, I would never claim it as a driving force and being a little bit cheeky. But, you know, it is very hard to divorce your own self-interest from things. That's true. You know? Even subconsciously. Subconsciously, right? Yeah, yeah. I mean, that's the whole Chairman's Lounge saga. Yes, it is. Not that I want to get into that. It's like, how important really is it of all the grift and corruption that might potentially... It's a very small thing, but it's kind of the point is... Yeah. It's supposed to lose the$100 ,000 a year job because they steal from the stationery car, but it's like, what are you people doing?

51:19Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

51:29The other bit of... This feels like government bashing. You know what? It actually is. Not because we want to bash the government, It's going to be just doing stupid things. So let's go with that, at least in my opinion. This one is going to get massive amounts of, we thought the future fund thing. People like future fund, oh, it's a bit weird and it's a bit out there and it's finance stuff and whatever. Talking about cash mandates, that gets the talkback phones going. I have done a few media pieces this week and yes, nothing gets the blood stirred up like cash mandates and bank branches. Let's talk about both of those.

52:01You're right about the, I would be fascinated to know what the focus groups are actually telling the pollies, right? Because there's so much going on. And we're not going to talk about social media bans either, but if you think about the last couple of weeks, we had the social media ban. The legislation has been introduced today as we record this. We've had the Future Fund being tasked with investing in housing and renewables. We've also had the government promising to mandate businesses must accept cash and that there is talk about negotiations for a$350 million levy for regional bank branches.

52:35This feels like government's really going all out to try and solve something. And again, what is right, what is popular are always the same thing. That's an arrogant thing to say, right? When you say the Australian people are wrong, John Howard, with the I love and I hate him for all of his faults and whatever, said the Australian people don't get it wrong. And as a political kind of truism, it's kind of the way it is. It doesn't matter what I think. People will vote or think what they want. But I want to talk a little bit about the cash mandate, a little bit about the levy on bank branches, because I think there's some interesting policy kind of considerations, some interesting financial considerations as well.

53:05So on the cash mandate, the government's basically said, this is one of those, I reckon it's a political announcement, frankly. I'd be interested in your thoughts because Jim Chalmers said, so we're going to keep cash. We're not using much cash anymore. By the way, at the moment, only about$1.08 of Australian transactions are cash. So$7.08 is a tap of a card or enter a pin or stood on a line, whatever, and it's falling dramatically. if you want to imagine a graph and it's hard to do on audio but up bottom left to top right is the use of cards top left to bottom right is the use of cash and it's literally an X think about an X shape the use of cash is just plummeting at an extraordinary literally 45 degree angle type stuff like think about literally the letter X is what's happening percentage wise of the amount of cash being used and the amount of cards and electronic transactions being done and so you've got this idea Armour Guard's gone broke can we talk about that?

53:52we might talk about that yeah we mentioned it Armour Guard's gone broke because there's not enough cash being sent around the country because they don't need the trucks anymore. And so trying to send a half-full truck around the country costs a squillion dollars. They can't make money based on what they're being paid to move the small amounts of cash they're moving at the moment. And by the way, some businesses are separately, simply saying, I don't want your cash. You might walk away, but I don't want to deal with the fraud and the theft and the banking and the security and the staff cost of getting it to and from and counting it.

54:23I just can't. Just tap. Everyone's got a card. If you want the coffee, you want the whatever, just tap and we're done, right? So the government said, actually, what we're going to do is we're going to make businesses accept cash, whether they like it or not. And we're going to do it from 2026. Oh, and by the way, there's probably going to be some exceptions for small businesses. And it's only going to apply for groceries and petrol. So what they've effectively said is, well, these coals and pollen BP must take cash, right? So for all the announcement, all the headlines, all the talkback calls, I mean, great for talkback.

54:53They must love the hell out of this thing, right? For all of that, this so-called mandate is, well, as a coach, you must keep taking cash. They're going to anyway. Petral corporations, you must keep taking cash. Maybe they weren't. Maybe they were. But I can't imagine. Again, these high-volume businesses can justify the cost of holding and transporting cash. They are the ones who literally can't afford it anyway, which kind of makes me think that the ideologues who are going to say, yeah, I should keep cash. The government's looking after me. The government's like, yeah, we got you, didn't we?

55:18Everyone else who doesn't care is like, well, it's not going to impact you anyway. Don't worry about it. There's no issue here. That's why it just feels entirely, entirely political. but for those businesses, I'm, I would, I would, you and I haven't talked about this. I am on balance of the view that we should help people who, frankly, who aren't comfortable with electronic banking because it's really new. Like it's only 20 odd years old. If you're 90, you spend the first 70 years of your life with a physical passport, right? So I get this, there's a transition. I'm not of the view that we should make businesses accept a form of payment they simply choose not to take.

55:50I don't know why we would make them do it as a compulsory part of their own business? What do you think? No, I think it's madness. I mean, again, just what is it with government that feels as though they need to come in and tell businesses how to operate? There's a fundamental misunderstanding here. I got into an argument with some mates recently, actually, about this. You know, some people's worldview is that there just needs to be some parent in the room that manages everything. And it's just the value creation and trading are just the most natural things in the world. We, as a species, do. You make some extra stuff.

56:27I could do with some of that. Why don't I trade some of my bananas for your bread and we're both happy? Like, no one needs to get involved with that. We can barter it or we can trade in yen or some seashell. Who cares? It doesn't, it's up to us. Neither of us are going to participate in this transaction if we're not both happy about it. Right? Right? If the business doesn't want to take cash, they won't take cash. If you want to use cash and the business doesn't take it, you won't buy the coffee or the cake or the whatever. hey, some constituent knocked on my door and said that you wouldn't accept their cash, and so I'm going to make you do that.

56:56It's like, they can shop somewhere else. It's the free market. Should they be forced to accept the yen? You know, like, well, no, because there's not enough political pressure. But it's just an insane idea. The market will always provide a response to any given demand. If there was enough, the reality is, it's like by Australian, right? If there was enough of a demand for it, you don't need to mandate it. You need to mandate it because no one wants to do it. And to point a barrel in a nursing home and say, yeah, but what about barrel? And this is not barrel bashing. I'm saying there are things that we can do, but it's the intransigent minority that force upon an inconvenience to other people because it's not, I can't be bothered to learn this very simple task.

57:40And, you know, there would be some people who have dementia and other people with certain cognitive functions. I get that, but perfect is the enemy of the good here, right? And you just, again, it's a harsh truth, but the reality of the world is there's no solution that's going to solve everything for everyone perfectly, even perfectly fair every time. If that existed, I would be the first to advocate for it. It doesn't exist and it can't exist. So, it's just, it's silly. Having said all of that, I do have a little bit of fear about the decline of cash. That's right, yeah. Cash is the only private way to transact.

58:19And that's been the biggest bit of feedback is those people who are normally the, and I will say small L libertarian kind of view, which you've kind of espoused, which is get the hell out of my business unless you need to be there, are also the ones saying, but businesses must be able to take cash because I don't want government in my life. And if I don't have cash, then I can't do it. And it must be really interesting cognitive distance for those people who are sitting there going, I hate government, but I want government to help me because this is what I really want. And by the way, that's also when principles break down, right?

58:43We should have small government except for the things I want. We should have big government except I don't want to pay more tax. Well, guys, welcome to the real world because in your ideological fantasy world, that's great where someone else does the things you don't want. When you say, I want no government, I want government out of my life, or only the important things like the most important, but that one's important because I think I want that, I like that. But it's right. That's the one. I've got to say, I'm not a conspiracist. I'm not a negative good-do-mo-go-do-mo-go-do-mo-do as you and others as well know.

59:11Part of me does kind of wonder about that. I've got to say, you know, the very, very, very small chance of a very, very, very bad outcome is still a chance and an outcome. And at some future point, if and when we had no ability to avoid the gaze of a government that perhaps wasn't as benign as some others might be. Or a private company. Right. Like a bank. Or a hacker. A hacker? Yep. Oh, because Medibank and Optus and so many others have shown us that these are incredibly safe custodians of our personal data. No, it really annoys me that any desire for privacy is seen as you are hiding something.

59:52Yeah. In which case I say, show me your browser history. Show me all the contacts in your file. Like, well, I don't have anything to hide, but I still don't need you to see. I'm having a private conversation with my wife at home. There are just, just because I don't, like, let me put it this way as well. And again, there is, we're very fortunate in the world that we live in, in the country that we live in, where there are various, you know, consumer protections and the rest of it. And they probably, you know, the CBA and ANZ probably aren't snooping on me too closely or anything like that. Maybe the government's not, you know, extracting their records and pouring.

1:00:25They're not, right? It's not a conspiracy. Right, they're not, exactly, yeah. But they could. And what's the landscape look like in 10 years? Who's in power then? What's the zeitgeist? History shows us that civilizations evolved and changed. And when you remove a choice for someone, it just sort of says that, you know, this is much more convenient. The cost is that somewhere on the internet, and the internet is forever, the internet is forever, right? If you're worried about nudes of yourself appearing online, you should be just as worried about it. you should be just as worried about your personal data and think about if i could if i knew how much you got paid where you spent your money what you like to spend your money on and it's just like i i that is private information and and cash is the only there is another solution let's not go there cash is the only solution we sort of have at this point but even another solution is trackable once you once you join the dots yeah once you know whose wallet is the rest is the rest is eminently public, right?

1:01:27Well, the shades of grey because the CBDC is like the real, you know, 1984 kind of level. Which is central bank digital currency for those who don't know the acronym. Yeah, it's just basically the money comes direct from the central bank and they, I mean, incredibly convenient. And it would actually, it's actually, it's a nuanced topic because it comes with a lot of advantages too. Which is exactly the same as the internet and online banking and everything else. And this is where it's a really difficult one because 99.999 and God knows how many nines after that percent of the time, this is just a massive, massive, massive, massive, massive benefit.

1:02:01Yeah. Like huge. Up until the time, and this is where I struggle because I don't think it's very likely, but it's also to your point, you can't undo it. And so it's kind of one of those things of the die is cast. Yeah. Once it is cast, you're kind of reliant on that being that way forever and never changing because if it does, that's when you do have to think about, but what if this is misused? And that's a really difficult one to get to head around. Look, a very recent example is in COVID. Remember the trucker protest in Canada? Yes. And Trudeau shut down the bank accounts of all the protesters.

1:02:34Now, my personal view is, you know, that, I mean, I wasn't on the side of the protest. I sympathize with them, but I, you know, actually, my political view is irrelevant here. It's not about the protest, right? But the government was able to censure those protesters, right? Now, a lot of people look at that and go, well, yeah, because they're idiots and they're anti-vaxxers and all these labels. But what if in 10, 20 years' time, it's your side that's being prosecuted? It's the other team who is in power. Which is my point about the future. And you're protesting about something that you passionately believe in and you think is right, Whether it's a voice for First Nations people or it's an anti-war in the Middle East or whatever it happens to be.

1:03:20And it's like, oh, I went to protest, but they wouldn't let me buy a train ticket and I was frozen out. And the police came knocking on my door because they knew I was at a protest. That's creepy stuff. The price of freedom, it's corny, it's hackneyed, but the price of freedom is eternal vigilance. It really, that you need to push back on this stuff, not to sort of say you are going to immediately be evil and use this in the wrong way, but just to say that you are, it's a slippery slope. You are open, you are allowing this to happen and maybe one day it will happen. And is it not good? I just feel as a guilty, innocent until proven guilty is the cornerstone of our legal system.

1:04:02And the same kind of thing applies here. You know, just because I want some cash is not because I'm dodging tax. It's not because I'm buying inappropriate material or illegal goods. Like, there are just other reasons for it, right? And yet, the reality of what that means for the way we live our lives is still a trade-off. Yeah. Because the slippery slope goes both ways. We stepped on the slippery slope the minute we said, we will have a government who can make laws. and those laws will be governed by the majority and are enforceable regardless of what I think or how right I think that law is. And that's my issue is the slippery slope starts there.

1:04:42Yeah. And it doesn't have to be a one-way slippery slope or a forever slippery slope or any authoritarianism, but there is that question of you're always standing on the slippery slope. Yeah. And so it's that question of what do you do? And one extension of your point there is there should always be cash mandated because that's the only way we can maintain that ability slash right to have private transactions. Because if we don't mandate cash and people stop using it and so many stores stop accepting it that it simply drops out of circulation, no one's told us we can't use cash, but no one does anymore because no one does.

1:05:13And then you say, well, it's accurate or bad. And that's what I mean. That's why that slippery slope question is forever problematic. I never ever, as a principle, I don't accept slippery slope as an argument for anything, but it's also an argument for everything at the same time, which is simply we always need to be careful. We're always on the slippery slope. Our job is to make sure we don't slide too far in the wrong direction on all these different issues, I reckon. Yeah. The way I reconcile those two sort of opposing points is it's just, again, I let the market decide what – there'll be plenty of business owners out there.

1:05:47Look, I'm going to typecast an entire industry right now, but I'd be pretty confident that tradies would love to accept cash in most situations. Don't say that in any judgment. No judgment whatsoever, right? And there'll be plenty of people who are happy to pay that, right? Let people decide what they want. If there is a business out there that says, you know what, for me and my customers, I just don't think it's worth it. It's like, okay, that's cool. It's your decision. Someone else out there, if there is enough demand, will go, well, I'll take it because that means I get all the business from the people who want to pay cash.

1:06:20These things have a way organically. Whenever there is a demand, someone will match that with a supply. That is, I guess, what I'm saying. Coming in in a heavy-handed mandate, particularly in one where the cost of enforcing and regulating that significantly outweighs any benefit, then you start getting really dumb policy. Then we start doing – it's like a war on soft drugs. Not that I want to get into that, but it's just like – Let's spend an hour and six minutes into the podcast. My God, how much damage do we do and how much resources do we spend on some things that you just aren't effective at curtailing the very problem you're trying to solve in the first place, right?

1:06:58Like, it's just sort of these first-order knee-jerk things that, you know, people go, oh, so you're all for drugs. It's like, oh, for God's sake, think about it for three seconds here. What is the goal that you're trying to set and what's the most effective way to go about it? More often than not, it's just to leave well enough alone. What injustice or how big is this injustice that it needs someone to come in with the threat of violence and jail or fines or whatever it is to say, you must do this. It's just not a world that I want to go in. And frankly, let's play it. Let's do a hypothetical.

1:07:37Let's say you wave a magic wand and it's gone. Cash is gone tomorrow. Yeah. All right. You might say that there's some parallels there with saying, gosh, alcohol is causing a lot of problems. let's just let's let's let's ban alcohol that'll fix it now what does the market do the market finds a way and and someone will find a way to transact outside of this and again it's not you'll again i'm really desperately trying not to go in a certain direction here but there are alternatives that the people it just that's the irony of it you all you do is sport spare adoption for something else yeah because you take away you take away a really valuable use case to a lot of people it's like, I guess I'll do this, just in the same way that speakeasies will pop up, you know, just in the same way that whenever there's a market demand.

1:08:24Wow, cigarettes are really expensive now. And it seems like ever since we've been increasing the tax on cigarettes that the black market trade has boomed. That's really strange, isn't it? Like, who would have connected those two dots? And these examples are through everywhere you sort of look. And again, for the abundance of clarity here, I'm not saying there should be no tax on cigarettes. And that's what I was going to say, because it's not a zero or one. I mean, that's the slippery slope. That's it. Just because there's tax on cigarettes doesn't mean we've got a black market. Right. Just because you remove tax on cigarettes doesn't mean you remove crime.

1:08:53Yes. There is a slider between those two points, which is where is the right societal outcome? And we'll never all agree on exactly where the slider needs to be, but the reality is there is a slider there. And this is back to cash for a second. How much cash do you need to have? How many people need to take it before it's actually worth using? because, yes, the tradie will want the cash to save a bit of tax, maybe, but if he then can't use it anywhere because no one else takes the cash, you've got to go across the end to do it. At some point, there is an incentive problem, which is just how big a discount do I need to make it worth my while?

1:09:29Can I get the cash to pay the tradie? Well, where do I get my cash from? I get out of the AT? There is a question there, and I don't honestly have the answer. I'm pretty sure a mandate is not the solution. A mandate is not the solution. But I also think that there are payment methods, which you remember BartaCard? I'm sure it's probably still around. It was supposed to be this kind of alternative payment method. And unless you have critical mass, it does go away anyway. Is there still a motivation by some people? Yes. But we know from network effects, right? Some people are probably still using MySpace, I doubt it, but some people probably are.

1:10:02Is there enough opportunities there to make it usable as opposed to Facebook? Or does network effect take over? There is a point below which - It's a critical mass is needed, yeah. And so that's kind of the mandate question. Again, I'm not in favour of the mandate at all, except maybe I am. Every fiber of being says, mandate's ridiculous. But then when I think about the questions you've raised, and I'm not for the first time, there is that nagging through the back of my head of, unless you maintain a capacity or velocity or whatever, for that to exist in its own, just enough. If you just keep it above the waterline so it doesn't collapse under its own weight, then maybe it's like riding a bike, right?

1:10:43You can ride a bike slower and slower and slower, but at some point it's so slow you fall over. And it's kind of that idea of if I ride it fast enough, it's okay, but can I ride it fast enough for long enough? Or does it simply slow down enough that it just drops over? Even though it's possible to do it faster, and I'm touching the metaphor, but that velocity, that availability, that use. The trader wants the cash, but I don't really have it anymore. I haven't used cash in about six months. I've got$25. Oh, I rarely use it. Yeah, I rarely use it myself. But at some point, so, you know, I've not offered a tradie cash in a long time, not because the ATO is listening, but g'day, Commissioner, if you're listening.

1:11:17But, you know, at some point, it just stops being – I've not been offered a discount for cash from a tradie in a long time either. And at some point, I suspect it just becomes one of those, well, you don't have it and I don't take it. And if I took it, I couldn't use it. And, you know, when Woolies and Coles stop taking cash at some future point, is that the death of cash? Probably. And then what does it mean? That's what I said. Every fibro being says don't mandate it. That's ridiculous. It's not government's job. But for the reasons you've raised and others have raised already, that question of but what does that mean?

1:11:48And is that really a social outcome we want to have a ladder have happen? That's where that, again, that slider between the libertarianism of don't tell businesses what to do, the libertarianism on this, ironically, on the other side of the slider, which kind of that horseshoe idea, you're back where you started, which is, but I want to be able to use cash if I want to, and therefore I need enough people to take it. That's a real, they're opposing views that all of a sudden somehow also meet in the middle. Yeah. I mean, so it's, to me, there's something more fundamental at play here, just not to go into the depths of monetary mechanics, but cash is a liability of the RBA.

1:12:29Yep. If you read it, I actually think it's on the notes, right? Like back in the way back in the day, you'd front up and they would turn it into gold for you because it was back in gold. Digital money that we're all tapping, that's a liability of a commercial private bank or publicly traded bank, but it's CBA. It exists in their databases, right? Now, why is that a difference? is it really does change the fundamental relationship. I mean, it's already trending this way, so I shouldn't over-egg the pudding. Cash is becoming smaller and smaller. But it changes the direct line of money in the economy, one as a central underpinning and liability of the nation's central bank, one that is now increasingly going this way anyway, but entirely in the hands, mandated.

1:13:20Well, not even mandated, but what's the word I'm looking for? just driven that way by the market where it's entirely a commercial bank. That is money. Money is a commercial bank liability. It's an IRU that if you ever want it, we promise we'll give it to you. And it feels as though there's something that, because it is such a foundational thing, I do wonder if there are second, third, fourth order consequences of completely abandoning cash whatsoever. I mean, I suspect this is where CBDs enter into the lexicon and that becomes the way we go. Again, it's just too convenient to be able to – I mean, can you imagine having something that you can transact digitally with all the convenience that that offers and yet have that as not something that is just a personal promise from a private enterprise?

1:14:09It's different, right? It takes the domain of money into a different direction. I'm struggling with words today. But the very character, the very nature of it has changed in its issuance and its custody and its creation at a fundamental level. And you're taking away from – it's handing increasingly more power to the banks, I suppose. There's another angle on all of that. So anyway, I don't know what I'm saying. All I'm saying is I don't use cash either. It's obviously on the way out. It's obviously a dying technology. We've just – no one uses steam engines anymore either, right? Like for a good reason, but it is going to represent a challenge and we should not hasten to get rid of it too quickly.

1:14:58But that doesn't mean heavy handed government mandates to force people to sort of accept it. Again, I suspect, you know me, I suspect the market will present and has a solution that will continue to be embraced. Because that's what it is. It's digital cash, right? So, yeah, it's too appealing. and the use case is too potent to be ignored longer term in the face of this broader landscape. I have less confidence than you in markets and competition in general because competition tends to err to monopoly and it's often difficult for new solutions to be born under the weight of that monopoly, even if it deserves it because of all the network effect and predominantly reasons.

1:15:44I think we know you only look around at the supermarkets and the airlines and the everything else and say it tends to monopoly over time. And the critical mass required to fund a challenger product, service, company, network, whatever it is, is often prohibitive.

1:16:06I think that's where for me, and I think you're going to agree on this, the preeminent role of government in business is to maintain and promote competition. And to me, that's kind of the key. And that's not necessarily about cash particularly, just more of a general comment on your, will the market solve it? The market will solve it if the market can solve it. But if the market can't solve it, then we'd end with a monopoly. And that's kind of – you look at Optus and Foxtel as a really, really very, very, very, very, very basic solution, which is simply you've got to string these things up all around the place to provide cable television.

1:16:40At some point, the duplicated thing just made no sense for anybody. You couldn't get an RL and it's the whole thing died. And you kind of go, where was the competition? I think that's – and so what happened? You end up with Optus Vision got folded into Foxtel. Foxtel became the only provider of pay TV and that's kind of how that kind of netted out. The NBN is probably the same. You don't want and you would never support. There will never be a national network of cable. And even then go to Starlink, right? Who's going to put up a competing satellite internet network given the cost and given the head start and overwhelming, you know, advantages that SpaceX and Starlink have to provide satellite internet?

1:17:18Even Telstra is now getting rid of its own satellite internet that's reselling Starlink. So, you know, which is only to say I think competition is right, but I think capitalism ends in monopoly unless we maintain appropriate competition. That's why there are laws against cartel behaviour, for example, because otherwise, if it was an absolute monopoly, it'd be a cartel monopoly or a moral monopoly that was literally just a self-reinforcing. I mean, I agree with the airlines are kind of that now, right? There's no collusion, but they've basically both realised that if they're both ultra-rational, ultra-sensible, I could charge the fortune.

1:17:49I've got two flights in the last 24 hours. Both were more than half an hour late. Would it be better if there was a solution? Yeah. Are they going to put on more flights to do it? No. Why? Because it's not the interest to do so. I don't know. As I said, competition is the answer. Markets are the answer. But I think governments have a role to make sure those markets remain operational. I don't think markets by themselves have enough heft always. Sometimes they do have enough heft always. Yeah, it's a spectrum. I mean, I agree entirely with that. That's where these debates always are so frustrating because it tends to black and white.

1:18:21You've got some stupid extreme on that side. And then there's stupid, you know, it's like, no, free markets solve everything, which I'm definitely not saying by just the record, right? No, no, yeah, yeah. And then the other one that says, no, government should control everything. It's like, they're both dumb. They're both dumb, right? I guess all I'm saying is the slider is too far towards the government should fix everything kind of problem. And, you know, like social media, there's a problem, we'll just ban it. Oh, we don't like that. We'll just ban it. And it's just, oh, yes, you have to recognize an issue and a challenge, but it's just that the heavy handed, very, uh, and often very expensive and, and poor return solutions with lots of second order and unexpected consequences.

1:18:59It's just not the answer. It's just, that is, that is, I think a relatively objective argument you can make and point to a thousand different examples. There are probably a few where it's like, actually that's worked out really well for us, but more often than not, it hasn't. And so that's, that's just why you, I feel it's, it's just pushing back on some of these things a little bit. to sort of recognize that sometimes you don't know what you had until it's gone. There's a much nicer way of saying that. I forget the exact saying, but it's true though, right? Donate always seems to go. You don't know what you've got until it's gone.

1:19:32They pay you paradise and put up a parking lot. That's the one. The song says it best. Doesn't it? Anyway, I've got no easy answers as well. I'm really getting fed up with government of late, which is just sort of focus group testing, this bad thing. we ban and it's just it's just dumb it's just dumb and it's not to suggest oh you should just do this here's a really easy solution i'm smart i've got all the answers like no i totally don't but i know that you're going too far in that direction and a broader deeper more nuanced conversation is well worth having yeah i like that hey mate we've come to the end of our podcast will you join me three days ago and do a sunday podcast i don't think i can say no you can't at this point it's always good to know it takes a lot of the risk out of this podcast can i say for this week.

1:20:17Will you join me Sunday and then next Friday? Can I get that agreement? Yes. In fact, we better start planning our Christmas episodes too because that's fast approaching. There's a bit going. So speaking of which, if you made it this far on the podcast, God help you, but thank you. You obviously are someone who likes what we do, again, for reasons beyond our understanding. However, or maybe because of that, if you have topics you'd like us to discuss, there's a very good chance we'll do some general topics over the break. We'll also probably do a couple of pre-recorded episodes that might include extended mailbags or something else.

1:20:49So if you have topics you want us to discuss, issues you want us to resolve, questions you want us to answer, whether it's the mailbag or just a more general conversation about investing, preferably, or economic policy or finance or... Tangentially related to money is all we need. Yeah, yeah, there's something, something. Anything dollars, yeah. I've got something in my pocket while I'm thinking about it. That'll do. But if you want... Seriously, you poor people. If you want to hear us bang on about stuff, let us know what that stuff is. We'll do it anyway. so you might as well have some input into what we're going to talk about and make your listening experience just that little tiny bit better.

1:21:21I want a kicking off point where we can start the pod with there's 100 people on an island and we fundamentally build up the entire global economy with a 100-person island analogy and that's going to be a lot of fun. Let's do something like that. That's a fascinating idea. I thought you were going to go back to Adam and Eve and just kind of build humanity from the rib of a man or something. we shall say. There are many, many possibilities. Getting towards Christmas, maybe. There's an angle there, probably. There probably is. Until we speak to you on Sunday and then next Friday and then twice a week, hopefully for a very, very, very long time.

1:21:58Thanks for listening and Fool on. Thanks. 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. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.