Macquarie bails out of international funds management. April 25, 2025

27:09I just don't see it. I might be wrong. I don't see it. I think it's as basic as what I said. And then when things don't go that way, because there's a lot of hardcore ideologues out there who might be wrong but aren't silly. like the i i want to yes i would say you know what i'm saying like there's a lot of high iq people that are really dumb if that makes sense yep and you only have to go on twitter to sort of see some of the takes out here even like even bill ackman right like yeah i don't want to throw that guy under the bus in particular but i mean he's a very very very successful fund manager and he's no idiot right like i'm sure if we were to sit down together and do an iq test he'd dust the floor with me.

27:51But he's coming out with all of these rationalizations and interpretations of what's sort of going on there. And so what I'm saying is for the administration, there is a willing army of people who will develop the narratives for you. Go, oh yeah, that's what we were trying to do. Like, could you imagine if I just, I completely screwed something up, but I had all these smart people going, well, what Andrew was really trying to do on that situation? And then I can go, yes, that's totally what I was trying to do. I think that's it. I think that's basically it. No, you're probably right. You're probably right.

28:23Yeah, so we'll see. It seems for now, at least, Jerome Powell's job is safe. That being said, speaking of... So are you going to move on from Powell or because I never got to that actual point. I will just finish by saying that even despite that, his term is up in 2026 either way. Yes. So we are going to have a new central bank chief in Trump's term. So whatever Powell is able to achieve and I literally achieve, I mean, frankly, like here in Australia, let's not make this just about the Yanks, the central bankers despite your disdain for them as a class of people and as a regulatory body. They are the adults in the room, for better or worse, at least in a relative sense, right, compared to our politicians.

29:01So there is going to be someone else there picked by Trump at that point. So depending on who's influencing him at that point, who is chosen for that role, we are going to have two very, very different, I suspect, central bank implementations during the Trump term. Go back to the power software. Well, that's what I was going to sort of say. So I think Trump's basically realised that he can't get rid of Powell. It's in the constitution as I understand it, so he can't be fired. He will frame it as a firing when it eventually has to step down. And I'm not going to get back into my shtick, but it is very, to me, it speaks volumes that what you do to get the outcome you want is it is is put the put a friendly person yes exactly it's the same with the high court the supreme court right you stack it with people who are favorable to you which kind of like broken the u.s that that political appointment stuff over there we there are the u.s is great a lot of things and we're not perfect everything and we've got a lot of home country bias but the fact we don't have political appointments for DAs and sheriffs and judges.

30:09I mean, the RBA governor is appointed by our politicians, so we're not alone there. But you're right. It is that ability to appoint those people on a hyper-partisan basis is just so corrosive for democracy. Mate, that's why I sort of roll my eyes when central bankers get up there and go, we are independent. It's like, I know technically you are. But if that was real, if you were, like, think about it. If you were genuinely independent and genuinely only cared about the economy, it kind of wouldn't, and you were genuinely data-driven and there was, you know, only certain moves possible given a set of certain circumstances, it kind of doesn't matter who's there as long as they're competent.

30:51Because if you're there, if I'm there, if someone with a different political persuasion is there, the data's the data, the tools are the tools, the outcomes are the outcomes. You'll just do it. It's clearly not. It's clearly not. And it's the fact that you are, I've said it here at home. It's like, you know, when Lowe did what Lowe did, you know, he basically said the wrong thing, didn't deliver it, and everyone took it as a promise. He lost his job. Correct. And they'll put someone else there. No backroom deals need to happen. It's just pure social reasoning and game theory. It's like, okay, I've now been put here in this position.

31:26I know exactly what the person who appointed me wants. I very much like my power and influence thank you very much because I'm a human being and I love power and influence because that we are static we are status seeking social animals and it is sort of like and then you so you will you by definition uh given that layer you are going to be making decisions through a political lens in a very indirect way in a way that's not obviously connected but but but that's the problem we have to remove money and state and to my you know I'll go down that path but that's the problem because it is political 100 and that's the and that's no just just your point the other thing is if you're appointing someone you're only going to appoint a fellow traveler in the first place so it doesn't it doesn't even have to be and this is the this is the insidious thing is the person who gets appointed doesn't even have to say i will now do what the what the president wants you don't you don't have to be that corrupt you just have to say i think black is white and the president thinks black is white so they appointed me and so now for i'm gonna make black and half the country thinks black is white too by the way It's not like there's only 3 % of us there.

32:29It's sort of like you've got all the cover in the world to do what you want to do. But again, my point is that we have to, it's not, you've got to be very careful not to slide into cynicism, you know. But, you know, the eternal vigilance thing is real. It's sort of like these institutions are so, so, so, so, so, so important that we can't just leave it, let it be run like this, you know. It is for, we all feel the consequences of bad decisions. Yes. And unfortunately, the less well-to-do feel it a lot more. I think I go off at various barbecues and never get invited back again because I start talking about this stuff.

33:13But it's just like the thing that's always like makes me facepalm is it's like it's always seen as some esoteric, you know, financial wonky kind of academic discussion that actually has no implications in the wills like no it affects you mr plumber mr teacher you know mr mrs lawyer whatever like it affects all of us in such in such a direct if not immediate kind of way that and the stakes are so high that that How can you not talk about this? How can this not be? No, let's talk about how much our investment properties have gone up in the last quarter at the barbecue. Let's not talk about the fundamental underpinning of the entire damn system.

34:00You know, it just... It energizes you. It does energize me, but I don't think I'm even being hyperbolic with any of that. I think that I will literally stand behind everything I just said as the literal fact of the matter. It's like, this is how the plumbing works. This is how we've architectured the system in this exact way. And that's kind of what's so potent about it is that, you know, what's the line from Usual Suspects? The greatest trick the devil ever pulled was to convince the world he didn't exist. Yeah. And that's the magic, I think, of a lot of this kind of stuff. and like the most important, most dynamic, most influential factors in our system of social governance and finance, no one knows about it.

34:53And not that it's hidden, it's just so obscure and so opaque and so indirect and so temporarily delayed in impact that it's just sort of like when you sort of start digging into it, you go like, that is too crazy to be true. until you go, oh, no, that's actually it. And then you get to a point where it's like, it's so crazy that you sound like the crazy person for pointing out the fact and the truth. Anyway, one day someone will actually maybe convince me, like, no, you've completely read it wrong. And if you're out there, please let me know because I'm losing sleep over this. Yeah. It's also just really how people get their heads around.

35:33You know, you don't do this for a quid, right? I mean, there's someone on a science podcast somewhere saying, why are people talking about this thing? that's just it's so important so as well like i i don't know about it i hear about it i can't i'd not really i'm not i'm not clever enough to get my head around it i'm not interested enough in it i don't know the background like it's it's kind of i know i've said this a lot in different formats and forums but the the reality is that i i'm a million percent sure we thought democracy was winning and it is to some degree but democracy was being self-managed from the inside by good people of relatively good repute who genuinely wanted to try and do the right thing more often than not.

36:10And that kind of meant that, you know, we thought, ah, we'll tell them at the ballot box. There was some of that, but there was kind of this tacit, implicit kind of agreement or understanding that, okay, well, we can't do stupid things as politicians. So we have different views on different allergies, but we'll do roughly the right thing as much as we can more often than not, and we'll hold ourselves accountable to standards of behaviour and policy. And I kind of think that's, I said this before, but from the Trump election in 2016, I think the biggest impact, despite everything else. I mean, that's a big cause it's been very impactful in lots of different ways.

36:38I think the biggest impact was convincing politicians they could actually just blunder through, not take responsibility, wait for the media cycle to move on, do whatever the hell you want. You don't have to be reasonable. You don't have to hold yourself accountable. Right? Well, it's kind of like that. But not even from a public perspective. Just a, you know, either they thought or they believed or they did genuinely want to do the right thing. I thought they would get punished if they didn't. You know, some of the ministerial resignations in Australia over the last, No, I've lost. 20, 30 years ago.

37:06You know, Barry O 'Farrell was... Right? A bottle of wine. Right? And the thing about what Trump's been found guilty of, let alone been accused of, no, he's not cared, the public doesn't care. All of a sudden we kind of realise, oh, so you don't actually have to be accountable. You just have to keep talking and hope people forget and move on or say, well, yeah, that's bad, but I like this thing that he or she does. That's kind of been the really tragic learning from that whole process. It's funny too, you mentioned like with science, Um, we, we can, there's no, there's not as much debate in terms of electron spin and the mass of a gluon, right?

37:45Because it doesn't impact my life in any way that's material. Yes. But if you want, and so, and so scientists will very much be in those fields will very much be driven by the data. And there's any endeavor where there's humans and I've, I've got a science background. Let me tell you, there's plenty of politics and science, right? There definitely is. But really not that much relative to other fields. When it comes to economics, though, there is so much politics because it does... It's ideology, right? Yeah. Yeah, because whatever you might want to call the science of economics and the theory of economics or whatever, we want to couch it in these academic...

38:22I actually think it's definitely a very, very worthwhile area of study and there's some very, very good ideas in that space. But it is a space that is very influenced by politics because of the direct impact that it has on all of our lives. And so basically, if you want to, you know, feather your own nest, even if you're not doing it consciously, you're overtly, not overtly, you're subtly going to align with the ideology that best suits you and your circumstances. You just are, right? And particularly when you're in sort of politics. Yeah, yeah, yeah. You know, so there's no one out there in podcast land talking about, you know, different interpretations of the double slit experiment.

39:11But when it comes to sort of like, you know, the price theory of money or like there's very heated debate, right? And it's just so muddied by all of that stuff because it just impacts our lives. Correct, right. Well, as you said before, it's because economics is really just the, it's a study of applied psychology. Using money as the token, right? It's just like that's all we're doing is saying, well, what happens when this changes? And it's like, well, it depends what people think. It literally depends on how people interpret the facts. But I want to pull on that string a little bit longer though because I would say that there is an economic gravity and a reality that you – look, there is a real physical world that exists, right?

39:53Like let's put the simulation hypothesis to one side, right? And even if that's the truth, the simulation is set up in this particular way. So you are going to always find that we as human beings can imagine things the way we would like them to be and the way that they should work, et cetera. There will be a pushback from the physical universe at some point in time. You can make up as many magic tokens as you like. You can structure any institution in any way you like. The real world, when reality pushes back is when you start having unnaturally high levels of unemployment, unnaturally high prices, you know, bread lines ultimately.

40:38Like, so there is, I guess what I'm trying to say, I'm talking out of both sides of my mouth. On one end, I'm sort of saying, well, it's very messy and it's not like the hard sciences and there's different rooms for different views, which is true to some extent. But on the other side, there is direct, real, unavoidable consequences. If I was just to impart some zany economic theory on the world, fast forward 20 years, we're all living in tents, you know, eating pigeon because like, oh, it turns out that this theoretical construct that came out of the brain of some was completely flawed. And by extension, a prosperous civilization and society must be grounded in reality.

41:27So I feel as though every now and again, the economy, as much as I hate that term, does give us a bit of a slap in the face and go, no, there's real consequences to some of this action. And I think it is beholden to us to put our political preferences aside. And even not just political preferences, our desire for how we would like the world to be and recognize that. And this is where I always come back to with a lot of my friends in discussing this is that regardless of whether you like this fact or not, we have scarce, limited resources. And that's matched against unlimited human demand. That's just the reality.

42:05Now, but, but, but yes, yes, it would be great if we all had Ferraris. Yes, it would be great if, you know, everyone was in a mansion, but just it cannot be. So any theory that you sort of pursue that adopts that mindset is doomed to fail from the beginning. So, you know, I don't know what my point, I guess my point is here is that at some point there are consequences and you can either have them thrust upon you or you can make some hard decisions to at least steer away from the worst of the outcomes. And unfortunately, politics being politics, we just keep on kicking the can until it's like, okay, it's forced upon us.

42:41We just have to deal with this because there is literally no alternative at this point. I think that's right. I think that's right. The only thing I'd add to that, mate, is that even the consequences, the way in which they are felt, the actions that are taken to it, because we're talking about units of account when we're measuring the stuff and who's going to bear the cost. So you're right. There's a certain amount of stuff that we can access and there's a certain amount of people who can do the stuff. It's always a measure of time. You've talked about this a lot. That's kind of what the money measures.

43:08Right, exactly. And yet, for all of that, the implications aren't cause and effect. They're not gravity. They're not, you know, if I do this thing, that must happen. It's like, if I do this thing, there may be some consequences at some point in the future. We don't know when. We may be able to ameliorate them or share them or put them off or whatever. We may be able to direct them in different directions. It doesn't mean that, you're right, it doesn't mean that there aren't those realities, but we can change the economy by changing policy, by changing, and not even policy, it's behaviour, right?

43:38If I pretend it's not true for long enough, I can put that consequence off. I can put it onto someone else. And so that's where it's so difficult. That's what I meant about the applied psychology bit, because it is still a case of, we can have more things than we've got but for how long can we I mean that's oh we can distort things for a long time but if we distort just share them out differently if I have political power I can cause the problem and have someone else feel the pain for example not to be too macabre about it but or I can have the pain now or I can borrow some more money to put the pain off until later you're right that everything slides to one there's always so many things and those things can be accounted for shared, pushed around, whatever, in a whole lot of different ways.

44:20But the very concept of debt, and I don't want to get too much deeper into this, but feel free to if you want, means I can borrow some money to change my circumstances. We can make up the money. You talk about fractional reserve banking. For a period of time, so we can push those things around. We're still in the same box, but the room in the box, I think, is probably bigger than we think, or maybe it's a bad analogy. The box is growing. The box is growing in size. Exactly. I think in the modern era too, going back the last 50 years in particular, and maybe even back to the Industrial Revolution, is that a lot of these impacts aren't as obvious because they're not happening in isolation, right?

44:59Yeah, good point. We're seeing these dynamics. If we were in a technologically stagnant period of epoch, of history, whereas in other words, there are no new inventions. We know what we know, right? And that's it. Like it was in the Middle Ages, frankly. The rate of progress was glacial. I think we would notice a lot of this monetary silly buggers stuff a lot more. But against that, you've got this massively deflationary impact. And I mean good deflation in the sense that, oh, we're really good at growing wheat now. It is insane how the yield that we can get off an acre of land and how many people it takes to get that yield.

45:41It is ridiculous. And then you can apply that to TVs and to building construction, anything in the material world. So it's sort of like that has helped mask it. And then the other thing, to your point, is that this is better defined as this isn't the Newtonian universe of direct cause and effect. this is the chaotic universe. This is a self-referential dynamic chaotic system. It's better to think about the weather, but you know, as an analogy, as opposed to two billiard balls hitting each other, right? Like it is, you do this thing over here and it is, there's like 12th order effects that happen six years later in like, it's the butterfly theory, right?

46:25Like a politician makes a stupid utterance and three years later in Venezuela, there's a recession. Like it's that kind of thing which makes it so diabolically complicated. So I guess I don't know where we go with, I don't know, putting a line under this part of the conversation, but other than to say it's like there's no easy answers. This stuff is really deep. There are real-world restraints and considerations against all of this stuff. And generally speaking, if someone's up there offering you easy answers, you should be highly sceptical. It's probably how I would summarise what we're talking about.

47:00No, that's a great way to put it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener. You talk about the good deflation. Yeah. So this is a data and it's from a US publication and things are all different. Directionally, it's all the same. In 1947, almost 25%, maybe 24 % of disposable income was spent on food. Yes. So$1 in four, close enough. Now it's about 7%. Yep. And on top of that, so food. Food could be camel meat. Apologies to people who like camel meat. And it could be like wagyu beef, right? So your point is doubly good because it's not just that it's become so much cheaper.

47:50Well, I was taking a chat with parents and their friends the other day. It was like they never had avocados. They never had all these things. And, you know, there's a lot of fun you can have with that conversation, by the way. But in a very real sense, it's just like we just didn't have it. It was just it was a luxury kind of good. It wasn't something the market demanded. There wasn't the supply chains. There wasn't the stuff all around that. I can walk and pretty much 98 % of Australians can at least drive within five minutes and have the world. Like you can get a rambutan if you want, right?

48:24You can get, I don't know, I'm trying to think of exotic foods. So it's insanely cheap and the quality, actually, I've got to be careful with that. At least the potential for quality is there and the range has also improved. And that has masked a lot of, again, if that technological advantage didn't happen, inflation would have been on the agenda decades ago. Yes, yes. Not only that, by the way, you mentioned the food. I'm not sure I've got two feet on the food, rather Warren, but what's also interesting is that number's come down a lot, right? And you're right about freshness and other things.

48:56The other thing, though, by the way, is if you only ate – we don't want to anymore because we've got rich stuff we don't have to, and that's fine. But if we only ate what's in season and local, that would come down massively again. We think about, oh, well, how expensive is it to buy a passion fruit in the middle of winter? Well, bloody expensive because it's passion fruit that's winter and you got it from California or it was in deep freeze for six months or whatever. And look, again, if you want to eat passion fruit in winter, do you knock yourself out? People have got the money to spend. You pay – If there's a demand, The market will supply.

49:22Right, right. But in terms of that percentage on food, if you then say, well, actually, all I'm going to do is I'm going to eat this and that and the other when they're in season, when they're available, when they're plentiful, that would drop phenomenal. I wouldn't exactly halve again, but I'll tell you what, it wouldn't be miles away if you think about the impact, particularly on the fresh side of things. It is phenomenal. And again, people are a bit tough right now with food and other things. I get the inflation stuff, so let's not go down that path. But just a reminder that for all of the things that we take for granted, the so-called cost of living problem right now is real for a lot of people because we we liked our previous living standard and wanted to maintain it not because if we if we if we lived like our grandparents we wouldn't know what to do with the spare money we'd have one car we'd have no tv you'd have no internet no computers mightn't be as fun you mightn't enjoy it that's the point but let's before we think we've got to have we got a cost living crisis yes to some degree because we want to maintain a living standard perfectly reasonable why would you not want to do that absolutely true uh but it's yeah we get very quickly used to the new stuff uh and take it for granted then wonder why it's not continuing getting better it's like flying business class right like you don't you know it's better yeah you know it's better but you know how much better can it be and then like i used to do a lot of travel i just never got and then i got upgraded i'm way too tight to pay for it and i was no when you're important enough for my the companies i work with to pay for it and then you get a taste of it right that's right i traveled so much like got the gold membership on us yeah it was a virgin yeah and then you start getting the the priority boarding you get to sit in the lounge and then when you lose that I was like oh this suck it is they say it's better to have loved and lost than to have never loved at all like when it comes to those kinds of luxuries like no just don't give me love in the first place because now I know what I'm kind of missing out on so there's a there's a little bit of of that I would say though I think the cost of living thing just on your point i think it's just that we've come to a point where the silly buggers has got has it has been suppressed not suppressed masked because of our wonderful technological efficiency gains and we're at a point now so like it's like the internal combustion engine all the low-hanging fruit has been taken now so so in five years time will there be more efficient internal combustion yeah but it'll be three percent more efficient you know whereas the the difference in efficiency between the model t and right cars that were rolling off 20 years later it was insane it's like orders of magnitude more efficient so it's an s curve so we've kind of we've plateaued out on that and so now we're at the point it's like yeah can we get the same efficiency with my previous example with wheat from where we were to where we got to can we do that can we do that again i'm sure we can make it more efficient but it's it's harder and harder and harder and that's when it gets to the point like where's all this inflation coming from it's like i think it was just like a lot of those forces were sort of in train but just hidden a little bit by these these counter countervailing forces i don't know i don't know yeah very cool hey um let's let's chat quickly let's change tack entirely mate for the last little bit of the podcast um a couple of couple of kind of stories of the week individual sort of specific things that i think are interesting for the implications for the investment markets for the economy for finance all that kind of stuff The first to be an announcement this week, Macquarie sold, Macquarie Group, sold its funds management business in the US and Europe to Japanese firm Nomura for$2.8 billion.

52:49Large chunk of change, even for Macquarie, responsible for a big chunk of their profit too. And basically, now it's always difficult when there's a buyer or seller for any asset, right? Because like even when we buy and sell shares ourselves, I tell you my Woolworths shares, I think they're too expensive. You think they're too cheap. That's why we do the deal. Well, in this case, both parties obviously feel like they've got a good price for it. But Macquarie basically saying or seeing there's issues with their ability to extract fees from funds management, given the rush to passive investing. And given the – not only the rush to passive investing per se, not the sheer weight of money, but the fees that are being collected.

53:25I mean, some of those fees, I don't know what the lowest is now, but 0.04 % is the lowest I think I've seen recently was an S &P 500 fund. um that's you know when when we you know the old days the uh so-called two and twenty brigade you got two percent of funds then 20 outperformance all of a sudden vanguard charging 0.04 percent and beating you exactly and getting a better performance right and so it's it's just i think it's an interesting interesting question we talked a little about passive and active before and we've talked about the fact that you know everyone should be passive except if you can beat the market you should so that's kind of the inherent paradox um but when macquarie does it i mean look they they just don't care about being in the market they care about the fees and what they're effectively saying i presume and again numura is buying the business so numura has a different view i don't want to i don't draw too much of a conclusion using one view or the other because there is two happy parties that think this is worth 2.8 billion dollars so imagine what that looks like in some sort of discounted met present value cash flow from that business i just think it's really fascinating that the business known as the fee factory as well as the millionaire's factory is stepping away from outside Australia, still keeping the Australian funds management business, I presume because they've got scale here.

54:32But just fascinating that they're prepared to simply walk away from that part of their business, given it's been something they've been doing for such a long time. Yeah, that tells you everything, right? I mean, you just investment bankers don't walk away from big fat fees. I'm not even trying to be derogatory. You're a sane person, right? All it tells you is, and the buyer, sorry, the seller always knows more about the asset than the buyer. We've had it. I'm not saying they've misrepresented themselves, but they are not idiots, right? And they've looked at it and they've just gone, and I bet you they've looked at it through an opportunity cost lens as well.

55:08It's kind of like, I'm not saying it's losing money. It's not a, I'm sure it's a profitable endeavor, and that's why Numera is interested. But it's just a question of like, this seems like an industry that is in decline. It's not going to go away forever. There will always be a role for active, but it's definitely in decline. And we've got all this money tied up in it. Probably should divest it and invest it somewhere else. And I can't blame them. It would be different if they were running these active funds, smashing the market and attracting huge fund flows. But they're not. So they're selling it.

55:44And it's such a big theme. ETFs, we talk about them a lot. but you and I have been doing this long enough to know that they're really a relatively new invention. And they're, you know, rest his soul, Jack Bogle, it's like an incredible innovation. And it's actually helped create a lot of wealth for a lot of people. And it's removed a lot of snouts from the trough in terms of all the middlemen that have historically sort of, you know, controlled access to these big capital markets. So, yeah, it's a wonderful thing. but I guess the thing that I find, well, I find so much about it interesting, but it's like a lot of phenomena.

56:24Like they start with a trickle and it ends with a flood. You cannot get away from ETFs and passive investing these days. It's everywhere. But it's not, I suggest, I'm going to contradict myself because I said it's new. Historically, it's sort of new, right? What are we talking about? 15 years, something like that? Yeah, index funds have been around a lot longer, but ETFs specifically probably only been in the public consciousness for a decade and a half, yeah. Something like that, right? So in that sense, they're not that new, but they're only getting more popular now. And it's sort of like, well, they're the same thing that they were in 2010.

57:02That's right. Why wasn't they such a big deal? Then it just, it takes, I kind of know what my point is here, other than just the observation and to remind yourself that it takes time for human behavior and preferences to change. Do you know? It's just sort of like there's nothing more powerful than an idea whose time has come. And ETFs absolutely have landed at a point where it's like there's a lot of people who need an easy, low-cost investment vehicle. But yet here we are, 15 years later, and the curve is only accelerating. And to such an extent that the traditional money managers are actually walking away from their traditional business.

57:44Like it's, I don't know what my point is. Do I have a point? I don't know. It's just, it's fascinating at how social norms change because it was a little bit out of left field back in the day. Now it's like every financial podcast, us included, are talking about it. And it's the established doctrine. I wonder what it will be in another 20 years when it's something, or maybe not. I don't know. Interesting. It is, it is. And I think that's the key investment takeaway. The other one for me, mate, is just the pressure it puts on funds managers even to keep their current business. You've got two things happening at once.

58:17You've got, as I said, the fund flows. So ETA fund flows are growing and active and pre-active is still declining. I'm pretty sure that's true. But either way, it's not just the funds are going, the fees are having to be reduced even to keep the business they've got. And this is from an investing perspective as a company analyst, if you're looking at these sort of businesses, for a time, the view was, well the stock market keeps getting bigger uh prices go up people add more money you're clipping the ticket as a percentage of the assets under management you got this really nice tailwind behind it it's not growing million miles an hour but between personal investments and superannuation or 401ks in the us or whatever you've got a really really nice business where the the the fund manager make money and and the the pile is growing you don't have to do much i mean you guess you're gonna be better than your competitor to some degree but you don't have to grow the pie in that same way people are throwing more money at you you just gotta go well hang on i get a share of this and because your costs in theory don't go up as you grow that was supposed to be a really nice leverage growth because you only do one investment manager with it whether you're investing 10 million 100 million or a billion you only one person or whatever the team size is to make those decisions you just it's just scaling your money differently and so it's kind of this beautiful business but you look at it now in reverse so hang on funds are growing yes the ones that are going to passive mean the funds industry is making less money every time a dollar goes from active to passive but even those active managers the money they keep that's declining and their fees are coming down because they're having to drop their prices just to stay in the game.

59:44So it's gone from this really nice... Right. It's gone from this really nice kind of expanding business to one that's contracting just to stay afloat. Now, it's kind of what capitalism is supposed to do. It's supply and demand. It's all that stuff. But it's just a reminder as an investor, if you're looking at fund managers... I used to love fund managers. I was a big fan. These days with that trend, it's a really, really tough... And speaking of, by the way, ETF fees, some in the US are doing it for free because they're trying to do this bait and switch of come for my index ETF and then I'll sell you something else I might make money on.

1:00:14But, I mean, free. Like, you know, both brokerage and now ETF fees are just dead free. It's incredible. Yeah. Go competition, right? There is a market demand for it. And the demand isn't – no one wakes up. No ordinary person wakes up and goes, gosh, I would really love a basket of securities constructed and blah, blah, blah. It's just like I just want someone to buy my money. It's just really easy. I just wanted to grow over time because I want to buy a house or look after my kids. I want to plan for my retirement. All I want to do, which is the most natural, normal, healthy thing that you can want as a human being to sort of plan long term for the future.

1:00:51I can't do it with money. So I guess I have to do it with houses or stocks and houses. I can kind of wrap my head around, but that market's closed off to all but the richest people now. Stocks are really hard. You know, we built a career on the fact that it's hard. Right. And like, wait, I can have almost all of the upside and none of the work? Like, it's so potent. It's so powerful, right? And is it a bad thing that a lot of the active fund managers who, frankly, after fees, a solid majority of them weren't delivering any value whatsoever, that they are either going out of business, pulling out, or having to lower their fees?

1:01:27That's a good thing. It's a really wonderful thing. That's a very good thing. That's exactly what should be happening. And as you say, it's better mousetrap stuff. Either give me a better return or I'm going to find the alternative. It is funny. You mentioned time has come. I think that's true. But again, I want to say 1971 is in my head, but it could be up. Yeah, it's back a lot. So it's, yeah, 50 odd years of index investing being a thing. And really, the up was a fringe thing. Now it's the thing. Exactly, exactly. I think I've said this pod before, man, I'm sure I have, but Commonwealth Bank or ComSec released some data not long ago and the five largest holdings or maybe trades, I think it must have been trades, the five largest kind of you know by value of shares traded for people over 40 were all individual companies yeah people under 40 the largest five were all etfs yep it is it's here but it's not even here you know you to your point about you know five ten fifteen years time there is a massive massive wave coming a hundred percent i mean even on strongman right like we're a small cap investment club yes yeah like there's a bunch of i wouldn't say how many we got like there's even in our top 15, there's two ETFs.

1:02:35Right. There you go. Isn't that – I mean, for a lot of people, it's just somewhere to park the money while they look for a direct investment. But it's the other interesting thing about it, right? It's like I don't have to be in cash. I can still be fully invested or I can prosecute a certain belief very easily, whereas in the old days I would have had to very carefully construct direct investments and much harder to manage. You know, a lot of financial innovation does not further a humanities cause, but sometimes it does. Yeah, and the good stuff does. I think that's the... Yeah, you're right.

1:03:07I'm not sure overall whether there's been... Well, there's been a lot of value created for fund managers despite the growth of index funds, but hopefully a little bit less in the future. Let's finish off with... Again, I'm going to go a little bit political, but not deliberately. It's worth... So the coalition announced during the week that we're going to let international airlines fly domestic routes out of Darwin. Now, it's Darwin, and I love Darwin. I don't mean that critically, I just mean it's a very, very small city. It's geographically, obviously, the first point of entry for a lot of people flying into or out of Australia, particularly through Asia, Indonesia in particular.

1:03:42If I could go up to Darwin to see how multicultural the city is way before the rest of us. So there's kind of some very specific things about Darwin, but I just thought it was an interesting promise to make. Only Darwin, not others. And it's a reminder that there is a really significant restriction on domestic routes when it comes to other non-domestic airlines flying those routes. You've got Qantas, you've got Virgin, we've had many others, including Rex and Compass and Bonza and other things trying to do this sort of stuff. But there's always been a restriction on international airlines doing it.

1:04:13And this feels to me like maybe, again, maybe it comes to nothing, maybe they lose the election, maybe they win and only do Darwin, or maybe it's the thin end of the wedge in terms of allowing for international airlines to actually fly those domestic routes. And I suppose what's, well, I'll put my cards on the table. I see absolutely zero reason why we shouldn't have anyone who wants to fly Australian routes, flying Australian routes, as long as they are compliant with the Australian rules and regulations, as long as those regulations are appropriately enforced. I say that deliberately because that is important, right?

1:04:44Having a rule and the rule not being enforced is a waste. Airline safety is kind of a big deal. So, you know, it is about time that they opened up the skies for planes out of Darwin. but that's not really even – it's a funny thing to decide. I assume it's electoral. I assume there's a Darwin seat they're trying to win or there's some constituency somewhere that wants that. But why not do it at Brisbane or Sydney or Melbourne or Adelaide or Perth or Mount Isa or bloody Alice Springs? Well, two words. Regulatory capture has come to mind. I mean, look, I know I'm the – Regulatory or political? Well, that's a very good question.

1:05:25They're joined at the hip. Right. Yeah. I just don't want to be the resident cynic, but. Too late. Yeah, I mean, who are you protecting? You're protecting the consumer from lower prices and more choice. Yeah, that's right. That's be real when they talk. Oh, there would be some stated reason as to why this is the case. To foster the local industry and to support hardworking Australians. And as we've often talked about for some bizarre reason, we have this like really romantic attachment to Qantas, which is just the business like any others, but planes and there's a kangaroo and it makes me feel more Australian.

1:06:04Like what? I don't get it. I just don't get to bloody plane. Right. And they're all over the world and they all do the same thing. They take off and they land and they get you from A to B. That's it. And it's like, I tell you who doesn't want other international competitors coming in and flying domestically. Qantas. Yeah. Qantas. And how can they even affect that? Again, they have such amazing political power. We only have to see the reaction, the treatment that they received in the pandemic. Like, I'm not even going to get started on that because it makes my blood boil. Like, it's so egregious.

1:06:39So, yeah, when I heard the announcement, it was like, what? Yeah. Like, that's the easiest thing in the world. There is one person who was against that person. There is one entity that is against that, and it's called Qantas. Virgin as well, I guess. You know, but it's like in every other respect, if you're someone who likes cheap, affordable flights with lots of options. Yep. And you know what? The airports operating in a free market, we'll welcome any, again, as long as you're compliant with our safety standards, you know, your money's good here. Yep. We'll take it. It'll be, yeah. So anyway, I just, I find it another just depressing thing that we've had politicians come in in the name of helping us or Australia in some way absolutely pandering to vested interest.

1:07:32And so it's actually surprising to see Dutton, of all people, and the Liberals to walk back on that because normally they're sort of seen more friendly to big business. So that is interesting. Yeah, there's zero reason why we should have closed borders. It harks back to protectionism of the 50s and 60s. And by the way, I know there's a renewed kind of protectionism vibe around the world. We started talking about that. Plenty of people in Australia want to do that. The future made in Australia boondoggle that Labor are proposing is - Again, protecting us from lower prices and more choice. Thanks for that protection.

1:08:03So it's all that stuff. I mean, you know, as always, there are questions around what capabilities we want to keep in the country from a sovereign kind of capability, defence, national interest perspective. And if one of those is aircraft, then so be it. But be really specific about that and actually tell us we're going to have to pay an airline tax because we're going to do X, Y, and Z. or make a mandate that has to be a service here. The reality is Boeing's built in the US, Airbus built in Europe. Whatever sovereign capacity we think we have kind of comes down to a couple of people can fly some planes and the ultralight guy's in a paddock somewhere.

1:08:36Like it's, you know, it's wrapped up in that because, and you mentioned planes, Matt, the romantic element of planes and national airlines and you mentioned business class too. I mean, the amount of money people pay more so they can have slightly more legroom for a couple of hours or maybe a few more than a couple of hours, but like in any other industry, if you said, oh, you can have this where you can pay me$4 ,000 more to have 24 hours of more comfort. Like, I'm not doing that. But the plain thing, which is we lose our collective mind. Frequent flyer points, great example as well. Oh my, oh, we should do a whole episode on frequent flyer points.

1:09:08I got a lot to say. I can imagine. But you know, the made here stuff, I get it, I get the, there's something deeply ingrained in our psyches. It's probably evolutionary about the doing the thing. And it's probably doing stuff with our hands is probably where it comes from. and there is that kind of, you know, what should we be able to do and not able to do? And I've said a million times, man, this is a different perspective, but if you believe we need to have a national airline, then let's make the case for it because realistically, the things that we think we can do versus the things we will or won't do, we say, oh yeah, Qantas helped us during COVID.

1:09:38We gave them$2 billion. They just took the money. They weren't, it wasn't national interest. It wasn't even regulatory. It was just, hey guys, you got some planes. You're not flying them anywhere. If we give you a couple of billion dollars, can you fly some Australian homes? Sure. You could have gone to Cathay Pacific. You could have gone to bloody anyone and said, they're New Zealand. I said, guys, you've got some extra empty plans here too. Oh, it was a buyer's market. Right, right. I'll give you this. You don't want it, I'll find someone who'll take it. You've got all of the cards. All of the cards.

1:10:06The psychology is very real, is the reality too. It is what it is. And I get that people feel very good about it. There was just zero, zero, zero, zero reason for us to have a national airline. I get the national security thing, but if you really ask people the second and third questions, So what is it giving us? And how certain is it? And what can we do without it? That falls away really, really, really quickly. Not because people are silly, just because I think, I get the instinctive response. What's your simple and wrong or complex and right? You know, the simple and wrong is, well, we need a national airline.

1:10:35We need capability. We need capacity. We need to be able to do these things. Well, A, are we actually even doing them? B, if we are, could we not do them in any other way? And C, do we have to pay that much money? Flying Aussies to Bali is not in the national interest. Let's be real. And if you need a military capacity, we've got an air force, right? Like it's just, and I'm not against a national air. Like if there is an airline that is domestically based and able to compete and offer a great service, then yeah, I'm for that. But I'm not for changing the rules to give them unfair advantage at our expense for some very fuzzy upside, and tenuous upside.

1:11:18That's the bit that gets me. Yeah. But, yeah, I mean, the other part of it was, it was like, this is really my view of the entire election campaign, is it's just sort of like we're fridling while Rome burns here. It's like all of the things that we could be debating and talking about work from home. Right. international flights out of Darwin. I mean, I could go on and on, you know, like a little bit cheaper on your petrol. Like, just, there's not individual merit in a certain way in some of these ideas and that they're worth discussing. It's just like if I was to draw a list of the top 10 most important things that our leadership should be focused on for our long-term prosperity and wellbeing, whether or not someone at the Department of Ed is working at home on a Tuesday is just not in, it's not even in the top 100.

1:12:12And these are the things that we're going to be deciding our next leader on. These little twiddly little kind of, oh yeah, that's kind of cool. And it's like absolutely zero substance, absolutely no strategy or planning or thinking or anything that's actually genuinely going to make us better off and our kids better off. So depressing. That's absolutely right. but I'll be a little bit political just for fun of it. And this is not, well, probably a bit of a slap, but I drove down past my local school where they were doing the pre-polling. I'm just a local community hall doing the pre-polling at the moment.

1:12:47And the massive, great, enormous core flute sign, quadruple the size of the other one, is an LNP poster saying, you'll save 25 cents on every litre of petrol if you elect us. And that's the biggest sign. And I get the hip, but why do they do it? Because it works. But fair, I've said a million times, I've said about budget, please don't read the what's in it for me article please read the what's in it for the country article and if you're going to vote okay vote for the lmp if you think it'd be better for the country i'm not saying do or don't vote for the lmp what i'm saying is the cynicism and the self-interest of the only campaign message there are lots of people with their photos and their names and parties the massive big call for it's you know i don't know how it's legal it's enormous um basically just saying here's an election bribe take my money and labor's doing too it's not it's just that it's that blatant it's not ever pretending that it's about the national interest anymore it's just like hey here's here's some money in your back pocket tick my name on the on the put a one i should say next to my name on the ballot paper when it comes to election day it's it's it's depressing it's depressing that it might work i am by the way still very hopeful i said this last week i'm very hopeful to end up with a minority government or at least more independence in in parliament that improve our improve our democracy so um and i think that's actually i think that's the i think that's honestly the response it's it's the it's it's people's response to hang on you guys aren't doing the right thing this isn't working we're gonna go we're gonna vote for somewhere else i hope they do i did saw something during the week it was like we did this big polling it turns out cost of living is a really important factor it's like oh really is that wow how much did you spend it turns out that the quality of people's life is important to them like you know just some of the i don't know it's so myopic it's so short term it's so so cynical it's just so i just you said off air when we started chatting did you watch the debate last night.

1:14:26I was like, nah, I can't. I want to, I try to. It's just sort of like, if anyone, they did, people are going to, two people talking past each other. Yeah. Both making, both denying the fact that the other person, like, no, that's not true. That's not true. So I don't, as a viewer, it's like, I don't know what is true here. Who's telling the truth. All you're doing is political points scoring, talking past each other, going, going through various talking points. I come out of it confused, angry, not really knowing what the substance is behind anything else and that apparently the biggest issue in the world right now is how much I'm paying for petrol, you know, or just some stupid like, you know, culture war kind of, you know, sideshow.

1:15:08It's just, yeah, I'll happily say it. I'm voting. I'm not voting for either of the major parties. No, I said already last week I'd say, yeah, I'd put the majors last. Well, there's particularly, you know, minors or interventionists, you can't stand put them last, but the best thing we can do. That's very important to say that too, actually. Even if your final preference will almost certainly in almost every seat in the country, not every because of a lot of independents, will go to one of the major parties. Sure. Choose who you dislike the least. Who's the least worst? Which is the lens I'm looking through.

1:15:38But that's kind of my point. Put the independents first because, A, it sends a message. B, if you've got a quality independent, you might actually help them get elected. And even if nothing, you still get the least worst major gets your vote if no one else gets the two-party preferred vote above 50 % in the meantime. but you're saying to those candidates, you're saying to the parties, you guys are on the nose. I had to put reference. One of you is going to be slightly less worse than the other but at least we're doing the right thing. Yep. That's how I'm going. I don't have a lot of options in my electorate, sadly.

1:16:07I haven't even checked out my ballot paper yet. Senate is... We did this last week. I'm sorry to do this again at the end. The Senate's really important. Even for those of us who don't have a lot of quality independence in our electorate, if you look at it and go, who do I vote for? I have to choose one of them or whatever. That's cool. There is a much, much, much broader range of candidate options in the Senate. I don't want to fall afoul of any rules, but I believe you've got a number one, boxes one to six above the line and one to 12 at least below the line. So take your opportunity. Get informed.

1:16:36Choose the right range of candidates. Don't even vote for the same, vote across parties. One in one box and two in another box. You can do all those things rather than just voting for their preferred list of candidates in their preferred order. Find some people you actually think will actually do a really good job. of helping our parliament be better. That's the best thing you can do when it comes to election day in my view. Yeah, yeah. I think Socrates was onto something when he kind of, he was against democracy. Was it Socrates? I think it was. But he actually could argue and it's not that he was against it, but it's like, its success rests on a well-informed public.

1:17:11Yeah. And this isn't to sort of be just negative to everyone else, but it's different when you're a Bronze Age society as opposed to a modern 21st century, you know, in the information. Things are so complex now that it's, I would say it's kind of impossible for any one person to be reasonably well-read across all the range of issues that you need to be, whether it's been health, defense, education, it's too much. It's too complicated. So you kind of just have to vibe it. You know, people talk about vibe coding at the moment. I think it's vibe voting at the moment as well. I was like, and what else do you do, right?

1:17:48I was going to like, kind of, that guy's eyes are too close to go. That guy looks all right. I'm going to go with that. That's kind of how we elect our leaders, right? And I don't like, and they're going to, various pet issues that I have. And there are plenty of one-issue voters out there as well, right? Yeah. I find that difficult too. Yeah. By the way, that's a great thing about preference voting. If you find a particular party or candidate you think you like their issue, by all means do it. But then you get to say, okay, well, if the the color thumpian independence party which is my real pet project uh that i'm gonna vote for them number one but they're not gonna win so then i'm gonna work out okay who do i then preference next who is the next you know useful wasted right and don't it's a great system don't vote informal don't donkey vote like just i get i get the temptation but we've got to be better than that we've got to say you know what i feel like donkey voting because you guys are all just you all suck but i'm going to use my vote to actually make a difference whether that is just hey I didn't vote for one of the majors or I voted for this minor single party because I thought actually their issue was real and then I used my preference vote as you say not wasted going to somewhere else yep alright that's enough politics for us we'll probably do it next week because I can't help myself but then that'll be the tis the season for it well isn't it I'm a bit of an election politics nerd too so that's not a good not a good option let's finish this one now mate can you come back on Sunday yes hell yeah I imagine you'll be out there I wonder what you'll be doing on Sunday morning before we talk who knows we're going to have to wait and see Until we do find out, have a great start to your weekend and full on.

1:19:15Cheers.