Is there an AI ‘employment ice age’ coming? January 30, 2026

26:26I don't believe it probably. I don't suspect it is, but maybe it isn't if it is. Tell me. But other than that. Broadly in par, I think. Yeah, right. So what's the difference? And I am happy to whack politicians anytime they deserve it. And we've said this before, but I just am getting, I don't know, I'll probably just stop. But Jim Chalmers again tweeted about how, oh, unfortunate, but not unexpected. And that's why our cost of living relief is so important. And I just want to jump up and say, Jim, what the hell are you actually doing to help deal with the cause? You're throwing some Band-Aids around and maybe they're useful.

26:57And frankly, if you're on fixed income or low incomes, you need the Band-Aids, right? Because you're bleeding like buggery. So I'm not even saying that's a bad thing to do in the context of where we find ourselves. But man, dude, come on. Like I just... Stop borrowing and spending, dude. Right? That's it. That's it. Or tax more, whichever way you want to do it. Or do it and just accept the consequences. Hey, we're going to do all this, but... And it's going to feel good, but everything's going to get more expensive. they're not going to say that that's true right and so I just I don't know I I know I know you feel this way about you know monetary policy money printing and stuff which kind of like that whole idea of like but I can see it why can't you see it what frustrates me and this is where I get a lot of replies on social media which is like oh the government's stupid they don't get it it's like no they get it it's worse than that it's worse than that if they don't get it treasury gets it so if they're not asking the question they're negligent if they are asking the question or they know the answer and don't ask because they don't have to say they were told.

27:50One of the two, right? They don't not know. To your point, a 12-year-old knows. You know, Jim Chalmers is not a career economist. That's fine. And people say, oh, I've got a PhD in Paul Keating. Fine. Who cares, right? You're the treasurer. You've got the entire treasury at your disposal. You ring the secretary of the treasurer and go, dude, come over to the office for a minute. I've just got a couple of questions for you. And the treasurer secretary goes, actually treasurer, it's this. You go, oh, cool, thanks. Okay, I'll do that then. In a sane world, that's what happens, right? or maybe it is saying because their self-interest is always paramount I don't know but man it is just and I know I'm banging on about it and we've mentioned it before but I just get so incredibly frustrated and maybe what's even worse is the opposition we had an election recently and there was zero mention of any fiscal responsibility or restraint whatsoever from either of the major parties oh they're both the same the Greens want to spend even more yeah like but it is just so incredibly maddening that we are getting what we as you said who's surprised nobody because that's what you expect.

28:44And I think, you know, you can, no one's going to, I get that it's hard, right? A treasurer's going to stand up and say, so we're going to tax you more. It's like, ooh, no, I don't like that. Or we're going to cut the goodies. Or we're going to spend less money on you. I don't like that either. Could you do something else? Yeah, yeah, we'll give you an energy subsidy and then I'll blame Michelle. Oh, good, yeah, let's do that. Like, that is genuine. By the way, how many billions did we spend on that? 6.8. I know exactly because it was reported this week. What did we get for it? Like nothing, really.

29:10We got a temporary relief that's come back and slapped us in the face full force. And the absolute underlying structural issue has not changed or trajectory has changed at all. And that money that was given to us to pay for electricity, we then used the money we would have had to pay for energy to pay for other stuff anyway. So it didn't even fix the inflation problem it was supposed to fix. Where did the money come from? From us. You taxed us and you gave it back to us. Like, what? Well, actually, in this case, they just increased the debt, which is even worse. Like, are we at a trillion yet?

29:36We're just on the door of a trillion. gross debt I should say just for the sake of the government has some cash as well so the net debt is less than that but yes we're not far from a trillion dollars not large I think it's I actually think it's a decent amount but even if it's 750 billion of net debt it's still stupidly large and unnecessary oh yeah plus we have to factor in household debt we have to factor in state government debt corporate debt so have you talked about state government debt recently no so I looked at an article recently and I think it was an article it might have been a few months old we may have talked about it at the time State government debt combined, and I did quick back of the envelope.

30:10By 2030, based on the AFR article, I think it was the AFR, something like$800 billion in total of state debt. Now, yeah, it's four years away, but they're going to be rivaling the feds at some point. And I've got to say, that's one of those things. And they don't have a money printer either, the states. Exactly. And that adds to demand as well. So as much as the feds have to pull their belts in, if they do it and the states don't, then we're in exactly the same situation. I'm not just digging into policy. I wouldn't necessarily abolish the states. I don't love the idea of... There's not enough media coverage of councils to have me believe that if you got rid of the states that we could avoid to let Council X do their thing with no media oversight.

30:47Like, oh, no, I don't want to do that. But there is... We have media oversight? Well, some... Cape and climate and pretty much daylight. But yes, there's something going on. But I mean, the broader idea of just that, that idea of imagine even less than that. Whatever we have, imagine less. because you devolve some responsibilities to councils that states currently have. So you make councils more powerful and they say, knock yourselves out, guys. You won't take any money from developers, will you? Okay, good, good. That's good to know. So there's that. I just, you know, I'm not going to, I don't think it's going to happen.

31:18So I don't want to draw too strong a line. But the states not having the money printer, or not even necessarily the money printer, just control of the national currency more broadly, monetary policy more broadly. And again, I know you'd rather not have it, but to the extent they don't, it's kind of like the Eurozone. You've got your own budget, but you can't control your currency. How does that work around? Well, that's right. It's always been the case in Australia and I wouldn't change it other than if you're a half-decent federal treasurer, you would say to the states, guys, you get no more money until your debt to GDP is under a certain, gross state product is under a certain amount.

31:52And then you'd use the big stick. Of course not, but you'd use the big stick and say, you have got your own monetary policy, your own currency, so I'm going to have to give you some very, very specific constraints, which is you get this much money and no more. Knock yourselves out, but once it's gone, it's gone. You know, the tap's turned off, you deal with it. That's the only way you can responsibly do it. But of course, as you say, no one's ever going to do it. No one's ever going to do it. Yeah, yeah. No, it's crazy. I mean, not that having a money printer is an excuse to do it, right? Like as we've discussed ad infinitesim.

32:18Correct, correct. Like in either case, living well beyond your means is just shoveling your problems onto the future generation, right? Which as I've said, like we are the future generation. These were debates that were happening at the turn of the century. And it's like, well, we're the future. Like, we're here. It's happening right now. And it's just going to be even worse for the next. So it's depressing, dude. It's depressing. It really is. Well, where are you going? What was the lead in here? What were we talking about? Just the inflation rate. The inflation rate. So 3.8%, right? That's up there and it's sticky.

32:50And as I said, it's absolutely no surprise whatsoever. Here's the thing. So the big so what, right? Let's just pull the Band-Aid off and get there. So interest rates going up, right? Probably, yeah. Yeah, probably. I think the market's pricing a 70 % chance of a 25 % basis hike. That's, what,$2.5 billion extra in federal debt servicing obligations, but let's put that to the side.

33:19The reality is, is that when you look at, what's the current cash rate at the moment? 3.6%, something like that. So we're at negative real interest rates. Yeah, that's right. I just, what, what? I'll just back up there a little bit. So in real terms, in inflation adjusted terms, you're basically being paid to borrow money. As long as you're getting the - In an environment that is inflationary, right? Like there's something called the Taylor rule in economics, which is meant to be this rule of thumb that basically says, you know when things are too hot you want a positive real interest rate and etc you just help sort of correct things and so they they're absolutely i mean i i would have take a lot of issue with a lot of things there but but just within the framework within they operate in they're actually not even they're not even they're not even logically and rationally consistent within their own framework there hey inflation's a real problem but negative but interest rates real interest rates are negative.

34:19Anyway, so they're going to, they're probably, as I've said many, many times, they'll maybe this year we'll put up once, maybe twice, and they'll talk a good talk and they'll shake their fist and they'll be very, very serious and stern. And at the end of the day, this first sign of any economic wobble, they'll fold like a cheap suit. It's interesting, actually somewhat heartened to hear a lot of the analysts in response to yesterday's CPI, basically saying the same kind of thing. Because it's the elephant in the room. It's actually not even on the fringe anymore. It's just sort of like, yeah, they should do this, but they can't.

34:50What do you mean? Well, they'll literally collapse the economy. So what do you want? Do you want a bit of inflation or do you want unemployment at 12 %? We'll take the inflation. This is it. It has to be. And anyone who says, I think that's where a lot of the purists go wrong when they look at these figures and go, well, RBA needs to do this. Like, yeah, probably, you know, but they won't and they can't Because there's no good outcomes here, particularly when, as your excellent point, that the feds are spending well beyond their means. It's pushing on a string here. So, it's – expect more inflation, folks.

35:26Expect a little bit of an increase in your mortgage. And then, if things get really bad, expect that to wind back again. But, frankly, if you've got access to credit and interest rates are negative in real terms, I mean, do with that information what you will, right? As long as you get the benefit of that. It's not evenly spread. So I just want to, it's easy to kind of go, you know, same as real wage and other things. It's like the aggregate number is absolutely right, but you have to get the benefit of that inflation to pay for those borrowings. Because if you don't get it, and we've seen, for example, discretionary retail businesses really struggle because no one's spending.

35:58So even though they're borrowing cheap and even though inflation is higher, there's no discretionary retail inflation right now because it's just, you know, margins are getting crushed. And that's kind of what's supposed to happen, right? This sort of situation is kind of the idea, but if you can get that return, you're okay. I think that's part of the mechanistic rationale for all of this stuff is demand is too hot. Well, let's take demand away and that will cause prices to come down. It assumes that there's a fatter margin that would otherwise be the case that, again, in consumer land, a lot of these retailers are enjoying exceptionally high margins because supply is unable to keep up with demand.

36:32And that's just patently false. I don't think there's any retailer out there going, oh, we're just running hot here. The tills are just out of control. oh, that's not the case. In fact, our margins are already razor thin. So we can only cut, it's not gonna solve prices, right? Because we can only cut so much. And then at that point, it's like we're unprofitable, which we're out of business and which there's not even anything to price at that point. So it's sort of like, I think it's that mechanistic part that I really have struggled with. And the other component of it as well is that when you look at the breakdown of where the spending is happening, I have people, quote unquote people, The aggregate is spending too much.

37:10Well, is it the 43-year-old with a massive mortgage? Are they the ones? Or is it an older demographic who's largely mortgage-free, who owns lots of assets, who's actually done incredibly well in an inflationary environment, who are off living their best life? It's not to point blame here, but it's just sort of like higher interest rates to that cohort actually assist in their spending. And they're already arguably probably the bigger determinant of discretionary spending. So the person up to their eyeballs in debt, just trying to have a house and raise a family. It's like, I am not the cause of inflation, bro.

37:42Like, can you stop blaming me? And my demand is to, I'm barely covering the basics here, which report after report after report show, but you're going to punish me because that's the only, that's who gets punished here when interest rates and mortgage rates go up. It's these people who are also, by the way, the productive members of society. And almost axiomatically, if you've got a mortgage, it's because the bank thought you had the capacity to service it. They thought you had the capacity to service it because you've got a job. You've got a job because you're contributing to the economy. Let's punish those people.

38:17Let's punish those people for too much demand, according to whatever we decide in Martin Place is too much demand. whereas the other people who have the discretionary income who benefit from higher rates, we're going to give them even more discretionary income and allow them to spend even more. Draw me a line, dude, between how they're... I know they have to do it because that's the world they live in. They've got one lever in front of them. It's all they can do, which is a really bad justification for it. It's a really dumb thing. It's going to be ineffective. It's not very... It's proven not to work, but we're going to do it anyway because we have to.

38:55It's like, I get that within that tiny myopic sort of framework, but broader, just like none of that makes sense. And maybe help me understand it, dude. Talk me back from the ledge here. Well, that's why I started talking about the government because that's, you know, I've used the analogy a million times. Like the RBA is the goalkeeper on a soccer field, right? And they're playing a game of soccer and the RBA kind of looks down at the grass, looks like it was like, fellas, they're off by having oranges, the game's still going. It's like, well, you're giving me a job and my job is just to stop the ball and you forwards are supposed to be going forward and your backs are supposed to be helping me out and you've buggered off and you've said, we're helping, we're helping, we're doing everything we can to help.

39:33We really are. We're over here helping. And it's like, you've tasked me with a mandate, which is full employment and price stability. Now we can argue about all that sort of stuff and I know you have very strong views and that's completely reasonable. But at the end of the day, it's like my job is to, if there's too much inflation, put rates up. Because I've got one tool. I mean, money printing arguably as well. But, you know, I've got one tool. And so - It's kind of the same tool. Lower interest rates engenders more money printing at the commercial length. Getting to the plumbing of it all. But yeah.

40:01No, you're right. I just want to make the point that when people, the pedants will say, no, no, it's more than just rates. I'm fine. But yeah, they've kind of gone, well, I guess I'm the goalkeeper. I'll do what you told me to do because that's what the coach gave me the instructions to do. It won't work because it never does. But we'll do it anyway because we have to because that's all we can do, right? It'll do something. But as you say, it'll - Yeah, and it'll hit those people paying mortgages. I mean, think about, I haven't done the numbers because I'm, again, don't do that much research for this podcast, but I don't know how much money gets taken out of the economy with an increase of rates of 0.25%.

40:32To whatever degree that is, the federal government has a million, okay, a couple of dozen, different levers they could pull to do exactly that in a way that was more appropriate. And you can define appropriate however you want. If you're a Liberal voter, if you're a Labor voter, you've got different views on what appropriate is. I don't care. My point is, governments, the parliament. That's the other thing, by the way, my little hobby horse. Do I have government all the time? It's like there's a whole lot of people in parliament. And so the parliament, where are the votes from the opposition? Where are the policies from the minor party saying, hey, guys, rather than making the RBA smash borrowers, why don't we actually just cancel that bit of spending or raise taxes on those people or whatever else we have to do to actually help the RBA not have to completely smash mortgage payers?

41:15And that's the great trick is that they, and again, you know this, I know this, and our listeners know this. The great trick they pulled is inflation is somehow disembodied and just kind of happens. There's no one really to blame for it. But rates, we have someone to blame for rates. So when Michelle Bullock puts rates, they're like, oh, that bad lady, Michelle Bullock, she made me hurt. Can someone please go and rouse on that naughty lady because she's very mean to me. And inflation, meanwhile, government spending, meanwhile, is like, oh, I'll buy your votes. I'll give you some cost of living relief.

41:44Here's$6.8 billion for electricity. Here's spending on this and that. Here's the other thing, mate. A bit of a rant on government, but hey, why not? I have no ideological philosophical issue with things like the NDIS, right, as a concept. Looking after people who need to be looked after. We're a wealthy nation. We're a caring nation. Like, what's the alternative? Leave them on the street? Same here. Right? Yeah, same here. So two things. Firstly, the structure is absolutely abominable, and we've talked about that before, not for a while. So very quickly, you've got a three-cornered market. You've got the payer, government.

42:16You've got the provider, one of the service providers, and you've got the client. Who has the incentive to argue for lower prices? Absolutely nobody. The service provider is going to over-service to bugger if they get away with it. The client's going to get as much as they possibly can because someone else is paying. And the government sits there and goes, I don't know why this is so expensive. This is really bad. I wish I could find out why this was a problem. So that's the NDIS thing. my broader point is actually in the real world for a second and so put philosophy and ideology aside and even you might even justify inflation if you want to maybe the reality is that the ndis is not adding to and is almost certainly reducing removing lowering productivity why because those people are not making a thing they're providing a service which has not much economic benefit a little bit because some of those recipients will be able to participate in the economy so it's not nothing but you think about productivity and again i'm not saying we shouldn't do it necessarily i think we should do it much better my point simply is i wonder to what extent the difference in inflation between australia and the us for example is that we just we threw a whole lot of unproductive and again economically unproductive and if you want to at me knock yourself out but that means you're not listening to me so just stop and have a think while i talk and most people get it but if you're getting hot under the collar right now just just cool your jets it is unproductive spending to a large degree.

43:39Now, is it right? Is it appropriate? We can argue about that. As I said, it should be less because the system is just sucky. But it must. We're adding demand. We're adding no productive, very little productive capacity. So the whole idea of supply and demand is kind of like, are we surprised? So not only are they spending deficit spending, which is stimulating the economy, but they're doing so in areas that are not adding to productivity. And so you've got the same amount of output and more inputs, economically speaking, it's not, it may not be, I'm not sure I want to draw a straight, direct and unbroken line there, but I suspect that's a contributor to some degree.

44:16Now, should we do it? Arguably, we should do something. But also, again, this is the, but what they did was they added money that didn't cut back spending anywhere else. So they used debt to say, well, we want to fund the NDIS. Let's just increase the debt and increase the deficit and stimulate the economy by doing so. As opposed to, let's spend money in NDIS and we don't want to increase the debt. So what we're going to do is cut spending here and here and here to fund it because that's the right thing to do for the economy. And they didn't do that. They just went massive amount of increased costs.

44:44Hope the economy can absorb it. Surprise. At least in part, I suspect the difference in inflation is because of that. Oh, it's a big part of it. Big part. We've seen, I think actually you take away public sector jobs and unemployment would be much higher. I suppose all of the job creation post-COVID has pretty much sort of happened. Large chunk of it. Just to pull on the thread that you're going with there, I think you're right. So people get triggered a little bit when you say things like unproductive spending. It's like, oh, so everything's about the economy. It's like, no, no, no, no, no, no.

45:11So look at me as an individual. Most of my spending is unproductive. Like, you know, the things that I consume watching some Netflix or, you know, buying an experience. It's not productive spending. The difference is, is that I have funded it myself through work, a contribution that I have made to the wider society. I hate the term economy because it just, it investigates what really matters here. I'm, I'm, I'm contributing to other people who for some reason value what they provide and they willingly sort of pay for it. Mate, if you've got Australia's Premier Online Investment Club, you can't be surprised if people want to pay you money.

45:45Come on. I mean, let's not, let's not hide your light under a bushel here. So, so whether I spend it, whatever I spend on, who cares? Like it's my business and can be productive. It doesn't matter. Where it does matter just to, again, bring it back to the individual level is if I borrow a bunch of money and then use it to take on a holiday. Well, again, I can do that, but I'm going to get myself in trouble because now I'm going to find it more difficult to service that debt. And I'm probably going to have to borrow more debt to service the old debt. And that's the problem with government. It's not that they want to spend on things that have incredible social value and just what a rich and caring society should do, which I'm very much with you.

46:21I absolutely don't think anyone in this country should be homeless or hungry or anything like But we have to recognize that the provision of those services comes at a cost. And the great tragedy of the modern age is to think that we can have our cake and we can eat it too. And we do it with a giant shell game and a lot of very financial sort of sophisticated sounding things. But basically, we just borrow from the future. And when the market doesn't provide us the money, we print the difference. And then we have all these other second, third order sort of consequences down there. So it's just to round out your thought there.

46:55It's not, it's, and again, you're so right to be careful there because you know from experience that people take the wrong message in that. Yeah. It's not too, you know, middle-class white men talking about how productivity is important and we shouldn't care about people who need, you know, social services. It's not that. It's just about having a mature conversation about, do we want this? Okay, we do. Okay, how are we going to fund it? There's a cost to it. It just is. Not good or bad. It just is. And we must recognize that fact. Same with the military, same with, you know, even federally sponsored entertainment budgets.

47:33And it's all the same. We can have whatever we want. We've just got to account for it. It's as simple as that. And we can have various sort of special situations and emergencies where we perturb from that in small, temporary kind of ways. But when it's just structural and ongoing. Lo and behold, we find ourselves in an environment where in real time, the world's superpower is collapsing and their currency is debasing. It's like, how did this happen? Oh, right. Exactly because of all of the things we're talking about, just running for a very, very long time and on a much larger scale. Which is a lovely segue to exactly that, mate.

48:08Over the last... So I read this in the paper this morning and they said, oh, gold's up this much this year. I went, oh, okay. And I thought, the year's 29 days old. So here's the numbers. Gold is up 22 % in the last 29 days. And that feels like a lot. A near$30 trillion asset too. This isn't some meme coin. It's not GameStop that's increased by that percentage amount. Like, this is gold. It's like amazing. And silver is up 60 % over the last 29 days. And you and I broke – we're talking about this a little bit off air, so I'll set it up and then I'll let you go. There's two – well, there's three different possibilities.

48:52There's two separate ones and one that might be a mix of the other two. But you've got a situation – you mentioned US debasement and other things. Maybe investors in gold are seeing the world clearly and they are like, man, when this thing collapses, I at least want to have some gold left over. Right? There is no – I've said before, there's no fundamental basis for the increase in gold over the last couple of years. It's not like there was X percent more people or gold became more expensive to mine or the money supply went up even by that amount over that last 14, 15 months. These things did not happen to the extent the price has gone up.

49:25So this is a rushed trade for, and again, we can never tell exactly what's going on because you kind of impute or assume based on the kind of the talking and the action, you kind of think, well, what's the most likely? And maybe we're wrong, but it seems like people are rushing to get the hell out of the US dollar. The Australian dollar is up too, we'll talk about in a second, as a result of the US dollar falling. So you've got that going on. So either they're right about the impending, I won't say collapse, but potentially significant devaluation maybe of the US dollar. And if that's the case, you don't want to be in dollars, you want to be in something else.

49:58Maybe it's gold, maybe it's shares, maybe it's digital currencies of one description or another. Maybe it's anything except these empty promises. Right. That's all they are, right? Now, the other possibility, and I'll get to the blend, the other possibility is they have all drunk the Kool-Aid and they are panicking like lemmings. And speaking of meme stocks, they're doing the GameStop thing. It's like, but actually, we may look back at this in 2027 and go, oh, man, remember when gold went from$5 ,300 down to$3 ,000? Oh, man, wasn't that a collapse, right? Everyone really overreacted. It was stupid and they got silly and the trade just kind of fed on itself.

50:31And the third option is some combination of both. That maybe the underpinning reality is real, But when the lemmings start running, everyone's like, well, they're running. I better run too. So you've probably got some combination of genuinely held, maybe even accurately held views about the challenges for the US dollar, and then a whole lot of piling on top of that. So it's impossible to know, other than hindsight, what is a reasonable price. By the way, here's the other problem. Over time, there is no justification in my world for gold to be selling for much more than the cost of production, as long as you can mine more gold at that price.

51:04because what commodities tend to do, we've said lithium a million times, well, not a million, a few times, price goes up, lots of mines start up, lots of supply comes on, the price goes back down, lots of mines close. And commodities tend to trade about the cost of their production, give or take, because you incentivize more people to produce more, speaking of supply and demand, when the price is high. So over time, even if they're right about this, at some point, we'll see a stabilization back closer to the cost of production. The question is what that will be based on the demand. And we don't know what, it's probably what, three, three and a half grand, I suppose, to get an ounce of gold out of the ground these days.

51:36And maybe go to four and a half. That's an average too, because some mines are much more viable. But it's all marginal costing. So maybe the price goes up because the new mines come on and are less efficient because that's why they're not operating now. So I'm not saying it'll go back down to the current cost, but I suspect that unless the cost moves up to the current price, then over the medium and long term, you're probably still going to have someone holding the baby. It doesn't mean, though, that the rationale isn't right. Over to you. Yes. The difference with gold is special. Whether we want it to be or not, it's special.

52:06With air quotes or actually special? Well, it's hard, right? It's really hard because the thing with gold is it's very easy to deride. And I often do, right? It's a shiny yellow metal. It does nothing. Yeah. I guess why it is special, though, it has a 10 ,000-year track record. It's just, God, it's very hard to displace that. We're talking about a century of the stock market. This thing's got 10 ,000s of years, right? It is the underpinning of everything humans have ever done in any sort of financial or monetary sense, up until 100 years ago, frankly. So it's massively, massively important. And unlike lithium or copper or other industrial metals, the vast majority of gold's value is monetary.

52:53It's a monetary premium. In other words, its utility is not in, oh, I can make a satellite with it or some electronic circuitry or I can make some jewelry with it. If that was the only thing that we use gold for, the price would be a fraction of what it is because the vast majority of it just sits in bars underground. That's what it does. A little bit in jewelry, a little bit in electronics, but the vast bulk is, as you say, just sitting around somewhere. I think that's where a lot of the gold bugs go wrong. they kind of go, well, the good thing about gold is it's got a use. And it's like, yeah, but no one's buying it for its use.

53:26No one buying gold today has, I'm going to make some lovely jewelry with this. No, I'm going to keep it and I'm going to exchange it for value somewhere. I'm going to use it to store value. Why? Why would I use, why of all things? And why was it that gold without any central authority or dictate from up above, why did it assume that role? It just had all the properties it needed to, right? It was just, it was scarce. It was verifiable. It was all of the things that you needed for a good money. And so it can trade well above its cost of production for a very long time, as long as people recognize and subjectively value that utility.

54:06Now we can talk all day long, whether or not that's rational or not, but what we can say with absolute certainty is that people do value it for its monetary utility. And that utility is indirectly a function of fiat because fiat has so many advantages over gold, right? Like I can teleport it over the internet. I can, you know, it's so much better in so many different ways. Gold is heavy, you know, I made to really understand the purity of it. I've got to do all this chemical assaying and all of this. It's sort of clunk. There was a reason why we're not using gold coins anymore, but you can't poof it out of thin air.

54:49And that's the Achilles heel of fiat. So the only reason that people are seeing increased utility, whether they're right or wrong, is because it is a direct reflection of the lacking confidence of the US dollar, essentially. Now, let's talk about whether or not that is a valid reason in a moment. Or to what the grade is, but yes. But that's the point. So what you can say is, and it's different if it was like, even something like Bitcoin, it's less than$2 trillion in value. It's a very, it sounds like, wow, it's a lot of money. It is, it is, it really is. There's something that only existed 17 years ago.

55:25But in the global scheme of asset values, it's sort of, it's tiny. So to take an asset that prior to this massive pump was what, 15 US dollars, trillion, 15, sorry, US$15 trillion in value, which is, you know, just done what it has done. It requires not just a few weirdos to go and buy some gold bars. It needs very significant capital inflows. beyond what you can account for with retail. And we see it. We see it on the reported stats. You know, it says like places like Japan and China, which have historically been big buyers of US debt, are not buying in the same quantities. They're letting that stock run down and they're buying gold.

56:05A lot of the central banks are increasing it. Why? Because they've lost faith in right or wrong. Doesn't matter whether it's right or wrong, but there's no other explanation for it. Then when you get to a point where these massive capital rich institutions go, I would prefer the shiny yellow metal as opposed to your promise. It tells you everything you need to know. They have lost faith. And it has gone parabolic, this thing. And so there's signal that you're dead right. In a year's time, we might look at it and laugh. But I think for that to happen, we need to see our fiscal and monetary house get very, very rapidly in order.

56:46I don't know if you saw Ray Dalio. For those that don't know, Dalio is the founder of Bridgewater. He's like the biggest hedge fund in the world. Very successful investor. He's in Davos recently talking about upcoming US civil war and the collapse of the monetary orders. Like this is not like some scaremonger, like, you know, YouTuber that's out for clicks here as well. So, and he's got a point. He's got a point. So to your question, will we look back on this and laugh? Yes. If through whatever actions the authorities and institutions are top largely the US, but also the western uh sphere if if they do not get things in order there's no real there's not many alternatives right i'll go i'll go the metal as dumb as it is in so many ways the one thing i know is that at least to this point we can't make it not like diamonds right we can make diamonds now right we can't we can't we can produce more yes so there would be a supply response so the thing is when when there's however like what is it an olympic swimming pool size worth of gold that we've mined in the 10 ,000 years.

57:50That's how much we've mined. So yeah, it's really scarce. So yeah, what is this price action done? Every gold miner in the world is now scrambling to produce and they will, but that takes time. And even then relative to the existing amount that's already above ground, long-term the supply of gold, the stock to flow type thing, you tend to see it grow by two to sort of 3%. So even if everyone massive, assuming no massive technological breakthrough or Elon starts mining asteroids or something, you know, you're right, there will and there is going to be a supply side response. But just the very physical constraints and realities of the situation is even if we go full tilt and we just devote everything to gold mining, we're still not going to, we're still going to increase the supply of gold at a much slower rate than we're increasing the supply of paper promises.

58:45And that is the value proposition in a nutshell. Yes. My point is just, I suppose, over time that there will be a price which may well prove, even if those things are right, may well prove too high as the supply comes on stream, potentially, right? So at some point, there's a difference between the supply and demand of any commodity, of any product. Oil's a great example, right? And I know it's different. $20 ,000 an ounce. No,$50 ,000 an ounce. We just keep going until we hit the point. Yes. Or$4 ,000 an ounce because the marginal cost of the new production is cheap enough and it just simply drags the price back down over time.

59:23So my argument is just, I'm not going to say the price can't go up from here or won't go up from here or won't stay above this. Just that the supply response will moderate the price. And at some point, I suspect someone's left holding a baby of some size when they get too over their skis on paying any price, if and when there is a supply response and or when other people go like, that's a big deal, but that's a bit of an overreaction. So that's why I wanted to separate the functional underlying reasons why people might want to own gold as an idea and then what the right price is for that based on that sentiment, based on that supply and demand interaction.

1:00:03markets always often overshoot I'm not saying we're there maybe we are maybe it's$4 ,000 at year end maybe$10 ,000 at year end maybe it's gone through 10 to 4 maybe it goes to 4 then to 10 just because what I don't want people to do is say the US dollar is going to be devalued therefore any price is okay to pay for gold because it's going to happen maybe this is the right price maybe it's not I actually don't have a view I don't have any sort of working model or mental model on where this net's out or how it tops out just that kind of when anything goes parabolic either there's a either there's a break somewhere or and we've said you mentioned meme stocks again there's been plenty of Australian companies have had that you look at the graph it's like up and then all the way back down again and there's just just be careful is my point even if you're right to be nervous of parabolic moves in asset prices very very rarely justified unless it's Australian property which is different it doesn't obey the same laws of economics hey by the way I shouldn't say this but off topic You saw London prices are down 30 % from a few years ago or something.

1:01:08Anyway, there's another mechanism at play too. So there is the supply response. I think you're right. I just don't, from what I, I'm not a gold expert. From what I understand is that like a lot of commodities, we've got all the low hanging fruit. Like the ink has got the stuff that was on top of the ground, right? And then we've now gone much deeper. And we've got much better technology and leaching capacity, et cetera, et cetera. So while technology gets better and while the margins get better, it's harder and harder to find. So there is a natural mitigating. The cost will increase as a result because the less accessible stuff isn't profitable until you get a certain price.

1:01:44Absolutely. So I think you're right. I just don't – I mean, that's what gives gold its allure is that even a very dramatic supply side response is unlikely to radically improve the total above ground pool of gold. Lithium, we had very little of it. And all of a sudden, I can't remember what the figures are, but we radically increased the amount that we had. And there's huge reserves sitting around that we know are there. Just not profitable to extract out the current prices, but at some point, there's a turn on. So I think if you were to go full tilt with gold, you might in a year's time have 5 % more.

1:02:16So the question is, on a relative basis, well, two things. How's that compared to the increase in the paper stuff or the digital representation of the paper stuff and confidence. And it's all, as we've said, and I just keep banging the table on this, we love to think that there's these laws written in the universe that determine how these things are valued. It's just all monkeys deciding what they subjectively value. A hundred percent. If people subjectively value it, even if it's insane, it's like, well, it is what it is. And I don't even think it is that insane. When you kind of think, well, what are my choices?

1:02:51I could, I've got to, and that's why when, when, that's why Demason is such a pernicious kind of thing. It's like when the money dies, anything is better than money. It's like, I'll buy property, I'll buy land, I'll buy, you know, beanie babies, you know, stocks, anything. Oh, but, but, but Woolies has got a very high P. Yeah, I'll take it. Yeah. Because, because what, I'm going to leave it in, I'm going to buy a bond and leave it in the bank. Like, no way am I going to do that. So there's, there's that as well. But the other mechanical dynamic that is interesting is that as the price goes up, see, there's two ways to bring supply onto the market.

1:03:28One is to dig it out of the ground, which we've talked about. The other is to convince someone who holds the gold to give it to you. Now, I'm holding my gold. I'm very happy with my gold. I don't want to sell it. I'm not interested in selling it. I've bought it for whatever subjective reason, right or wrong, I decided to buy it for. And then you turn around and go, okay,$10 ,000. and I was like, no,$15 ,000. At a point I'll go, yes. Not necessarily because my view has changed on debasement or the currency or anything like that. It's just like, wait a second. I can take this. This is the raison d 'etre of store of value.

1:04:05It's what it means to store value, right? I have stored value. That value has increased because of a supply demand in balance and the subjective opinions of millions and millions of people. I can now get my everything is a trade right I can now take my shiny metal and I can have a mansion or a Ferrari or give it to charity and and people will do that right and people will naturally do that so it's another thing that sort of lures supply onto the market which is why you get these moderating forces and it's why nothing's a straight line right it's it's like I'm trying really hard not to talk about another version of gold here which I think there's a very important dynamic that's at play here.

1:04:46Do you get where I'm coming at here? It's sort of like that will mitigate it. But where it goes, if we were having a chat now and we were observing gold at 5 ,300 US an ounce, and that had been a very gradual slow decline since 1971, it's probably tracks relative to the money supply and everything else. The fact it's gone virtually parabolic in a very short space of time with all of these considerations out there just screams to me loud and clear that, and not weirdos in their tinfoil hat, like very large, massy holders of capital, big pools of capital, the biggest pools of capital in the world are going, yeah, nah.

1:05:30And that, can I give you a book recommendation, mate? People will like this. Go on. I don't know how, I think I saw it, on a Twitter thread or something and I actually listened to the audio book on Spotify. It's called 1931, Debt Crisis and the Rise of Hitler, right? Oh, good. That sounds up my alley. You've been spending time productively. Go on. Oh, man. Shout out to Tobias Strumman, the author. He's not listening. He's a historian and economist. I got to attribute these things. A lot of work. Yeah. Oh, my God. Read this book. Read this book. It's not a huge book. It's very, very well written.

1:06:05And it just, it's a bit of confirmation bias for me, which I love a bit of confirmation bias. So, you know, maybe it won't resonate for other people. But the argument in all of this was that the Great Depression was really not so much a consequence of the Wall Street 1929 crash, but more the sovereign debt crisis that was started in 1931. Germany had to pay huge reparations after World War I to the other allied forces in Western Europe. Western Europe had borrowed a bunch of money from the US to do all of this kind of stuff. And bottom line is the German authorities were living well beyond their means.

1:06:42They just didn't have the proactive capacity to supply the debt. And back then, believe it or not, they operated under a gold standard, so they couldn't just print the difference. And at some point, the whole thing collapsed. And that's what led to populism and the rise of Hitler. That's the very short version of it. And but but as we like to say, and as everyone knows, I think history doesn't repeat, but it rhymes. And I'm not talking about necessarily a, God forbid, a Hitler, a new Hitler on the rise in the 21st century. But it reiterates the point that you and I have made again and again and again and again, is that all kinds of social disruptions are economic at their root, at their cause.

1:07:14And what we are seeing at the moment is a massive loss of confidence in these institutions, reflected in the money and the rise and the flight to gold. and the exact same thing happened in 1929 to 1931 in germany everyone everyone just bought gold until they they put capital controls which is another topic we can get into later places like china and i like love to do that because they recognize without it then then things get very real but but my my point is is that actually there's so many good nuggets in this book sorry mate it's a long way but where i'm going with this is one of the really interesting things that start out in that book he's talking about the commentary of the time from the elite from the uh for want of a better term the elite i don't really like that term but you know that the but those in a position of power the wealthiest people the policy makers decision makers civil society the academics it was without doubt across the board except for a few sort of weirdos basically saying this is fine there's nothing to worry about you're like this john maynard canes very stringently argued there's nothing to worry about it the u.s has flushed out its problems with the 1929 crash and germany's well positioned to be one of the strongest economies going forward and he said this like a year before the whole thing collapsed dramatically and and ultimately we had world war ii as a consequence of that but what did we see we saw and i saw this recently on twitter as well someone put the price of gold up in marks okay at that period and overlaid it on today's like we you and i've talked a lot about sort of you know pattern mismatches spurious correlations and the rest so i don't want to read too much into it but but where the dynamic is interesting is that people smelled it gold smelled it first they said i will hold this shiny yellow metal because it's just better than this other currency and virtually every expert out there poo-pooed and laughed at it which is something that we saw in 2007 before the gfc which is something that we saw in in the wake of COVID and how every expert said how it was going to go, which is exactly what we saw in 1999 and how was the new normal with the internet technology.

1:09:19And this isn't to say dismiss anything that an expert says. I'm not saying that. But I'm saying that the consensus view on these big things are almost always wrong, at least wrong enough in proportion that anyone who's like, all I am going to do is go with the consensus view from civil society has been a very, very, very bad move historically. So where I'm going with all of this is to sort of agree with your point in that, yes, we will see what will happen. But I just think history offers a lot of examples as to be at least very careful in dismissing this out of hand as nothing. Because the unimaginable is always unimaginable right until it happens.

1:09:58And I honestly think I'm with Dalio on this, man. I think the US is, it's a slow motion car crash. And, you know, it's not going to happen tomorrow. But, you know, they're mathematically in a quagmire. They can't get out of it unless there's some miracle AI productivity boom. We're seeing history from 100 years ago to today. So many scary similarities. Sorry, mate. Sorry for the long run. No, it's all good, mate. There's some political ramifications too that maybe are already playing out with the current president. They don't care. One Nation's overtaken the Liberal Party. Yeah. They're the second choice according to the electorate.

1:10:35Yeah. so the one point I want to make I suppose is not to do the Australian exceptionalism thing in the slightest but also we kind of talk about we or it's going to happen and I think it's worth kind of separating out by whom to whom and where because I think there is you know we're not going to if there is US fallout we are not going to avoid it frankly but also and we have a structurally similar directional problem as they do but we're nowhere near I mean you know Give us a choice. I'm saying Australia's situation 99 times out of 100. Our debt to GDP is 34%. Right. Theirs is 125%. Exactly. Yeah.

1:11:15It reminds me of the thing about batting first in Brisbane. Nine times out of 10, you bat first. The 10th time you think about it, you bat first anyway. It's kind of like, you know, I'd happily have Australia's problems every day of the week, which, again, a bit like we started by talking about wealth, you know, equality and growth and stuff. It doesn't mean we shouldn't address our problems. We absolutely should, because the best thing to be in a situation where the US is in trouble is bulletproof. So let's do that, right? Let's prepare ourselves so that. We're not, though. Correct. And that's my point.

1:11:41I'm not even close to it. That's my point. So we should be having the firepower, not having the debt, having reasonable spending, decent productivity, all that kind of good stuff. But that's all really, really important. No, it's a vision. Actually, Japan is a vision of the future for the US and the US is a vision of the future for us unless we course correct. And again, this is maths. It's not a, you know. My only hope is that if the US goes through it, we actually might learn those lessons, hopefully, because you see it happens. Like, ooh, what could happen here? We should fix it. And if that, a shot across the bow would be lovely for Australia.

1:12:10I don't want it for the Yanks, but if it's going to happen to them, it's just I hope we learn from it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

1:12:24You mentioned AI and productivity. Hamish Douglas. He used to run Magellan, yes. now a private investor because basically Magellan went to had troubles and Hamish said I'm out of here and fair enough too here's can I share the quote with you it's a long quote quote an employment this is a quote of the Australians I assume it's a direct quote quote an employment ice age is coming at us this isn't a typical recession that's coming where there's a cyclical event you throw credit at it and the economy recovers Mr. Douglas told the Australian quote this is going to be a profound structural dislocation of the labour market where the jobs do not come back for a very, sorry, for a long time, a very, very long time, end quote.

1:13:08So he's basically saying in employment, I say, he reckons that when jobs are lost because of AI, it will take a very long time for that to structurally change sufficiently to absorb those workers who are dislocated over the next, and by the way, 2030, now only four years away. Look, predictions are worth exactly what you think they're worth. And just because a famous person says a thing doesn't mean they're right. By the place of Dahlia as well, by the place of Douglas, anyone else. Neri or Robini. Right, exactly. Exactly. Just because you're famous and well-known and quotable and you've got a reputation doesn't mean we should go, oh, he's right then.

1:13:44He recons unemployment could be as high as 10 % to 15 % by 2030 with the move of AI. And I don't know that I have a so what, mate, other than thinking about investing portfolios, other things. And ironically, productivity will probably improve because there's less inputs and the same or more outputs. I mean, that's the other problem with productivity. You've got to be careful how you get it, right? Because you go, hey, we fixed productivity. Unfortunately, there's 15 % of people out of work. I'm not sure that's the productivity we want. But it's going to happen. This other thing is governments pretend and unions pretend you can somehow negotiate this away.

1:14:20So I guess my first thought - Oh, that was the other lesson of the 1931 book. They have all these treaties and conferences. All this back-slapping is like, we had a conference. We made a decision. Problem solved. Let's go to the bar. I was like, more complicated than that guy. Can I find you some happy books to read? I feel like I'm letting you down if I don't get you out of that particular kind of, you know. I don't think it's, I think it was a very sober, objective, just historical account. It wasn't trying to forecast the future. I think we deserve to arm ourselves with the lessons of history, right?

1:14:52I'm not seeking out doom. I just think it's relevant and interesting reading. so here's where douglas goes on quote when you start taking out knowledge-based workers these are lawyers accountants advertising executives journalists you name it that is going to have a massive effect on the cons on consumption in the economy as they get taken out i think it's i think it's really really interesting here's the last quote i'll share with you it quote if you look at the agricultural revolution it took 100 years in the u.s to move 50 of the workforce off farms we're talking about displacing maybe 10 of the workforce in three or four years, end quote.

1:15:29I don't know that I know what to do with that. Now, first, I'm not going to do anything with a prediction because it's a prediction. But if our job as investors is to prepare and not predict, I mean, that causes a recession. It just does. You can't have 10, 50 % of unemployment without causing a recession, right? So he's basically saying there will be a recession between now and 2030. In theory, people with decent incomes and decent borrowing and spending capacity are those affected. buy this, I don't know that I have a view other than I'm probably going to be a little more mindful of the potential range of outcomes over that next time period.

1:16:06Maybe how exposed my portfolio is to that sort of stuff. But again, it's a recession. Do you kind of, we said many times, more money is lost in preparing for the crash than the crash itself. So if it comes in 2030 and the market's up 80 % between now and then, I would say it will be. And then it falls 30%. Okay, so I should have stayed where I was. I don't know, mate. What are your reflections on Douglas's comments and the implications for investors, if you have any? I mean, the logic is sound if you treat certain assumptions as a given. That's right. It always is, right? Yeah. I mean, it's the same with a DCF cash flow analysis of a company.

1:16:43It's like if you get the forecasts right, then you're probably right. But if you don't, it's all right. Garbage in, garbage out is the old saying. If your grandmother had wheels, she'd be a bicycle. Right. It's exactly that. So we discussed recently that AI, I just think anyone who's used it, you just get a sense that there's something big there, right? Like it's either an incredibly clever trick with no substance, but I've used it enough now to realize that while far, far from perfect with lots of foibles and just downright undesirable kinds of things, it's still a bit of a game changer. but we really haven't seen much of an impact yet that doesn't mean it won't come but he is assuming a continued acceleration of capabilities and and we'll see a lot of the there's been many ai winters in the past where we make these big breakthroughs and they're really genuine breakthroughs and they sort of push the field forward and then the things stagnate for a decade so that could happen we may find that we've already seen i think with some of the more recent models like yeah they're definitely better than what we used to have, but they're not, they're not massively better.

1:17:51I'll give another gaming analogy. It's like, you know, when the Xbox came out, it was like, wow, this is great. And the Xbox 360, wow, so much better. They kind of all like smartphones, right? Like the first Apple, brilliant. Wow. Second one, oh, resolution, so much better, so much more. Now it's kind of like when I get a new phone, it's like, I can't really tell the difference. Like things sort of plateau. It's that idea of everything in the longterm becomes a toaster. Who else has made that one? Hold on. It's great. It's great. It's a great line. So what I'm saying is it may be that this is as good as AI gets for the next 10 years, in which case I think his prediction's, you know, a little hubristic.

1:18:30It may be that we crack AGI in the next two years and it looks quaint, in fact, overly conservative. So it's a big if in all of that. the other thing that the agricultural revolution taught us is that we we lost a lot of agricultural jobs but we created all manner of other jobs as well right and that was the same with the tech boom i lived through it right like no if you were told me you go back 26 years and say you know some of the best paid people on earth just shoot into a into a basic camera and upload it to the internet that's how they make their money yeah that's right you know like mr beast and paste like this is Actually, he's a fascinating guy, super interesting.

1:19:10Anyway, from an entrepreneurial angle. Anyway, it's just no one predicted, right? It's almost beyond prediction. So such predictions are always headline grabby. And then I take it seriously. I actually think there is a decent chance that that kind of happens. But I ain't selling nothing. I'm not doing anything massively different. To your point, I think I made this mention on – I mentioned this on Strongman just yesterday, actually. It's just sort of like, because there was a bit of a macro conversation. I think what you do is you adopt the Charlie Munger, sort of tell me where I'm going to die so I don't go there.

1:19:44Now, I don't know if Dalio is right. You know, I don't know if Douglas is right, but I don't want to be excessively exposed to financial oriented organizations whose assets rest entirely on paper promise. That just seems, that seems silly. I don't want to store my wealth and look to grow my wealth in organizations that have very uncertain demand profile and that are very highly levered, such as discretionary retail stocks. It's just, I don't think that's, for me, a place that I want to go. I don't also want to pivot to, you know, 100 % gold and 100 % utilities and ultra-defensive stocks because being early is the same as being wrong.

1:20:25And you mentioned before that we could have, like, we could have this really terrible economic outcome and the market could go to the moon. And actually, such melt-ups are not uncommon in history. How can that happen? If the economy is so bad, why would that happen? Again, you've got to remember everything is relative. And we always tend to think of things in terms of the numerator, but it might be the denominator. It might be everything's going up because the money is losing value. And I think a big part of the reason we're seeing gold, silver, equities, like property, like all of the assets are going up in tandem, which is quite unusual in and of itself.

1:20:58It's like, why? What's going on? It's like, well, no one wants the money. And so you could very much find a situation where going to an uber defensive sort of portfolio stance is actually counterproductive. Now, someone would rightly say, yeah, but in real terms, you're not really making that much money. Yeah, true, but I'm still preserving my purchasing power, which is a massive win. If there's ever a massive deflationary bust, I'm not holding cash, I'm not holding bonds, and I'm not holding highly levered banks, like that is, you know, which are predominantly exposed to residential property itself being excessively geared.

1:21:30It just seems like you don't have to be right in your forecast. You just need to know that these things are not tail events, you know, one in a million type things like the probabilities we can discuss, but they're not insignificant and they're asymmetric in a bad way in the sense that, look, this isn't a 0.1 % odds of happening. You can debate what you think it is, but maybe it's 5%, 10%, 20%, something like that. And if it happens, Westpac goes to zero. You're like, well, but what if it doesn't happen? Oh, you might get a 4 % or 5 % fully franked yield and maybe 2 % or 3 % capital gains. Yeah, no, I'm not going to do that.

1:22:11That just seems silly. So what do I do? I keep it on the radar. I take these threats very seriously and I continue to look for opportunities where should the worst happen, I'm not wiped out. And if it doesn't, I've still got a reasonable upside potential. It's kind of like very unsatisfying as an answer because, you know, people want the, oh, this is definitely what's going to happen and this is definitely the best move. And there's plenty of people shilling that kind of stuff out there and you'll find them and some of them will by luck be right and most of them will be wrong. But you can be sensible about this stuff, right, and just kind of think it's the alert but not alarmed.

1:22:48It's the prepare, don't act kind of mentality that you're talking to. Sorry for the word, Salah, mate, but that's how I'm handling it. I don't dismiss it out of hand, but I certainly don't take it as gospel. And then I just game it out. Like, okay, what if it is true? What does that look like? And, okay, what do I do in that scenario? Okay, if it doesn't happen, what do I do? And then I look for those – I try and overlap those Venn diagrams. Like, is there anything that kind of is okay in both scenarios there? Right. That's the hardest part. I mean, even business-critical software is potentially at risk or some risk of AI.

1:23:21I mean, it is a potentially, we mentioned unprecedented already, it's a massive potential revolution. And I mean, the Industrial Revolution we kind of use as a term these days. Like, oh, it was the Industrial Revolution, we move on. I think we missed the revolution bit. And I don't mean in any kind of, you know, political sense. You can't imagine the world before the Industrial Revolution. Right. Or the Scientific Revolution. And that was so dramatic. So imagine that, but compressed into a number of years, which is Douglas's kind of point, is if this does happen as quickly as we expect, the chance that the AI revolution is so incredibly dislocating is huge.

1:23:59I mean, I think about the stuff we're using it for at the full. Everything from content creation, marketing creation, editing, evaluation, analysis, and it's not perfect, but it's so stupidly useful. You're not using it because you feel some hyped-fueled compulsion. Oh, everyone's using it. No, it's like you use it and you go, oh, this makes my life so much easier. I'm going to keep doing this. And we are. And we are. And we've actually lost some staff in the last 12 months. And that's been horrible for those people. But we've been able to do the work. Like, and that's kind of, so when I look at this, and I think, you know, I'm knowledge workers, Ram.

1:24:37You're an entrepreneur as well. The chance that AI continues to burrow into those things that can be done more easily, more simply, more quickly. I say almost every time we talk about it, I'm using AI more than the last time we talked about it. I just am, right? I'm using it a lot. Right now, I'm having discussions with my developer to integrate it into Strongman. Why wouldn't you? Yeah, exactly. Have you used Gamma yet? No, I've heard about it. It's fun. So we do what we call a foolish lesson. So one of our analysts presents to the rest of the team once a week. And you write your article, you write your idea, and then you drop it into Gamma, and it creates a 10-page PowerPoint presentation, or equivalent PowerPoint presentation.

1:25:16Images, headlines, summaries, dot points, the whole lot. It is just – it did a really terrible job with my most recent ones. Again, AI is not perfect. Yeah, it's not perfect. The other ones that have been fantastic. And I think – I really had – I don't know if we talked about this last week. AI slop was the term of the year last year, right? Oh, yeah. And I get it to some degree because it's some crap AI. But if that's your focus, if you're like AI going, oh, it does some crap, it's like, man, are you missing the point? Are you missing the point so dramatically? It's like you can be gnarky and, oh, it's not perfect and, oh, that was awful.

1:25:48and yeah and the other 99 things that are spectacularly brilliant and the one thing you don't like is going to be improved out of sight in the next 12 months like I just it's not perfect therefore I reject it right what again you and I lived through this I distinctly remember people saying oh so I can get onto a Yahoo chat forum and we can debate whether Kirk or Picard was the better Starfleet captain like there was so much derision around the internet yeah you just missed it right you're going to put their credit card on the internet that's never going to work all right well com stick was the first online broker it was my first real sort of post-university job and people laughed about it there was there was a very big phone operation there because most people prefer to just like and you would say i that's where i started i was on the phones and like someone rang i want to put a trade on i was like yeah absolutely um you know if you just jump on our website the brokerage is much cheaper it's like no i don't trust i'm not doing that online dude i remember when i was in the country right i don't know how old i am i remember when atm machines came AT machines I remember the first F-plus machine it was the it was the disposal store of all places in my local because I was a scout as a kid so it kind of ages me and I walked it was like this massive big thing it must have been it's kind of the size of a telephone maybe I'm talking about the old school telephones right I was like this and the guy was like what you do is this I'm like oh that's amazing and this is a time when you know again speaking of aging ourselves you pay for petrol with cash yeah you know we have and again because it was cheap you have coins in the, you have coins in the, in the ashtray and you have, you know, 20 bucks in the, in the cards to cash it to pay for people.

1:27:19So you're going to cross the Harbour Bridge, you had to throw a piece of metal into a tray. That's right. Not that long ago. Not that long ago. No, so, so you, that, I mean, that is the point. And this is where is that there's a, there is a, again, there's a degree of cognitive dissonance here. You want to, you want to hold these two almost competing ideas in your head, which is, it's probably not going to, it's almost certainly not going to unfold in the way that everyone predicts because these things are almost impossible to predict. At the same time, you don't want to dismiss groundbreaking new technologies.

1:27:51They're not saying, I think it comes from the Bible originally. It's like there's nothing new under the sun. And for almost everything in the human sphere, that's true. But at the same time, every now and again, there is something that is actually genuinely new and genuinely changes everything. And what they usually do is they usually arrive, they get ignored, they get laughed at, they get fought, then they just become the thing, right? And you know I'm trying very hard to not bring up another comparison here. But we all know, we all know. well it fits right and and it's just it's just like i think what wrong what what people get even the even the advocates get wrong is they we all get the timing wrong so i even i i just if i was to if i was to put my personal view out there acknowledging that it's definitely wrong i would probably say that hamish is directionally right but it'd probably be a lot longer than than what he thinks to that kind of thing but just because that's that has been the lesson of sass of smartphone of internet of telephone of whatever it's just sort of like you you have that what teal calls that zero to one moment it's like we just didn't have it now we have it you know if the benry ford and the well actually didn't invent the internal combustion engine but that was sort of like the first one yeah the production line right like it's like how long did that take to roll out dude it took 30 years for electricity to reach 70 adoption in industry electricity right and it just sort of like and everyone at the time including people like thomas edison got it wrong got it massively wrong in terms of the timing and the implications and the rest of it i think you need to be humble in the face of that particularly and these are just like mechanical technologies you're essentially like which amount of technology that thinks or at least emulates by the way right so getting electricity to industry means you've got to run the lines connect the piles do that sort of stuff this one's like you you jump on the broadband connection you've already got and it's literally already available for you, you just start typing.

1:29:47Like that's the speed of adoption. And the other thing, it's not, you don't have to install it either. You don't have to take an online CRM or accounting software and go, oh, I'll transfer everything over. It's like, you can just open the browser and start typing and it is there and it's there for everybody as quickly as you need it, as much as you need, imperfectly, but bloody brilliant. I hope Douglas is wrong, mate. Amazon's laying off another I own shares. I don't hope he's wrong. You don't want 15 % unemployment by 2030? no no i hope he's right in look we should never we don't want to be troglodytes where it's like oh do we want to be the amish i mean no but i don't want no offense but i don't want a little bit of offense to all the amish that are well they're not listening so i can say what i like so it's like like we should not shun very powerful technologies that have a potential to improve our life radically that doesn't mean we just charge on in without any any concern as to the to the ramifications.

1:30:39So I hope he's right that these, I mean, I'm very excited. We could have drug discoveries here that, you know, energy breakthroughs like this is, this is exciting stuff. And it's just like, you know, because blacksmiths aren't going to be a thing in 20 years. Is that a reason not to advance? So, so just to tease that out, I do not hope for mass unemployment. I do not hope for that. But I hope that we do have this new technology and that new technology, you know, births a whole new range of industries and occupations. And we all just become insanely wealthy. That's pretty cool, right? I mean, we're not going to start a new topic, but the all become is the key question about AI too.

1:31:16And universal basic income or some other way of recognising and harnessing the savings and the whatevers. If more money accrues to capital than labour, then firstly have some capital. So there's a hint, but also plenty more. The right type of capital too. Can I go back to, I forgot. So here's one way to play this. And this is, I'm just putting that out there for your consideration. I'm pretty sure there's a disclaimer sting at the starter end of this pod. Listen to that. It's there for a reason. But the one thing that no matter how advanced technology gets, right, energy is at the base of everything.

1:31:52Yeah. I think, and commodities, right? So everything that we want or value, even if it's things that we can't imagine, it's probably going to take energy to create and it's going to take commodities to make. Like it's just going to. So I think companies that have that capacity, I think there's going to be an energy boom. There's all these data centers. I think actually, I've really changed my mind on data centers. I really, I got it so wrong. I thought, it's just a commodity. There's no money in that. Not recognizing the insane amount of demand. And no matter what all of this brings, you need to run the AI on something, right?

1:32:25It needs land, it needs a warehouse, it needs a bunch of racks, it needs a bunch of chips. And it needs a bunch of electrons running through copper wires. Like it is, that's what has to happen. and so that's a really nice sort of thing if that's a big word if you are very bullish and and you think this stuff is inevitable in your term that would be one way to play it i don't own any single energy companies or commodity companies right now so i'm really not trying to be cute here and trying to give and sound like i'm trying to sort of give these subtle hints but but that is a very interesting way to play to answer your your earlier question we're miles through the podcast we need to wrap it up at some point but i can't help but ask you the question.

1:33:03That's always been the case. You know, the steel mills were a thing in the 1950s and so you needed steel and iron ore and horses and carts needed, you know, whatever. I mean, oil has been needed through the 20th century. 100%. Is there actually a step, are you saying there's a step change here or are you saying that's an offensive way to play it because they can't avoid it? Well, great examples. So Australia, look at our wealth. It came from iron ore demand. There's no shortage of iron ore out there, right? Like, so yeah. So So that made us very... What happened to the Middle East? Is there a step change?

1:33:34But is there a step change is what I'm asking. Like from... You're saying in future energy and resources are required. I agree. Yes. But there already are. So are we only describing the current circumstance or are you saying... You've got to compare flows. No, great question. You've got to compare flows. So again, it's not that... In isolation, if our current commodity extraction rates and energy production rates don't change, but the demand for those things do change. Yes. As investors, you're going to do insanely well. Do you think they will? Well, supply and demand, right? It's just like, well, everyone wants this stuff.

1:34:07There's going to be a competing bid for it. Whoever pays the most gets the copper. You want copper? Pay up. You want jewels? Pay up, right? I'm not sure I'm expecting a step change of the sort you're expecting from where we are now in resources in general. Maybe I'm wrong, obviously, but I'm not sure. The growth is going to happen, but we've built more skyscrapers over the last 50 years as well, and the price is where the price is. I'm not sure. I don't disagree with you that those things are required. And incredible wealth was created around those that had the stuff, right? Yeah. Despite the supply response.

1:34:38So the point is the comparison of the flow. So you're right. It's already happening. They're building power plants like power plants. They're building power plants like nobody's business in China and now in the US as well. It's about nuclear. You know, like everything is happening at a pace. So it's not that there isn't a supply side response there. It's just that, can it keep up with the increase in demand? So even if supply increases, if it doesn't increase at the same rate that demand increases, that is going to push prices up, right? And so I just think that I'm not saying, I just told you what I'm holding, or not holding, but I think that's the way of thinking through.

1:35:25You're right. So there is another reality where it's like all of like electricity demand and commodity demand grows. We just get increasingly better at extracting and producing that stuff to such an extent that any demand increase can be more than met with a supply side response. But what do we know about power stations? Massively expensive. Take a decade to build. Like not in China, but in the West where we've got 1200 layers of bureaucracy. It takes forever to build. How easy is it to set up a new mine? Like, I don't, my guess, and that's all it is, my guess is that we, and this is already being flagged as an issue, we do have a supply-swagged response, just not to the extent that demand is growing.

1:36:07Now, it could be that things correct on the demand side in terms of like, we go, oh, we overinvested massively, which is a very real risk, by the way. Oh, that's the data center question, the computer chip question. A lot of money being thrown at data centers and AI right now for exactly that reason. So all of a sudden, all of a sudden, the demand calls at the same time that supply comes and then it comes out to be a bad investment. So, but I'm just saying, if Douglas is right and we see these trends continuing, I think that is a sensible way to play. And it's also something that is difficult to disrupt.

1:36:42I mean, we could be, we could have a Dyson sphere, but we're still using electricity. We still need it. We still need energy, right? And we still need metals and all the kinds of materials that we need to sort of build stuff. So it's, I don't know. I just, I think it's fascinating to think through all of these kinds of things. I just, again, I go back to rather than what do I do, what don't I do? So I've sort of talked about financialized assets and the rest of it. I think hard assets are good. Like gold has actually got more of a place in the current world as we see it. But I think productive enterprise is also a great place.

1:37:13I think you and I will very much agree on this point where it's like you want a business that has a let's let's go with the all time favorite. Let's go Berkshire, right? You know, railways, they've got big industrial kind of companies that they're never going to shoot the lights out, but they're always going to be pretty much in demand. And here's the key thing. They've got a balance sheet the size of Christmas. It's a fortress. They're the type of assets that you want, even if they're overvalued, because whatever the world brings, you're probably going to need to move stuff by rail. and all the various other things that Berkshire's got its toes in.

1:37:46And you'd never want to be beholden to a counterparty that could call your debt due. So aside from things like the golds and the utilities and the land and that kind of stuff, productive enterprises with relatively defensive characteristics and low levels of leverage, I think it's pretty smart play. And that also fits into that nice area of companies that will probably do okay, even if the worst doesn't happen, but on a relative basis, will absolutely do really well if the worst does happen, right? What are you doing? What are you doing? Nothing yet. And that's kind of why I'm curious as to the question.

1:38:24I don't have a working model on how significantly I expect those flows to increase on resources. So, so far, I'm not doing anything in that space. I agree with you on data centers. I've been looking at those more closely recently. The only problem with data centers is I still think it's a game of chicken or at least a game of timing because at some point, you're right, Everything's a toaster. These things have no competitive advantage whatsoever. The only benefit they have is the demand is growing faster than the supply. Now, you can play that for a long time and get rich, as long as it goes for a long time, and as long as you get out before everything goes to pot.

1:38:56Because in theory, these things are, they should be making property margins. And properties, other Australian residential property, probably not a great investment, right? Because it's going to grow over time at GDP, plus a bit of something, maybe a bit of price or something. So industrial property is going to be fine-ish. But the data center has been priced like they are, you know, to the moon stuff. Now, if you're – and why I've looked at them again is exactly what you said, which I've been wrong for years too because I misunderstood the imbalance. But my only question to myself – I mean, wrong absolutely because the price went up and I didn't own it.

1:39:25So that's wrong just from that perspective. Wrong enough? I don't know. Wrong in the sense that the party stops, the music stops at some point. Someone takes the punch bowl away on data centers at some point. Now, if it's 25 years into the future, there's a lot of money going to be made. I'm like, well, I should have played that game. if, to your point, we overbuild and all of a sudden the rug gets pulled tomorrow or next year and I've paid 85 times earnings for a data centre business, like, ooh, that's kind of worth 12 times earnings. Now I've got my backside handed to me. So I'm not yet prepared to take that risk and play that game.

1:39:57I'm not a trader generally, so I kind of haven't done that. Where I... Which is always the right move when in doubt. Yeah, true, true, true. Sit it out. True. I like it. Even rhymes. so I'm not playing I haven't taken a view on AI what I'm and there's also the two different time periods right there is if we have a recession things will suck for a bit but in 10 years time post recession what do I want to own so even then it's like a timing game like I could avoid the stuff that's going to be hurt by a recession but if in 10 years time it's worth a whole lot more than it is today then it's actually I'm not going to try and time a recession or as we said before lose more money trying to avoid the recession than actually in the crash itself so I'm not doing anything provided it's not where the upside is or I would argue with something like the banks is like, okay, Mr.

1:40:43Doomer, the worst doesn't happen. It's like, okay, but I'm still only getting like a sub. I'm not getting a double digit total return. I don't think, right? So I'm avoiding leverage. To your point, I'm avoiding debt like the plague because you can lose money for a couple of years if you've got a lot of cash in the bank and you're fine. Yeah, it makes no difference. If you can't make the interest payments, then you're screwed. Yeah. And so that's me. Right. In a down market. Yeah. Or at least you're issuing shares or something. It's just ugly across the board. So I'm avoiding meaningful debt. I'm not yet avoiding discretionary retail for the reason I talked about timing and all that kind of stuff that comes with it.

1:41:17If Douglas is right, but it's 2030, maybe the market's up by then. If he's wrong, maybe the shares are a lot higher, all that kind of stuff. So I don't know. What I do think is I'm leaning away from businesses that are more likely to be disrupted in their business models. So that's kind of like, do I think, I don't know how many shares, but we'll just sell the groceries in 10 years time right maybe more online or certainly more online they're going to be the world Australia's largest grocer they're going to have the brand have all that stuff they're going to do their thing and that's going to be so that yeah you're fine

1:41:52yeah so I think leaning towards businesses that are less likely to be disrupted is a safer way to play it I'm still looking for growth by the way because I don't want to get a 2 % return for the next 10 years because I'm trying to avoid the downside no one inflation is 3.8 % right You're losing 2 % a year. Right. So even if it was zero, you're still getting 2%. The market will do better than that. So you've got to mix your portfolio accordingly, I think. So I'm looking for growth. I'm looking for quality businesses. I'm looking for no or very little debt. And I'm looking for businesses that have business models that are reasonably not defensive, but protected because of their nature from disruption.

1:42:30Everything is a toaster, as you said. Everything can be disrupted eventually by someone. That's kind of how I'm approaching it. Yeah, I like that. One thing I'm doing is like, again, because the smaller cap earlier growth stage kind of companies, I'm absolutely holding stuff that probably doesn't fit into those buckets I described. But it's also, as I think I've outlined before, where it's a strategy where you expect to only get four or five or six out of 10 right. But the one that goes right goes 10, 100x up. So I'm very much a big believer in you. I think avoidance of risk is the most certain way to get really poor returns.

1:43:08You never blow up. You'll never blow up. But you're also never going to make great. I think you can be sensible about it where you can sort of like lean into the risk knowing that you're not going to get it all right. But as long as that upside asymmetry exists and is real, you only need one pro medicus in your portfolio to change everything. I'm going to go back to that actually very quickly. We need to wrap this up at some point. The growth covers a lot of sins in a lot of different areas, valuation sins, but also when we come to economic. Now, disruption is different, right? If AI is a massive disruption, I'm not saying it's going to cover all that necessarily because you have a growth business that just gets smashed by AI.

1:43:45We've talked about Appen before, the business that was doing the transcription. And it's like, well, you don't need that. If it was a growth business, it got smashed by disruption. So that's an example you've got to be careful of. But also, I've used the example before, Flexi Group, who were the original buy now, pay later. It's the 48-month interest-free thing with Harvey Norman. They grew really nicely during the GFC. Aren't they called Hum or something now? They are now, yeah. and much smaller than they used to be. But I'm not saying it was a great investment overall. My point was they grew during the GFC even though there was a recession.

1:44:16And we didn't have one here, but it was almost close. Either way, why? Because they were small and growing. And so they were providing a solution. And what they did was grew their market share, even if the market was stagnating and going backwards slightly. And so, again, you don't want to go to every small company. I've talked about risk and small and other things. Small isn't necessarily risky. It can be. And I'm not saying small is the only way to do it, but there are businesses. Execution counts as well. Well, but it's also opportunity, right? So if you've got a growth runway and you can execute that, I can go from 5 % of my market to 15 % of my market.

1:44:43Even if the market goes backwards at 10%, I'm still making out like a bandit, right? And so there's just that kind of, think about those kinds of businesses. Again, be careful of disruption, careful of debt, all the stuff. But if you can find a company that's growing, it can actually not be subject to, or at least entirely a victim to, the economic circumstance it finds itself in. Well, one quick thing, and then we definitely will wrap it up. No, just refer back to that book again. There were so many nuggets in there. One of them was this. You'll like it. You'll like it. One of them was this, was that despite the absolute economic calamity, Germany was an absolute power.

1:45:18It didn't actually have any conflicts on home turf during World War I, not much, so its industrial base was largely untouched. So they had very big operations in things like steel manufacturing, a lot of big industrial processes. And the companies within that sphere that didn't have excessive debt actually did well, which just follows on from our conversation here, right? Like things can go very bad in aggregate, but even equity, even risky shares, even volatile risky shares in a market that itself is not doing great overall can still do really well. And this is, it's the whole Buffett thing. You don't know who's swimming naked till the tide goes out.

1:45:55They're all share prices and tickers and charts and that until like, who gets real. And then it's like, oh no, there is actually something behind this. And the thing that's behind this has a mountain of cash, has very reliable demand, is one of the biggest producers of X on the planet. They're going to be just fine, right? And so, again, cognitive dissonance. You can have all of these dummerish kind of position outlooks and be proven right and still do well in things that are notionally not the kind of thing you should invest in according to accepted wisdom. There you go. Let's definitely end it.

1:46:27I'm going to stop. Thanks for listening. If you're still here, God love you. I really appreciate it. You've obviously fallen asleep listening to the podcast. So well done when you wake up and wonder what the hell went on. Just go straight to the Marbag episode, which is coming this Sunday. I know Andrew will be here. So 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. Subscribe to the free newsletter at fool.com.au forward slash listener.

1:46:59The Motley Fool operates under Financial Services Licence 400691.