Mailbag: incl. I have listened to you and now I’ve lost all of my money. September 29, 2024

32:48But then, as you say, there's no free lunch. It's been profitable for me lately. Keep up the great work. You've changed my life for the better, Peter. Mate, that's awesome. Thank you, Peter, for sharing and thank you for the kind words. Why don't you like resource companies, Ram? What the hell is wrong with you? Are you not a proud Australian or what? I'll definitely get to that. But I've just got to just go back to what Peter said and just highlight it and underscore it because it's just so true. Like you can do theory all day long, right? At the end of the day, you've got to do it yourself. Mike Tyson quote, incoming.

33:18Yeah, everyone's got to plan until they get punched in the face. There we go. And I listen to a lot of podcasts where very successful, famous investors get interviewed and it's the same for them. Their IQ is 10 times what mine is. But they all still made the dumb mistakes. Yeah, that's right. All of them did, right? And it's the price of admission. And it's the reason why so, so few people do have the really great long-term returns is because most people aren't prepared to go through that experience to learn and to get better. But you will. I mean, you can't not do anything for a long period of time and get better at it.

34:03Whether it's ice skating or archery or juggling or investing. Like, you do a lot of it, you're going to get better at it. And you're going to make all kinds of mistakes. Anyway, it's just such a great point, Peter, so I'm glad you made it. Why are resource companies better? Well, let's start just rather than using an opinion here, let's just, I'll start with just the historical example. So what's really fascinating is that if I want to look at any five-year or 10-year period, any you select, you select from any period of time that you want, I will guarantee you, as best I can, that the best performing stock will be a resource stock.

34:43Yeah, right. And so that kind of seems to contradict what I'm about to say. But what it is is that something like two-thirds of the companies on the ASX are resource or commodity-oriented in some kind of way. Either they're explorers or they're producers or they're ancillary. So that's just the nature of our economy. And it's more the nature of our capital markets as well because the capital market's main purpose is to – well, the market is there to raise capital so people can go off and do things and hopefully make more money. And so writing is an incredibly capital-intensive purpose. So people need to go to the public markets to raise money, and there's lots of them.

35:18So even though you do get the Fortescue metals from time to time that goes from a cent to 20 bucks or whatever it is now, from a statistical standpoint, you will find that for every Fortescue Metals, there's 999 others that go to zero. Is the industry full of crooks? No. Is the industry full of incompetent idiots? No. Is the industry diabolically difficult? Yes. Why is that? Well, as I just said, incredibly capital intensive, zero pricing power, completely at the whim of global economic cycles.

36:00I mean, you're putting billions into something that will take years to build and you have no idea what the price is going to be down the track. And so the ones that are good are the ones that make very sensible long-term decisions, have strong balance sheets or at least a capacity for whatever reason to tap capital markets for cheap sources of funding and generally enjoy the only kind of competitive advantage that you can have in this game, which is low cost. So there are some miners out there, like BHP and Rio are classic examples and Foursku, the price of iron ore can collapse. Their profit will fall dramatically, but they'll stay profitable.

36:45whereas you have a lot of people who are whose costs for every ton of iron ore they dig out of the ground they're only making a very thin margin so they're only you know a little dip in the in the in the price of iron ore and they're no longer viable you know no matter how much they dig out of the ground so it's just it's a combination of all of those factors and when when you're investing you're unavoidably having to make predictions on the future and and predictions are very hard as Yogi Berra says, particularly about the future. And so I can't know. But if you were to ask me what's more likely, that Australians will want food in five years' time and probably source that from a major supermarket chain, it's a pretty good assumption.

37:31Is it guaranteed? No. Pretty good assumption. What is the demand for lithium going to be in five years' time? What's the supply response going to be? What's the mix of production producers out there? Even those that are able to get there and start producing viably, will they be able to do it where when you look at the end, like all of the capital put in versus all of the capital now coming out on an internal rate of return basis, is it economic? Is it profitable? There's plenty of businesses that might be profitable now, but are still trying to dig themselves from under a hole of 10 years of of unprofitability, you know, it'll be a long time before like the, the, yeah, the internal rate of return.

38:15I don't want to get too much into the mass, but before the overall cash flows go into a positive, into a positive direction. And it's just very, very, very hard. You try and predict for me, what's the commodity that the world's going to want? How much are they going to want it? What's that going to meet against the supply? Who's got the lowest cost production? who's operating in geographies that have favorable regulatory frameworks will those regulatory frameworks change even in australia we regularly debate things and changing resource rent tax and the rest of it a lot of stuff in africa but you know corrupt governments there will just take it away from you as soon as you've got something stood up that looks it's just hard and and i can tell you having been in this game for many decades that the the there are people who are good at it But they're rarer than hen's teeth and they are deep, deep domain expertise, knowledge in geology, in mining.

39:08And it's very hard to do. And so could you make a go of it? Yeah, you could. But just know what you're up against. I'm with Buffett. I prefer to find one foot bars I can step over than six foot bars I have to hurdle over, you know. And the thing I've – I'll shut up in a minute, mate. Sorry. So the thing I want to really stress here is that I'm not prescribing what others should do. I have, through bitter experience, learned that it is outside of my circle of competence. So I don't go there. Does that mean that I'm here on a podcast saying that no one should invest in resource? No, absolutely not.

39:42If you've got some kind of competitive edge in that space, your deep knowledge of the industry, maybe you work in the industry, maybe you just really understand it all, then fill your boots. Go to town. I don't care. But I just know for me, it's not. And I would point to the statistics over a long period of time and say, generally, it's not for most people as well. But you may be the exception. Love that, mate. Two thoughts for me. Firstly, to some degree, Peter, it's opportunity cost. I've only got a certain amount of money to invest. And for all the reasons Ram said about the relative attractiveness of mining compared to other industries, I think it's more likely I'm going to find better ideas in the other industries.

40:19In fact, statistically, historically, mining has underperformed industrial stocks. So, again, some will do. By a lot, by the way. It's not like, oh, 1 % compound. You know, it's a lot. Yeah. And so, you know, does that mean you can't find a great miner? As Andrew said, no, of course you can. Are there some absolute dud non-miners? Absolutely, yes. Yeah. But statistically, it's more likely. And I think it's worth asking why that is. Now, partly it's because as an industry, it's included a whole lot of explorers and small hopefuls that never come to anything. So, mathematically, it's bad. but i think also and just touched this already so i won't do it too much but quality wise the attributes that generally make for successful companies even even leaving investments aside for now just successful companies don't exist when it comes to miners they are structurally disadvantaged relative to others when it comes to business quality you can set up a software business that doesn't require the capital investment of digging and maintaining a mine you can have a retail business that has a or you know a consumer facing business that has a brand premium like apple you know apple and samsung sell the same thing right you'll tell me no they don't because this is different that's kind of the point right you've they've been able to specialize in terms of the product and then convince you that they're better and therefore charge you more now fortescue is on or i own fortescue shares as you know bhp is on or ria is on i'll get back to fortescue in a sec it's all the same or roughly the same or at least the grades are the same so where there's no pricing power.

41:47So if you find an Apple that can be more relevant to more people, grow sales, take market share, grow a market, invent a market, keep their prices high, keep their margins high versus someone who can maybe dig some more iron out next year than this year and still the vagaries of the market can't really set the price. Margins aren't there. It's just a tougher business. Now, you're right, Peter, when you give the examples. Yes, you could shut down operations. Yes, you make a little bit less money for a while. Yes, it happens to other companies. but the upside isn't there either um and so it's a really really tough one with an slight small asterisk i'm a little less uh convinced that there aren't some miners with some opportunity which largely comes from big long dated uh lower cost operations so for example and then the obvious ones rio bhp and fortescue mining iron or in wa if they can produce consistently lower prices than their competitors can and can produce volume for extended periods of time, their profits are a little bit protected in terms of the price relative to the cost of getting out of the ground.

42:52Now, what does that mean? It means it's possible for BHP to do a little bit better than other miners. So you could, if you maybe invest in resource companies, I'd be looking for those sorts of businesses. Because what opportunity cost, sorry, what sustainable competitive advantage have you got as a miner? Zero other than your cost position. Now, at some point by the way the Pilbara iron mines are empty and they're going to go somewhere else so even that's not permanent but it's not bad if that's what you wanted to do so as investments if I was going to I did this if I was going to buy a resource company I would do it at a time when the commodity price was really low and the share price was bombed out because everyone was feeling negative and pessimistic that's your best chance if it's not like I bought some Fortisky shares I've never recommended it to our members because I think it's a higher risk investment when I'm not comfortable giving our members so it's why I'm talking about both sides of my mouth here i you know again like and i'm not telling you what you should do but i'm not investing any of those guys because i don't think the upsides are likely big enough relative to other companies relative to the structure of those businesses um other than if you want to play be a little bit kind of you know tactical which i tried to do with fortescue bought it when it was cheap by the way they went to 30 back to 17 for 15 so you know i thought i was being smart i was for a bit and i screwed it up so you know be mindful of that as well but that that's kind of that's kind of the answer.

44:07They're just not as good businesses. They don't have the same features that you would look for in a good business. And so if that's the case, do you want to spend time trying to find the least worst resource company or something else? The answer is almost always something else. And so that's where I would go. Nice. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

44:31Ram questions from Jack. Hi Scott and Ram. Thank you for the weekly no-nonsense reminders about the simple things in investing that make the big difference. I'm assuming he's not calling us the simple things around, but I'll leave that to Jack to decide. I'm not smart enough to do the advanced thing, so I'm going to stick to the easy ones. Honestly, I'm exactly the same. I have a question in regards to super. I was hoping you could explain something to me as if I was five years old. Again, right now, wheelhouse there, Jack. We're mentally five years as well. Having said that, we're not... Well, I'll speak for myself.

45:02I always get a little bit out of my depth with some of the accounting kind of things. This one's good. Okay. I've received an email from my super fund to let me know my investment strategy has been changed. Prior to this, I had my super as 25 % Australian shares and 75 % international shares. Now, it's 25 % Australian shares and 75 % international shares hedged. I had a look at the website and there are two options for international shares, hedged and unhedged. Both have the same fees, 0.09 % per annum. They report the difference is whether the currency is hedged back to the Australian dollar.

45:36I was hoping you could explain the differences between the two and what a 30-year-old with a long time before they access their super, pending government rating it to increase property prices, he says, should consider with these two options. Many thanks, Jack. Ram, what is between hedged and unhedged? And what should a 30-year-old think? You can use various derivative instruments to nullify the change in the value of the Aussie dollar. What's a derivative instrument, Ram? It's a – well, it actually all goes back to agriculture, if you want to go way back. It does. And farmers would like to lock in the price of their crop before they grew it, you know, because it just provided a bit of certainty and other people would like to lock in their purchase price.

46:15So they have futures. We've now got options. We've got all kinds of esoteric things. But they're basically at agreement between two parties to lock in a price for the future today. Nice. And, you know, gosh, you could spend weeks doing this kind of stuff. But that's basically it. So what happens is, so the Aussie dollar is about 68 US cents at this point in time. And the risk is I have a whole bunch of stuff in the USA, and the Aussie dollar goes to 78 US cents. So it means that when you bring the money back, you know, you're not getting your, the exchange rate has moved against you, right? So you're getting less Australian dollars back.

46:56You might have made 10 % nominally on the US market. By the time you account for the currency, it sort of goes against you. So you can, or in this case, the super fund on your behalf can employ some of these hedging strategies to buy some of these derivative contracts to nullify that. Now, why wouldn't you do that? Well, as has been said already on this pod, there's no such thing as a free lunch. These things cost money. There is a counterparty to your trade. so you have you have locked in the price of the aussie dollar and someone else's has allowed you to do that by taking the other end of that bet you know and they don't they're not going to do that for free they're not going to say here's your cake and you can eat it too they're going to say okay you can lock in the price of you know one aussie dollar at 68 us cents but i'm only going to do that for a you know a set period of time and i'm going to demand a premium on that like why wouldn't you i would i'm not just i'm not in the bit no one is in the business of just handing out, you know, free upside, free protection for nothing.

48:02So if you are a shorter term, if you are on a shorter term horizon, I'm not going to criticize you too much for doing it. If you're 30 and you've got 35 years until you can access your super, I don't think it's worth it because those hedging costs, now they're not going to see them in the fees as you've pointed out, but you will see it in the value of the units because it's sort of accounted for there. And so I would imagine over the next 35 years that the Aussie dollar will not stay at exactly 68 cents. It could go up to a dollar, it could go down to 50 cents. Gosh, it could go to, who knows what it's going to be a while as we started the pod, right?

48:39It's going to likely going to be a wild kind of, you know, next, next few decades. So who knows what's going to happen. But the thing is that you tend to note that there is a mean reverting quality to currencies. There is not a mean reverting quality to share prices because companies can get bigger and bigger. Profits can go up and up. And let's just take the pass because it's easy and we'll just extrapolate forward for the sake of the exercise. All in dividends, reinvested, et cetera, et cetera, it's near enough a 10 % total return on the market. And then I'll go, and let's just say that's broadly what we see.

49:20I don't want to get into the debate, but let's just broadly say we see that over the next few decades. Well, if the Aussie dollar, the Aussie dollar is going to be careful because who knows what the simulation can throw at us. But it's probably most reasonable people would assume that it's unlikely that the Aussie dollar is going to appreciate against the greenback a 10 % per year forever. Like it might go way up, but it won't continue to go up. And if it does, there's going to be all kinds of crazy stuff going on in the world that might make your portfolio management a very distant consideration.

49:54So given that, and let's say that in 35 years time, it is at a dollar, you know, it's on parity with the US dollar. That loss that you have made over that 35 year period is going to be dwarfed by the gain that you will make. So it's sort of like in anytime someone tries to sell you all of the upside with none of the downside, it's too good to be true and it doesn't exist. That doesn't mean you don't do it, but you go in with eyes wide open knowing I'm making a deliberate compromise here. I, for whatever reason, want the certainty of the currency and I'm going to go into that knowing that over time that is going to diminish my overall returns.

50:34Unless I get incredibly lucky on a one-way currency movement that doesn't mean revert, which historically doesn't tend to happen. So that's my two cents. I wouldn't personally, but you might be different, mate. What do you think? No, I'm exactly the same as you. I don't have much to add at all. Just one on the fees. The fees are the same for the ETFs because you're looking at management fees. The financial returns are inside the actual return of the investment itself. So you won't see the hedging cost reported separately. So they look like they're the same fees, and they are because that's the management fee paid to the fund manager.

51:05But the cost of the investment strategy is borne by the overall return. So just be careful there. There's no free lunch. Hedging costs money. You just won't see it in the fee. It's a really difficult one, actually. I don't think it should be reported separately. I think there's a need for it. But it's a little bit misleading, as you've kind of found yourself. You're going, oh, hey, they're about 0.09, so why wouldn't I? The answer is that there is a fee being charged for the hedging inside the investment return itself. I wouldn't hedge unless you had a short-term need for currency. if you need the money in three years time and you couldn't take the risk on the currency, I might consider it.

51:42Then again, you probably shouldn't be investing at all. The other reason I'd hedge is if I had to bring the money back on a certain date and couldn't allow... If the dollar goes to 78 cents and then back to 60 and I can wait that long, then I'm in clover. If I have to cash out at 78 cents or 88 cents or whatever the currency ends up being, then I would probably say, well, I want to be hedged because I don't want to take that risk. But again, it's kind of like if you're investing in shares and you're 30 years old, you've got 35 years. Again, I can't tell you what you should do, Jack, but I'm anxious.

52:06I'm older than you, Jack, and I'm not hedging in my international exposure. I've put it that way. I'm not going to pay. Hedging is volatility insurance and not total return insurance. And all you're really paying for is the ability to be less freaked out when things move. And that's okay. And that's going to come... That's cool. And that's, by the way, yeah, no wrong answer, but that is exactly the point I was going to make is that that's the cost. If for you, you want less volatility, Great. Who doesn't want less volatility? Just be aware that the price you pay is lower total returns. And that's cool if that's what you want.

52:42You can't have high returns and no volatility. It's kind of like, again, another law of the universe. It just doesn't work that way. And so there's no – look, again, if you need to, then do it because if it keeps you invested. If you need to trade off volatility for time in the market, do it. Do it today. Do it tomorrow. Yeah. But if you don't need to, if you can bear the slings and arrows of outrageous fortune over 35 plus years of your working and then retired life, there's no point giving someone money to make that path smoother for the sake of it. It's going to cost you returns in total overall.

53:14Yep. Mate, question from Jack. Yes, it is Jack. Two Jacks in a row. There you go. I thought I'd confuse myself. Jack says, G'day fools. My wife and I are relatively new parents. Congratulations. With the birth of our son, having been the catalyst to start investing for the future. Well done. Nothing makes you think about the future more than having kids. So true. We are loving the journey that is parenthood and investing and find ourselves wondering whether to have a second bub. Amongst the various factors that favour expanding the family, there are also sobering financial realities that come with a second child.

53:47My question is, what all do you think the current cost of living slash housing crisis might be having on our decision? How important is the macro context on these types of decisions? And is there a risk of overemphasizing short-term cyclical challenges and missing out on the long-term joy and fulfillment. As far as yourselves, I wonder whether future financial and global economic considerations featured in your decisions around family composition or whether at the end of the day, some decisions are about more than money. What sort of economic are we likely to see if more of us are having fewer kids?

54:18Sincere thanks for the countless hours of listening pleasure. Fool on, Jack. Great questions, Jack. I feel I'm going, I'm always going first, mate. You go first. Thanks for having me a deep end on that one.

54:33Jack, family is always more important than money. He says blithely as if it doesn't matter and there's no financial impact of having a second kid. You're not going to look back and be glad you had more money but fewer kids. Now, if you go broke in the meantime, you probably wish you hadn't had a second kid because it made life tough for everybody, including the kid you had. So there are guardrails there at some point. Two kids, five kids, eight kids, 45 kids. there's always going to be a line at which that crosses over. You're not here for relationship or personal life advice. If you are, you're in the wrong place.

55:06So I can't tell you what you should do, obviously, even more in this than regular. Legally, we're obliged to not tell you what you should do financially. Morally, I can't tell you what you should do with kids. I don't know your circumstances, Jack. If it's going to be – if you're going to make life unbearably tough and reduce your quality of life, you're going to work harder because you've got to pay more for the kids and those extra costs actually detract from the quality of time rather than the amount of time, then maybe there's a decision to be made. I suspect if you can meet your bills and you can do it comfortably enough so it's not causing you stress and the family stress and marriage breakdowns and stuff, and that's, again, very real, I suspect in 10 years' time, you'd be glad you had a second kid.

55:53um so you know i i i would i would lean towards uh doing that if that's what you guys want um if you're if you're thinking you know i'd really like a second kid but can i afford it i can answer the question but you're starting with i'd really like a second kid and that's probably the best answer if you're like well i don't know if i want one or not let's look at the numbers then you're probably also answering your question right if you're not if you're not keen on it then don't do it because it's just silly if you are keen on it just make sure you can afford it then do it um i don't suspect, as I said, you'll regret not having an extra zero on your bank account at 85 rather than two kids, four grandkids and 16 great grandkids.

56:30I suspect you get more joy from family than you will from whatever money you've got added up. As long as I said, you can look after yourself, look after your family financially because you don't want to be in that position either. That'd be my guess. What sort of economic impact are we likely to see if more of us having fewer kids i'm going to say honestly it doesn't matter and i say that with a massive asterisk and the only reason i say that is because immigration is always going to be a thing um what impact would there be probably our economic impact it changed the the the fabric of society i mean that in a good or a bad way we probably end up with more immigration and fewer natural births natural births that's the right phrase um if we had more natural births we probably should have less inflation immigration you know my views on that um does it change where we are in 100 years probably not the the average skin color might be slightly different depending on where we get our immigrants from but other than that i don't suspect it's a big deal if we didn't change immigration with birth rates you might see some changes um that being said as i said on friday gdp per capita and then living standards per person matter more anyway so economic impact here's what i've come to i've always known but i'm really really really doubling down on it don't sound like a crank um That's Andrew's shop.

57:38No, I'm kidding. I'm really doubling down this whole the economy thing in the sense that what will happen to the economy, I don't care. I genuinely don't care. And I don't say that because it's a bad question, Jack. I say that because it doesn't matter. That's an aggregation of the individual experiences and circumstances. So if the economy halved, but we all were 10 % better off, and I don't mean even mathematically, I mean in quality of life, that's a great result. If the economy doubles and we're all miserable, that's a terrible result so what economic impact would it have none um because immigration will be a thing anyway and because unless the population fell to levels that were below kind of um sustainable in terms of you know sustaining infrastructure or tax bases or services or um employment or something like that you know we've had 8 million people in australia before we could have 40 million people in australia none of those are going to be a massive impact economically purely economically probably environmental impact probably social impacts whatever but i don't think it's a huge i know it's a bit of a cop-out mate but um given immigration is going it can be a balancing factor if we choose to be there should be no issue i don't think directly um probably more a family impact i guess i'm a bit sad if people want two kids and can't afford them that sucks and again the impact is more than economic it's it's kind of you know happiness and quality of life ram I may have mentioned this on the pod before but I saw you know you're driving along and everyone has you know baby on board stickers you know like I was going to ram you but because of that sticker I'll avoid it I've always thought an odd thing like oh I better be careful then except you know what we just talked about advertising on Friday I actually also suspect it probably does actually have an impact maybe it does subliminally but yeah you're going where I'm going with it was I saw a really good one a little while ago it said massive financial obligation on board.

59:29And I just - Was that your own car? It wasn't. If I had known or thought of that, yes, yes, it would have been. Absolutely. You're all kinds of estimates, but to raise a child when they're old enough to sort of leave the nest, it can be like a million dollars, I think was the last time I heard it. It's a very big number. And probably more, by the way, opportunity cost wise, if you think about what you could have invested that money at over the 40 years after that, it's not nothing. But I mean, I'll go with your comments. I mean, it's a personal decision. So I can't decide for everyone. I know we've got two.

1:00:06I think we would have had more if it weren't for the financial impact. And I think too, what's different these days is that both of you have to work. So it's sort of like you kind of outsource the racing a lot of the time too. And this is an agender thing. I would have happily been the stay at home dad. Exactly, yeah. And I don't say that as a grass is always greener. I do not, believe you me, I do not underestimate the difficulties of raising children. And there is something very nice about going to work and being with adults all day rather than stuck. And I speak from a bit of experience here.

1:00:41So it's just a tough job. But I would have, I would have, definitely would have had more kids. But it's just, it was too much of a burden. And it's why I despair so much with housing, not to make it about housing. but everything is downstream of housing, you know, maybe everything's downstream of money and then everything's downstream of housing. And, and it, it has such, by having financialized it to the extent that we have and having distorted the market to the extent that we have, it's not a question. I mean, yes, it is a question of, well, well, you know, where can I get investment returns and can I afford a place to live?

1:01:17But it impacts at a very fundamental level from a, society perspective which is why it is so disparaging so um what was i going to say um i do think that politicians uh over emphasize the importance of having children for for the economy let me reframe that it's the most idiotic thing i think i've you can say right like the economy what's the economy i mean what does it mean to me right and to you and that it just here's a great example so japan is well known for having a stagnating economy over a long period they had this massive housing bubble in the late 90s it popped they've never really managed to get back on their feet there's all kinds of economic problems in japan the gdp per capita is a very different situation right and as as you like to talk about scott and so do i it's like GDP per capita is the one that kind of counts, right?

1:02:18And even then it's distribution, but at least GDP per capita is much better than pure GDP. You know, it's just sort of like for a politician to go, we need more, you know, have one for your mom, one for dad and one for the country because of the economy. It's like, how? I don't, it doesn't make much sense to me at all. So I don't know what my point is. Does it have an impact? Yes, it has a massive impact. um uh i i suspect we're already under a trend of of falling family sizes not from housing per se although that's i think very very much a major factor in recent times yeah but it's improving yes child mortality yes correct um you know by the way this is what blows my mind you don't have to go back to the middle ages for things to get dark you go back a hundred years and things are really different you know um you you needed to have a fair few kids because you know only one in three was going to make it into their into adulthood type thing or i'm making that number up it wasn't quite as stark but it wasn't far off um so so that trend is definitely underway as well but then then there you do get where it does make a difference is where you get demographic bubbles so like the baby boomers for example no one had any kids while the war was on everyone got back from the war we bred like rabbits and there's just this massive demographic bubble with with the boomers and they're all retiring and they've got to be supported because they're boomers and they're used to having everything handed on i'm joking i'm joking just putting that out there for fun but but i'll get a few letters now um so there is a there is a there is a there is a structure of society angle that you could take with all of this to try and keep things in balance but i look it's there's you could again talk about this all day i'll go with what you said scott just to put a knot on this which is do what you feel as though is most appropriate for you beyond the point of being not being on the edge financially you don't want to stretch things so much that you risk being on the street because you really wanted that eighth kid even just stress right if you spend 20 years being miserable counting the pennies well you know for the third kid or whatever it is yeah at some point it's like well you're gonna be a miserable parent you're probably gonna have marriage issues the kids aren't gonna you don't kids don't see you so what was the point of having the extra kid at that point isn't that i find that the tragedy of our time one of the great tragedies is that you know so hard to justify a kid everyone's having them later and later not through desire because you kind of i mean you just it just you you're financially sort of forced into that and then when you finally do have kids you're up at the crack of dawn you're stressful trying to get them ready you drop them off at child care and you'll see them for dinner time and then chuck them into bed it's just like how how what have we done i i just find it so i i mean i don't know i don't know what there's no easy solution to this and there's a thousand different factors impacting it so i don't want to try and diagnose and then solve the problem because that's that's very hard but again you look at it and you despair yes i um you do despair i'm with you i think i it's my usual kind of go-to which is the economy is there to serve side and not the other way around um that being said the we here is not just government right so housing is more expensive i would argue in the last couple of years because of immigration and population growth in excess of supply growth.

1:05:55So I think there's a very short term issue, which is absolutely, if not deliberate, at least within government policy control. Prior to that, with limited exceptions, we all just outbid each other at auction for houses and then chose to put our second incomes into it for the price to get to where it gets to, right? So how do you unpick that? Well, if I didn't make you bid against me and you didn't make me bid against you, but we both did, and we bid eight times income combined, and so we're both working as a result, I don't really know how to pick that without being restrictive or telling people they can't pay a certain amount of money.

1:06:26I find the solution much harder than diagnosing the cause, right? Because we had second women weren't working much. They added to the workforce because they should have been able to do that and work and be treated equally and paid equally to men. And yet when that happened, we all collectively, individually, but collectively went, so I could bid more for that house then. Yeah, good. Well, me too. Well, I want it. No, I want it more. No, I want it more. What if we just stop arguing and pay less? No, go away. I want to pay more. So we did. And so there's part of that which is just purely cultural, right?

1:06:57Like it's not negative gearing is a thing. Capital gains taxes are a thing. But realistically, population is definitely a thing recently. But until relatively recently, it wasn't a huge contributor. So why did we all pay more for houses? Just because we all did. And no one made us. Government policy wasn't, I'm going to make these people pay more for houses. It just kind of got to that point, right? I've said before, it'd take away negative gearing, but it might drop prices 5%. Capital gains tax re-indexation, maybe another 5%. Great. So I'm paying seven times income rather than eight times income.

1:07:25This doesn't solve or doesn't undo four decades of kind of cultural decision making, again, individually, but eventually collectively to do this. So how do you... It is sad, but how do you take it back? I don't know the answer to that. I can't easily unpick this one. You could make people say you may only include one breadwinner's salary in a house price, but how do you do that? Is that fair? I don't know. um tell the banks they only lend to that well maybe but then a cash buyer is going to beat you every single time at auction okay i don't want to do that at some point it's really really really hard to unpick and i honestly don't know i can't i said i would i would many for use immigration now until housing vacancy rates went back up that that's an easy one i would do right now that is policy and has a particular policy response so we take that bit out but the the previous 40 years of house price growth what what's that about how do we i don't know i don't know um so it's sad it is a shame that both partners i was gonna say feel like actually have to go to work i will say early childhood education is really important we know the value of early child education but it's child care important we pay so we can go to work so we can pay so we can go to work so we can pay for child care it's you know the whole thing's a bit cyclical at some point um you can't afford not to work but would you choose given the choice to send your kids to child care some would maybe some of the time to have some time to themselves education absolutely preschool education is really important um child care not so much other than it's necessary right um so should parents either or both part-time full-time be able to you know take care of kids at home and then send them to early child education when it's appropriate for them developmentally yeah how do you how do you make that happen i honestly don't know um i really i don't know i don't know how you i mean maybe the only answer is ever excess supply at some point i I mean, would we have outbid each other so dramatically in 1982 if there'd been five houses for every four buyers?

1:09:17Probably not. So there's some answer somewhere there in supply and demand at some level. But equally, if everyone's already got a house and there is some vacancy, then paying eight times income just because you paid 7.4 times income makes no sense. And yet that's kind of where we are. I don't know, Ramon. I don't want to finish on a negative note, but I don't have an answer to fixed house prices. I mean, again, I'd change those things, but I don't think either of us thinks that have a massive impact. So we're still at stupidly high rather than extremely stupidly high levels. And then what do you do?

1:09:47I don't know how you unpick that. I don't know how you recreate a situation where you can afford to have only one partner work or just simply have an extra kid because the housing is less expensive. I don't know how to solve for that. No. No, I mean, we wrestled with that on Friday. I mean, it's a very difficult problem with no silver bullet solution. Yeah. But it really does need to be a priority though. And I think ultimately, beyond some tinkering, it is a supply. It is a supply response that is needed. You just do the thought exercise. Imagine if I rub a lamp, a genie comes out, and I said, double the number of houses in Australia.

1:10:28Prices will halve, right? It just will. Now, it doesn't mean that there's no extra room around Double Bay, so that's going to be tricky. and there will always be places that are geographically bounded and therefore scarce and there will always be premiums and stuff there. But very simply, there will be more options. It will take something. There's a huge lead time on all of this kind of stuff as well. But let's roll the sleeves up and get it done. Yeah. Yeah, I think that's right. Leading question. Would you – well, I would. I'll make a statement actually. I would make population growth, largely the leader is immigration, but it's about population, not immigration.

1:11:13Actually, not population. Household formation growth. Household formation basically means if one person comes in as a single immigrant, they have one house, you have a family of six coming, there's still only one house. So it's not about the number of people, it's the number of households you need, the number of homes you need effectively. I would actually make our population policy effectively managed by immigration intake a function of household vacancies, of accommodation availability. Would you do something similar or do you do it differently?

1:11:42I haven't thought about it as deeply as you. So I don't see why that - No, I don't want to look into an answer if you don't know that. I mean, my knee-jerk reaction is, yeah, like why not, right? It's always the second, third order consequences that get you. But I don't think that is a terrible idea in just in the sense of, and it's got nothing to do with anything else because it's the kind of topic that people love to sort of add their own sort of prejudices to. But it just makes sense that if there's not space, then - Or if there is space, like not even - Either you increase it or decrease it accordingly.

1:12:21Yeah, yeah. No, I think that makes a huge amount of sense. I mean, just ramping that up in the face of a housing crisis is got to be the closest definition to insanity that you can have. Talk about self-inflicted injuries. Like we've literally, I find, I will, governments do things for weird reasons and I don't like most of what they do most of the time because it's all stupid and political. This one is not even that, it's just dumb. Like it's just really, really, really stupid. Well, is it though? It's like you said to me before, which is like, it is very dumb. However, if you've got a property and you're pandering to that particular person, Or if you want GDP growth to be positive, you might bring people in to push economic activity up.

1:13:03Look, if you're desperately trying to avoid a recession and a house price crash, it's the most sane thing in the world to do. If you want actually the rest of the 27 million of us. Right, right. I'll just let that hang. I know, I know. Oh, well, that's going to have to do. I will try desperately to be more positive on Sunday, on a Friday, I should say, although I'll try and do the same and see what we get. The world needs to change a lot before that's going to happen, mate. So I don't know what you can do there. I'm not sure. I think universal adoption of Bitcoin would be anything to make you happy.

1:13:35Fix the money, fix the world. I knew I should have stopped earlier. Thank you for listening. Have a great rest of your weekend. We'll see you on Friday. 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. The Motley Fool operates under Financial Services Licence 400691.