Mailbag: incl. Should I fear a US collapse? April 20, 2025

24:48And so you pause for a moment to think about the implications of that. It's absolute insanity. And then to say, you're spending too much. And the reason that all this pain that you're having is because you're spending too much. It's like, bugger off. It's just so insulting. And it's also, I actually made the point in response to someone who framed a question to me on Twitter. I appreciate the question. It was a good one. They're talking about, you know, the inflation being a consequence of too much consumption. And it's just like, I reject the premise of the question because prices changing is not not only a natural thing it's a good thing it's the very foundations on which we coordinate this whole clown show that we call human civilization we you know i tell you what happens when we all decide we wake up tomorrow and we say we all want to buy uh tesla the potential to make teslas is infinite just a matter of time and anything right yeah and and guess guess what tesla does when everyone are in the world says they want to buy one they make a boatload more of them so prices go up because of all the demand but that will always be met unless there's some market distortion or some unique and there are there are edge cases here i'll admit that will always be met by supply yeah and and so so when so what i'm getting at here is prices going up is not a bad thing that's just a signal it's a signal to producers to produce more.

26:30And they don't, no one needs to this back to my, the point here is no one needs to tell them to do that because I like making profit. And, and if someone, whatever I'm making in, in page enterprises, turns out that people like it and they like it so much that I can't keep up with demand. And as a consequence of that prices push higher, I don't go, well, I guess I'll just be happy with that. I like scramble to increase production and I don't need anyone to tell me to do that. Like, I could go in five different rabbit holes from here, but I'm going to pause for a breath and let you go because I feel so passionately about it because it's one of those things that once I've started to see the world in this way, you see, you see, just crop up everywhere.

27:16This, it's an implicit assumption that if it wasn't for a bunch of regulators and bureaucrats somewhere in a central organization planning and directing things the whole the whole the whole thing would fall apart and it wouldn't it guarantee you it wouldn't well didn't they weren't needed to get things started in the first place but bartering didn't happen because a bureaucrat somewhere said you guys should really trade those stuff and it goes actually it should be three goats to one cow that's right no but i'm happy no we agreed me and scott agreed no like yeah but it's not enough actually there's too many goats there like says who exactly now i think that i think that's absolutely fair um but i think well no no no i think so i think there's two parts there's two parts there's one is so i think i think that we expect a lot of our governments and so there is there is an unhealthy uh codependence where we want the government to fix all the problems and so when and also governments want to try and help and i don't think those things are bad in themselves what's what's important which gets to ram's point is working out where we can and should be involved so we we as a nation so governments should should and can be involved in things that need or benefit from involvement and we should stay the hell out of the way um for example when we and this is self-interest by the way and it also comes from from business from capitalism itself when businesses say government should do this to help us and people say government should do this so i have a job and those things kind of uh both you know the result of the way governments invite us to treat them, but also that we just want them because we want them, we want to find someone else to blame.

28:54And so there is a really difficult conversation around the government's role in the economy. You know, do we want the automatic stabiliser? That's been going on for centuries. Do we want tax and spend to offset the peaks and troughs of an economy? Personally, I do. I think that the budget deficits in the bad years where government spends extra to keep things afloat so they don't lose their jobs, that's probably a good thing overall. Dreams are free, Scott. Dreams are free. Paying that money back at some other point, which A, pays back the debt, and B, stops things getting too out of control, probably also a good idea.

29:28Now, does that mean that, therefore, that every intervention by government is justified? No. Does it mean they're doing it properly? No. We've talked about this a lot before. We've got a government debt that is large and growing. Even under a Keynesian budget management system where you spend more in the bad years and you collect more in the good years, That should net itself out. That's how it should be done. We talked about structural budget balance. That's exactly how, even if you're a believer in that, I think you kind of need to be almost because it's - No, you don't. Well. Sorry, mate. Go on.

29:58Well, yes, it would be ugly if you had to balance the budget every single year, but that's a different conversation. It would reflect reality a bit better, but anyway. Yeah, but you'd be cutting government service at the same time as tax revenues fell, which would make things worse. You'd cut welfare and you'd do all something. It'd actually exacerbate rather than fix that. Anyway. I disagree. let's not go there you're not going to agree um so so but so that and i think that's natural right so that's true that's kind of the first thing for me i think in terms of have we built the economy wrong um or is the company built wrong to ran's point the premise of the question i don't think you necessarily mean built or maybe you do um but but is is the economy um at cross purposes yeah to some degree um i think i think the here's the reality is that money money saved last year is being spent this year as well as more money being saved this year to spend next year it is it is natural and good and healthy to reserve some of our surplus four times and we talk about government doing it but as individuals so that we have we have something to lay to lean on in those leaner times you use the example of a farm on friday ram that the farmer says look i had a bumper crop this year i could sell it all now but just in case next year there's a drought i'm going to keep a little bit of size i've got some food to eat and some seed to plant just because i need it you know now would it be better on uncertainty right would it be better for the economy in that year if he if he sold everything yeah sure because he'd sell it all he'd get more money he'd spend money in the economy he'd go and buy himself a new car his wife would buy herself a new car um maybe it's a female farmer for what it's worth but you know i'm saying um so that would put more money in the economy absolutely and in the in the moment that would be that would be a better thing i'm gonna i'm gonna i think the government's wrong in that context um why are they wrong because they are they are trying to be too short term we talk about businesses all the time and some businesses have really reliable predictable evergreen revenues and they can probably afford not to put too much aside because they don't necessarily need to have that much volatility other other companies are boom and bust companies they might be car dealerships to do really when the economy grows and really badly when it doesn't, it makes sense for them to make sure they've allowed for that sort of volatility so they can continue and exist through that period of time.

32:10And so I think we don't... Part of the problem, Drew, that you're really referring to directly or deliberately or otherwise is we've built an economy that has no redundancy. And so what do they want us to spend, spend, spend? Because if we did stop spending one year, put to decide an extra couple of percent of our incomes we'd have a recession because we are spending currently everything we earn and so as that number changes uh it impacts economic output and economic demand and income and all that kind of stuff because it just does and that's not bad either it's just it's just the reality of where we've kind of i've not been precariously positioned because a recession wouldn't kill us just hurt a bit for a while um but you know that that's kind of where we're at the other thing i will say is that the growth depends a year on year on growth so if we save 10 % every year then saving 10 % next year and the year after it doesn't hurt the economy um extra spending in a given year does help the economy that's partly how you know it's absolutely fair to say deficits have absolutely created more jobs than not running those deficits and so when the government runs up debt and pretends okay that's that that's the pretense they use which is in any given year i spent more so more people have income more people have jobs absolutely true the problem is you got to pay the piper at some point so consistent levels we might a billion dollars into existence and pay everyone to go and like kick a tree.

33:28Correct. That's your job. Go find a tree and kick it. Doesn't actually produce anything or make us wealthier, but you've got a job. We've got full employment. You've got a job. There's no debt to repay yet because it doesn't get paid back until next year. So for a year, everything's great. Everyone's kicking trees. Everyone's fully employed. GDP's gone up because everyone gets paid for kicking those trees, so they're going to spend that money doing something else. So yes, it's a really, really, really great question, Drew. I think built wrong is the wrong phrase we're not really a command economy even though the governments want to get involved in things they probably shouldn't it's still largely a market economy governments want us to spend more because it makes their lives easier in the short term and it makes our lives easier in the short term too they're not wrong in that sense because if I spend on Andrew's what are you selling mate you're selling straw man memberships hope selling hope Andrew the televangelist I go buy some hope from Andrew and yes Yes, Andrew then has more money.

34:21He's got the best opium. He spends more money because he's got sold more hopes. He can buy, you know, doom and gloom from somebody else because he likes that. He's hedging hope and doom and gloom. And so, yeah, it would absolutely support, in quotes, the economy in the short term. It absolutely would. And governments aren't wrong to want us to be productive and want commerce to happen. We all want commerce to happen. As Andrew said, it's just capitalism writ large. If we overspend, we cause problems. If we don't save, then in the bad times when the drought hits, no one's got any money. So unemployment's worse because none of us have any saved...

34:57What am I trying to say? Extra savings. I was going with silo and save, and I got myself confused. We don't have any extra savings to actually go and buy things we need to buy during those bad years. So saving and investing is great. Spending is what happens anyway. Our spending is someone else's income, so the circular flow of money is really, really important. So the government's not wrong. people are going to save and invest it's where those numbers saving or investment rate falls and increases that's actually where we get economic growth or decline that's fundamentally where it comes from but it also helps to offset that natural variation in economic reality because at the bottom line we all got to eat something everything is a physical asset to start with we can then lay your services on top of that production on top of that but yeah everything goes the foundation of the whole damn box and dice is is land yeah energy commodities and capital like machines basically processes that's it they're the they're the four they're the four things on which you get everything from a smartphone to an apple like it's just like that you must have all of those those kinds of things capitalism is about the formation of capital capital and i wrote an article on this go to straw man slash blog it's i think it's the most recent one they're like money capital um is not money money is capital capital is far bigger than than than money and and and part of the fundamental problem i mean think about it like this like you land on a desert island i'm going to give you one shipping container full of baked tins of baked beans and i've got a shipping container full of tools tools, which one do you prefer?

36:44I'll take the tools. Now you might be able to sit under the palm tree and just, and not have to do anything. And your food is covered for the next six months as you work through your stockpile, but you've got no wealth whatsoever. The way that we currently measure wealth, you would actually have the better wealth because of the first year or two, I'm just like desperately trying to build my hut and, you know, construct a fishing boat and the nets and you know the spears to keep the lions away as i'm like my gdp is awful your gdp is great who's the wealthier person i am far far far more wealthy because i have got the means of production right like like that's what really matters so i just want to make a couple points the government's role is to set the conditions right we talked about this before on why nations fail.

37:32It's the institutions. When you look at rich countries and poor countries, it's the institutions. And what I'm talking about here is the legal system. We need someone to enforce property rights to say, yes, you are allowed to own that land. And if someone tries and kicks you off, we will send some big men with some guns around to stand up for your rights. So we grant you property rights and we grant you the ability to trade with one another. Now, there are some externalities that we need to, we have to wrestle with the very thorny problem of the tragedy of the commons. And again, there are these edge cases and that's where government is super, super, super important.

38:11Things like the environment and so on and so forth. Things like child labor laws, these kinds of things. You know, it's not just laissez-faire, let everything go as you would like it but that's really the limitation of it from there that's it and the other thing i tweeted this recently too the economy is said it's described as a noun it's a verb and i know that sounds like i'm playing playing with words here but it's not it's a it's a it's a thing that happens it's not a thing that is yeah does that make sense and like but but but that's not how it's in the current vernacular, it's not how it's described.

38:48And I really, I really reject and push back on this. Our whole yardstick of measuring the economy is so fundamentally misplaced. GDP, very quickly, I'll do this quickly, but it needs to be done. GDP is revenue. Like it's not profit, right? So would you look at a company, Scott, and say, I'm going to make an investment purely based on its revenues alone? No, I probably want profits. right? So GDP only measures revenue. It doesn't measure profits. It doesn't measure value added. It doesn't measure value added. Even more broadly, if it's not profit itself. And profits to companies, I'm making that point because GDP wouldn't just, nationally we're not talking about just company profits, right?

39:30Because people get employed and there's more important things in that number. Value added is the work that we did, the things that we created, the things we improved, that's the stuff doesn't even, you know, it's not even that. It's just the spinning around the wheel. You've made the the broken windows idea of you break a window, you fix it, therefore you've improved GDP. Oh, it's not mine. This goes back 100 years more. Adam Smith actually goes back several hundred years, which is exactly, and just for those that may have missed the previous rant, which I've done, you know, it's like, again, if I go down the main street of town and I just throw a rock through every window, I have stimulated GDP.

40:02Yep. Because all of a sudden everyone has to replace that window. The glazier gets a lot of extra work done and then he goes and spends money in the economy. So we get all this spending, but then again, you zoom out and you think well are we any richer like no actually poorer because all of the resources and time and effort that we spent in rebuilding the windows we could have actually built a hospital or a road or a factory or something that actually improved the capital stock and so i just i just can't emphasize this enough it's it's it's about the quality of the spend it's about the formation of capital in our productive phase just like on the island give me the tools over the tins of baked beans any day of the week right it's such and yet when gdp dips we think it's an absolute disaster sometimes it's good i'll actually make that point sometimes when gdp grows it's terrible because we're all spending it on nfts or you know some other kind of nonsense which is like great for gdp which is awful and we we have absolutely strip mined our capital base I would say in Australia, because of those four characteristics that we went through, land, no shortage of that, energy, oh my gosh, we've got energy out the wazoo, we are so rich in energy, commodities, yep, you name it, we've got it, we've got everything in this country, and we used to have a bit more and we were going in the right direction, but really in the last 50-ish odd years or so, we've completely depleted our capital stock.

41:29And that's part of very much broader macroeconomic conditions where we basically said to China, you can build it all for us. I won't go there, but I'll just leave this one hanging. Isn't it interesting that in the negotiations between Trump and US and China and the rest of it, when really your push comes to shove, there's one party that can make stuff and there's another party that can't. And there's one party that's like held to like four year election cycles. And then another one that's an autocrat that can just do whatever it likes. Like, who do you think is going to blink first in that regard?

42:05You know, everyone's going to be worse off from all these shenanigans. Like, let's not, let's be real about it. But it's this sort of like, uh, someone's got, someone's got a much better, uh, bargaining position. I ranted and raved in every single direction there. And I barely scraped the surface. I love, I love the question. then yeah, I'll shut up at this point. That's awesome. No, it's good, mate. So yes, what else can I add?

42:34Probably nothing. I think the economy is not wrong. You mentioned the economy is a verb, not an hour. I think that's absolutely true. I think, and it's bigger than that too, because we moved away from society to economy. Throughout the economy, like the economy matters, like the economy is important. And it is, but it's also, it's a function. it's not in itself right and so that's the other bit is that's kind of exactly what you were saying right it is so it's like it's not a thing but even if it was it's like well that's just how we managed to go about living our best lives and we're describing the exchanges of value that allow us to do that and that's kind of that's kind of what it's about so um yeah drew like your the economy the economy itself is fine um it's government should do more to get out of the way where it can It should stay in any place it needs to be to make sure things work properly still.

43:23Treasury, the commons, Rand Point, externalities, you know, rule of law, all that stuff is really, really important. Geopolitical strategic considerations that go beyond all of that kind of – can I give you one more example? It's just okay to me. Let's say that you've just come out of uni, you're a whiz kid, and you've just landed some job in finance and you're on$300 ,000 a year, right? Pretty good. but you don't really have anything. You're still renting. You've only just entered the workforce, but your salary is insane. It's great. Let's make it 500 grand just for fun, right? There you go. Boom, you just got a raise.

43:59I am worth$100 million. Now, in the one time it took the planet Earth to orbit the sun, I went on holidays. I might have bought a yacht. And all I did with my$100 million was I just had a Scrooge McDuck vault of gold coins. I just sat there. the way that the economy is measured and the way that a lot of people look at the economy they would look at you as the far wealthier person right right right Andrew didn't make any money in fact he lost money over that 20 over that 12 month period Scott made 500 ,000 he's rich we should tax him like well wait a second no I'm like you're an ant on my back You're absolutely nothing.

44:43And this is actually very interesting. God, it's broad a discussion on taxation policy and the rest, but isn't it insane that we tax incomes and not wealth? I think that's just like such a miss, but it's a whole other conversation. No, it's fair. It's good. I think we're done there. We are not done, but we have to. We are not done, but yes, we have to for time. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

45:18Let's go to a question from Rhys who says, Hi Scott and Ram, I'm a big fan of the pod machine. I know you can't give personal advice, dot, dot, dot. But can I have some personal advice? I'm ready to hear your thoughts on making voluntary contributions to the First Home Savers scheme with the intention of one day putting it towards my first house. house i'm 23 years old yep say it with me bastard recently out of uni and working remote all living expenses covered that's pretty good as a result i could put almost every after-tax dollar into my share portfolio dude i headed you for being young now i hate you having that much disposable income but good on you i don't have a time horizon of when i'd like to purchase a house i'd like to think it's at least three to five years plus down the track when i find a partner settle down etc making voluntary contributions are super sounds like the common cent solution as will allow me to invest more and lower tax rate with the additional powers of compounding with the only trade-off being it's quarantined until i purchase a home it sounds like a no-brainer is there anything i'm missing unanonymously reese uh you go first this time all right um no you're not missing anything reese um the only downside well there's a chance the government's changed legislation they're probably not going to on this one and not probably in three to five years but no guarantee so put that put it in the in the possibles list um would actually just be if you don't buy the house um the that you know the money's money's quarantined if you're going to buy a house anyway you might as well get a lower tax that's like superannuation you know um should i should i should i take the tax advantage of a super yeah you really should uh why because it's better than paying full tax for your personal name so yes uh no no downside to do it um the only the only opportunity cost i will mention to you and it's one that um no one knows the answer to but waiting three to five years to buy a house means that houses might be three to five years more expensive at that point and so you are chasing a moving target to some degree um there would be a case to make that if you believed our policies would do nothing about house prices and they'll keep going up they're buying early rather than later um because of the scale of the increases, a million dollar house goes up 10 % becomes$1.1 million.

47:26The earlier you get into that on that property ladder, as Rem might say, the better off you may be if it is the case that the property price increases faster than your ability to save a deposit. It's the usual chase. We've seen that over the last 15, 20 years, most pronouncedly in the last five or six years where people are saving, they can't save fast enough. Housing is getting away from them faster than they can save. In that context, if that was to happen, there may be an opportunity cost of not buying earlier, even if it's not your forever house or your final house. There may be an argument to say buy or start, you know, investing in a property.

48:00So you have a foot, not on that ladder, but on the moving, I think about the, you know, the moving walkways, what do they call those things? Travelators. Thank you. You've got a foot on the travel ladder. And so, you know, it may be the final destination, but you're going in the right direction. I'm not saying you should do that. I'm not saying anyone should do that. I'm just saying that's the only opportunity cost thing to think about is how long do you wait? Now, if prices don't go up in the next 10 years, You're far better off having invested outside that using a large deposit to buy a house in 10 years' time.

48:24And you can't know the answer, but the maths of it mean that because it's a same percentage for a higher value, it can be getting further away from you if you waited longer. So there's an argument to at least think about an investment property or something to be on that travel later if that's something that's important to you based on your earning potential. Ram? Sorry, you said investment property there, though. He doesn't want to settle down yet. is working remotely, so he's not going to live in the place. It's just something to be able to say, at that point, he can cash in and use that money for his own principal place of residence at that point.

49:01Does that make sense? Is it description? Yeah, no, it does. Let's use the example. You're on a million dollar house. If prices go up 10 % a year, if they did, and I'm not saying they will, I'm certainly not bullish on property, but if they did, in five years' time, they're 50 % more expensive. And whatever you've saved in the meantime, you may wish you had bought earlier something so you can swap that, not literally, we have to sell it and whatever, but you swap that for a principal place of residence at some point and at least you're on that property travel later. Yeah. I mean, that's why - I know I was texting you a crow.

49:30I understand that's probably - No, no, no, no, no. It actually does. I mean, I'm, I'm, I've been, I've had my face rubbed in the mud often and long enough to know that despite the ridiculousness of the fundamentals that there's no, there's no reason why things couldn't get crazier from here, right? particularly if the money printers get turned on in response to any particular crisis. You know, money will seek scarcity and there's a lot of scarcity in property. So I can absolutely see a world where things get worse and property goes up, right? Like 100 % that could be the case. And that's the struggle.

50:10Like, well, what do you think is going to happen? If you think it is going to continue to plow ahead at whatever percent per year, then do what Scott said, get it now. But if not, then wait. And so poor old Reese is going, okay, but what? What do I do? Well, you did say you didn't want personal advice, so we're not going to give you any. But it depends. It depends on your worldview. I would say because it is, and you made this point, it is unknowable. It is unknowable. So I wouldn't ever buy just on pure FOMO alone, assuming that that is going to happen. Totally, yeah. And I certainly wouldn't delay based on some expectation that I've got an ability to time these things.

50:46and I know a crash is coming and I'll know when it happens. And the bottom of, you know, like it's just super hard. So I've always thought for me, the calculus was basically when can we do it? And regardless of what the market may or may not do, we can just comfortably service that and I don't have to work until I'm 94. Like whenever I hit that point and, you know, there was other conditions in my situation with the bank, you know, not willing to lend to business owners, et cetera, et cetera. But, you know, but that to me is the point. When can you do it at a point without overextending yourself too much and sleep well at night?

51:22Whatever you do, you'll look back and go, could have, could have, should have. That's right. You know, it's always going to be easy in hindsight. So, yeah, just rather than strive for the optimum, just go for what looks and feels good and that you'll be happy with regardless of what happens. It's a very unsatisfying answer. Yeah, I think it's fair. You know what? It just depends. There is absolutely a future in five years' time where property is 30 % lower. And the absolute best thing to do is just like buy a bunch of gold buried in the backyard and dig it up in five years' time, right? There's another one which just says go all in now.

51:55Take whatever leverage you can. Plow it into the market because it's only going up. And they're diametrically opposed. Yes, exactly. That's right. It's just so hard, so hard. But there is a situation where it's like, well, if I do this and it doesn't go the way I expect or think, I'm still okay. And that's probably the best you can do. I've got a question for you, mate. This is one I've been toying with backwards and forwards in my mind. I'm not... And again, I'm conflicted because I'm not bullish on property. And yet, I find myself mindful of, again, the sheer size of the value and the increase over time.

52:29Yeah. And so I've got a 12-year-old, right? And it's occurred to me more than once that I may be doing him a favour or doing him a disservice if I don't do this, of buying an investment property now just so that he has one foot on that same travel ladder. And I paid off, it's mine. But at some point, it's no bank of mum and dad thing, except that because you're using the bank's leverage on the way through, and this is the thing about leverage, right? If I put down a 10 % deposit on a million dollar house, just pick some numbers, I don't have a hundred grand spare cash, by the way, but if I did, and that doubles in the next 10 years, then firstly, I made a million dollar profit because it's gone from one million to two million.

53:07But secondly, he doesn't have to then buy a two million dollar house at that point because I've effectively put the foot on the travel ladder now at a cheaper price. And yes, I've had to pay the difference between the rent and the interest, and I've probably got a deduction for it because the tax department is very nice to be about those things. Rather than, you know, rather than, and it cost me money, right? So it's not costless. But is that better or worse than being the banker mum and dad in 10 years' time? And I'm really, you know, and again, you would hope you'd not have to do that either and they could make their own way.

53:33But I do find myself wondering if property prices do continue doing, if they don't increase, then I've dusted some interest on his behalf. If they do increase, I mean, I really wish I'd done it. And it feels almost to be one of your favorite words, asymmetric. I'm genuinely wondering whether, and it won't be necessarily, it won't be a forbidden house because you can't buy those for a million bucks, but it might be a million bucks, maybe a$600 ,000 unit. It's more just that idea of, if I could go back in time and buy my own house earlier, I would have been much better having done it. The same with you, same with everybody, almost by definition.

54:03And I do find myself wondering if I could reasonably meet those interest repayments for a few years until he's old enough to take him over himself or, you know, live in it or sell it and buy something else. I really wonder whether the bank of mum and dad is better off being the borrower of mum and dad rather than trying to be that bank of gold coins. Well, it depends. If the choice is between that and just leaving it under the mattress, then probably get on that ladder. Yeah. But you don't have – you've also got – you can also put it in equities. Yes, but the difference is leverage still though.

54:39So that's where my point about the million dollar profit comes from. You deposit 100 grand, it goes from a million to two million over that period of time. You don't get, I mean, you can find a way that 9 % leverage against my own home or something in equities, but it's more just that kind of idea of, because it's asymmetric because of the leverage. You know, if I save or invest$100 ,000 and get up 10 % a year, I'm going to have a lot of money in 10 years' time, but I'm not going to make the same return potentially as I'd make if I took a 10 to 1 leverage when I was, you hate, but I don't have an answer.

55:12I don't have a view, but it's just, it's occurred to me a couple of times that given that, given it can escalate away at a leverage level faster than people can save. Yeah. If that was to continue, I suspect I'd look back and go, I should have made the trade today. I should have bought the property today to make sure he could keep up with that on his behalf. Shouldn't have to. The policy stinks. I would much, in a perfect world, I'd love to do it and be wrong because the price didn't increase because that was great for everybody. But in the market that we're in and the world that we're in, I'm like, I don't know if, you know, in terms of, does he buy the$2 million house in five years, 10 years' time?

55:42Or do I buy the$2 million house? Hang on, it's not going to be those numbers, but you know what I'm saying. Just, I like round numbers, it's easy. Or do I do it now and take advantage of the upside? Not even for the gains themselves, just so I can backdate his entry into the property market effectively. Yeah, I mean, but yeah, it does cut both ways though. You've got your$100 ,000, you buy a property, it falls 10 % over the next five years and you've lost 100 % of your equity. Totally. So... But he's no worse off. So again, we don't ever have the opportunity to do this for their kids. I get it.

56:13But the bank of mum and dad's in something like 47 % of transactions these days. So that's the war. I'm trying to work out whether the bank of mum and dad is better off spending the money now or later if we're going to it all. I do think that it's... What's difficult for us within our little epoch is that when we... Our lived experience and that of our parents is that this is what property does. I don't know, but it just always has. And it's a flawed statement. We say it always has in our narrow measurement of lived experience. You got any reasonable vantage point in any economy, in any place around the world, generally property goes up with the general growth in the economy, which is generally whatever the productivity growth is.

56:54So it's 2 % to 3 % per year. So we've lived in this really unusual time where we've had 7 % to 10 % growth when the longer-term historical example is 3 % with plenty of crashes and long periods of sideways along the way. So that's not the... I mean, mean reversion is a thing, right? And so I say all of this and at the same time hesitate because that worldview is... I mean, it was that worldview that made me very... It was true 20 years ago. You know, that was true 20 years ago. And I was like, oh, God, if I could go back in time, I would have gone up to leverage up to the eyeballs in a bunch of dog boxes in the city and just made out like a bandit.

57:33Exactly. But it is one of those things that strike me is that every day that goes by, it gets harder and harder to make that extrapolation. I mean, let's look at it now. We've now gone from the single income household to the double income household to the 20 year mortgage to the 45 year mortgage to, you know, now we're knocking on the door of that. plus a whole host of different incentives and schemes and stimulus, you know, and now being able to tap into super. It's just like we're just running out of magic tricks to pull. So it's just my just heavy bias is that I just feel this extrapolating, extrapolating a very historically weird era feels dangerous.

58:15And yet it might play out for another 10 years. I don't know. And that's where I'm trying to work out the counterfactors or the different universes, right? Because if I do it and the property doesn't go up, then I've dusted the interest in the meantime, and that sucks, but I'm no worse off. If I don't do it and the property doubles, even though it shouldn't, for every reason you've said, I think about the two outcomes. The size of the outcomes is so mean, and again, probably overlaid on top of that, but this is why I've had the thought. I haven't done anything about it, but the answer so far for me has been no, for the reasons you've highlighted.

58:47but I'm kind of like, you know, it's not miles away from a heads-eye wind-tails I don't lose much kind of situation where maybe it falls, right? So I'm not saying it's nothing, but if I had to make that, again, to go back 10 years or 20 years, would it have been the right thing to do? It's really hard to know. But because that leveraged upside issue with property, because everyone else is taking on the debt, it does, I just, I do wonder whether, you know, there's no answer. It's a hard one. I mean, you know me, I mean, I'm way too prejudiced and emotionally invested at this point that I could do anything other than that.

59:23Yeah, exactly. But it's probably the right. I mean, that is absolutely not a necessarily rational standpoint. So don't take my advice for it. No. I just, yeah. I mean, I always, I do play that scenario forward in aggregate, though, with what you're saying. So it's sort of like, remember, for you to sell your house at 10 % higher, someone's got to come in with 10 % more money. Oh, yeah, yeah. And then they buy it. Then they want the 10 % gain. And it's like, well, now someone else has got to come up with 10%. As I said, we've tapped out all of that. We've tapped out our earnings capacity. We've tapped out our credit capacity.

59:52We're very close to tapping out our stimulatory capacity. It's just like, what now? And it's like, you just draw the line. Just draw the line and go, okay, it's going to go at 10%. And you get to a point much more quickly than you think where the entire housing stock of the nation is worth more than, you know, the Northern Hemisphere. Right, exactly. On a GDP of X. It's like the ratio gets so nonsensical that it just collapses under its own way. I don't know what point the rubber band snaps. No, that's the hard part. But all I can say is objectively, it's getting more and more taught. Yes, that's fair.

1:00:30And I'm very nervous for a lot of people because it's one of those things that's perfectly good until it's not. Yes, correct. And yeah. Wish we knew when that was. I wish I knew when it was. Hey, mate, last question comes from Q, who says, please use my nickname, Q, as only my parents use my full name. So there you go, we will call you Q. Hello to the experts powering the pod machine. It's actually true. And we are pedaling on little electric bikes under our desks to give power to this thing so it all works. I'm a long-time listener from the Mornington Peninsula and a first-time questioner. Most of my SMSF portfolio is in the US market, dividend shares, not growth shares, and I am extremely concerned that it's fallen in value to pre-COVID levels, and in 10 years when I can access my funds, it'll be worthless.

1:01:15I'm concerned there is a movement of turning away from the US dollar and moving to gold and some other fancy form of gold beginning with the letter B. Bold or something like that. Now, I am concerned with the likelihood of America losing its global currency status and considering one of the biggest American exports is debt. Once nobody needs to buy an USD, think of the growing momentum in bricks, the massive debt is going to crush the financial markets along with my share portfolio. I asked ChatGPT if this is likely, but that was useless because its answer was, it depends. Maybe that's where he ended up getting his answers from, actually.

1:01:46I don't have a specific question to ask and therefore don't need specific advice. But can I please hear your thoughts about what the world looks like when it's no longer buying USD to pay for their oil and other goods, and the US cannot pay their massive debt anymore? Doesn't this hurt the American economy, which hurts the US markets, which hurts my portfolio? I know there have been a couple of questions recently about the USD and that all empires will fall, which is fine, except that now it hurts my retirement fund. and I don't know where to turn. Is this the beginning of the end of the US empire?

1:02:13Is it the end of fiat? Is the future going to be crypto? I've been researching more about crypto and I pay attention when Ram mentions the case of Bitcoin and makes me wonder, what is straw man? Keep up the great work and the rants. Hopefully you have an optimistic advice for my pessimistic questions. Regards, Q. Thank you, Q. I did always like the character in Star Trek Q. Yes. Yeah.

1:02:40So. End of the US? End of fear of culture? I mean, yeah. I mean, like every empire fades. I mean, the British empire faded. The Spanish empire faded, but life's pretty good in those countries, all things considered. It took hundreds of years to do, by the way. You would have said it coming decades before there was any meaningful impact. Yep. And so, I mean, is the US empire in decline? Yes, I think so. But it could play out over 50 years, you know. Yeah. And then... it's a gradually and suddenly kind of thing with a lot of when you look at I mentioned it to you off air this morning, but Ray Dalio has done a lot of work on this kind of stuff, just looking at history and big macroeconomic and debt cycles and the rest of it.

1:03:23What you tend to notice with all of these things is it's not, there's nothing gradual about it, either in the ascent, although more so, but certainly not in the descent. It's kind of like everything goes along, because let me back up a little bit here. really when you say what's at the base of all of it it's kind of like faith and trust in institutions and like it just it's it's a vibe and it sounds like oh come on like it's like that's really what the whole thing's founded i was like yeah kind of yeah kind of and and when and when and so at the moment i mean so i've been ranting to you about this forever mate where it's kind of like i can't wrap my head around that anyone would lend money to the u.s government for 30 years for 4%.

1:04:07Like, it just blows my mind as the height of insanity. And yet the current orthodoxy is that is the most conservative, riskless thing that you can do as an investor. Like, you know, but that's what the world thinks. And here's the thing. They might continue to think that for another 20 years. But if they stop thinking that, it's not going to be we think it's a little bit less likely next year than a little bit. It just happens. look at actually a really a really telling sneak peek into this was what happened with the guilts in the uk a couple years ago when trust was in power and basically there was just no bid on u.s on uk bonds so we need to sell a bunch of bonds no bid in other words it's a fancy finance bro where no one wanted to buy the damn things the UK the United Kingdom's debt is no good because you don't want to buy it and so the Bank of England came in and said I guess we'll buy it with money that we just created and there's like oh and then all the macro nerds around the world went oh my god this is it's happening it's happening and it kind of just didn't happen but only because they did enough to bring up the confidence there is a parallel universe with where where people went i'm not buying that i mean you're you're telling me that the only reason you got this away was by printing money and then do it like now i was nervous before now i'm absolutely outright negative on it i'm gonna and and generally happen when when when when countries collapse under their own debt burden it just happens like it just you wake up one day and the world is different.

1:05:55And so I honestly think that'll happen to the US. But when tomorrow, it could absolutely happen tomorrow. It could, particularly when China, which is a massive holder of their debt, goes, oh, oh, you want to play funny buggers, do you? How about we top half of our treasuries there and just evaporate your capacity to borrow it at any reasonable rate? And they could do that. Frankly, if I was Xi Jinping, I'd be tempted to do that, right? Like you would very quickly establish who's in control. That's right. Who's actually running the place. But the joke might continue for a long, long, long time yet.

1:06:32So, so, so, so, so. That is all like fast. I find this stuff endlessly fascinating. What do you do in such a scenario if you acknowledge that it's kind of might happen, but the timing is anyone's guess? I think it really sharpens the mind and it refocus you, focuses you on some of these first principle ideas of what is valuable what do i want to own because remember all of this financial system is an abstraction on things that exist in the real world and no matter how bleak things get if i own a castle i own a castle right like i don't care what your shells or your Bitcoin or your Aussie dollars, whatever, whatever.

1:07:19I own that thing, right? And I can defend it. And that has, that will always have value because I can keep the dragons away. Or I own a loom. And so I can make stuff that's really valuable. So it's sharpened my focus on terms of, I want to own real things. And I'm not, I'm not saying go to commodities and things like that. I'm going, I'm saying go to things that no matter what happens in terms of the way that we measure things, that there will be demand for what it is you own. Berkshire Hathaway is probably a good example of that, right? It feels like it's an intangible thing because it's a share and it's traded on the exchange.

1:07:56But no, they own a lot of railways. They own a lot of factories and businesses, businesses that have capital equipment with productive capacity that sell goods and services that are likely to remain in demand for many, many years. This is a whole of Buffett's North Star, really. Just keep it simple. Can I understand it? Is it likely to be a bit like the price may change? The price might get whacked around and all kinds of things will happen. But you, you know, barring a breakdown in property rights and the rule of law, you own that and you're okay with it. So that's kind of a really cool thing to own.

1:08:28I just don't want to own something that can be capriciously and randomly have the goalposts moved on me. yeah that i think fixed interest and and and money and cash itself are the two things that you definitely do not want to own in in that environment you want to own it for when you need to transact in it other than that it's just like they're the first again i'm not this is just history speaking to you when things get real even if you want to go into the modern era and look at failed or failing states you know places like argentina and lebanon and stuff where the financial system has collapsed.

1:09:03That's what gets done. Like that, that, that, they're the things that get where the financial repression hits hardest. So own real assets. And it's so, it's so unorthodox. I hear myself talking and I know that every single financial planner and market dude out there is going, no, no, no, no. When things are scary, you should own cash and you should own fixed interest. And I am telling you that there's nothing back there except a promise. Nothing. I know someone out there is going, what about Bitcoin? That's a whole other conversation so i'm not going to get i'm not going to get into that but i what do you think of those what do you think of those points so i think you're i don't have any problem with anything you said the challenge i suppose is that for all of that many of the companies you own many companies i own aren't full of hard assets and so we are relying on one hand we're saying this and i don't disagree with any of your can i can i sorry can i just substitute quickly i should i They did say hard.

1:09:57Real is the word I mean. I mean, it might be an intellectual property asset. Right. Okay, cool. But it's an asset that is genuine value. It's not just at the random determination of an auditor. Yes, yes. So, okay. So, I like all that. The hardest part for Q is he's also worried about the currency itself. And this is where it adds an extra level of abstraction. actually not owning the currency, but the assets he owns are denied in that currency. And in theory, he exchanged for our Australian dollars at some point after retirement at a given exchange rate. And so Q's worried not only about the empire failing, and even if they were the same assets in the US, a meaningfully declining US dollar would actually mean if whatever they're valued at now in US dollars doesn't change.

1:10:47And yet the ability to convert those Australian dollars at an attractive price is then an extra level of complexity for Q. I think that's why he's most concerned, partly about the empire failing and US companies making less money. I think that's unlikely Q, honestly, because to Ram's point, if you've got the things that someone wants, Coke, Berkshire, railways, they're going to keep buying those, right? And just to interrupt there, remember there is absolutely a world where the currency collapses, but the nominal value of those assets goes through the roof actually weimar germany is a really great example of that kind of stuff like the whole economy collapsed it was confetti money everywhere but you know the the steelworks were worth something now in nominal terms in the unit that's collapsing it went through the roof right but you could always like so that these again they're all abstractions so once you get rid of all of that it's sort of like in real terms they've probably only held their value.

1:11:48Yeah. In nominal terms, they've probably gone through the roof in this environment, which is really a weird thing to think about. And so you should then work out what the exchange rate looks like, or even allowing for that. Because that's inflation versus prices. The question is, could you have changed your German marks, Deutschmarks, where they were at the time, for Australian dollars at an attractive rate in that circumstance? And that's the hard part. Yeah, it is. You're right. So let's say you've got 100 US dollars, and that's 100 US dollars worth of purchasing power today that you can exchange for call it 60 odd Aussie cents at this point.

1:12:18Sorry,$1.40. Got to flip it around the other way. $1.42, whatever the maths is. But then there is a hyperinflationary kind. Let's get really extreme here, right? You would find that the nominal value actually goes to$1 ,000. So even though the exchange rate might come down and the rest of it, in the conversion, I think you'll find that it won't be as brutal as it might otherwise seem where it will get brutal is when you own digits on a database somewhere and there is absolutely nothing back except the full force and faith in the in the institutions which which might go to zero very quickly as they often have in history happened last year in like 12 different countries around the world yeah yeah i i gotta say q so look here's the thing we can't give you personal advice you don't want it that's all good um if you're worried about it mate takes action is the answer because you're not going to be any more comfortable about it as time goes on in theory.

1:13:17And if you've made, found from that worldview, I think it's unduly negative. I don't think the risk is anywhere near as big as you think, certainly in the timeframe that you're considering. Because for all the reasons Andrew said, not only the nominal value, but just the actual productive value as well. If they're growing businesses, growing assets, they're going to be worth more at some point in time. 10 years worth of growth on the average market index is going to be at least double your money. No promises, but at the average rate, that's what it would be if the average you continue for another decade.

1:13:48So the question is really, how much do you give up? I suspect it's a diversification question, mate. If you are unhappy, uncomfortable, then there are choices to make to move your money around in different places. Yeah. No, I mean, we said that on Friday, didn't we? It's kind of, the fact that you're uncomfortable is actually a very potent signal.

1:14:13Like, your subconscious is telling you something, right? Yes. If it wasn't worrying you at all, it's probably because you're either incredibly naive, which I'm not going to level that accusation at you, or you actually have a good deal of confidence. You know what you own and why you own it, right? And it's sort of like, and here's the other thing that history will teach you is that even in declining empires, even in failing states, there are people and institutions that can actually do really well. It's sort of like the aggregate can be disastrous. It just isn't the same when the economy is booming and in aggregate everything's great.

1:14:49There's still people going out and losing their jobs and businesses are failing. So it's not a question of I'm in the US, what should I do? It's like, okay, you're in the US, but what do you own in the US? Do you own a hyper-leveraged bank that's only focused on lending to the VC industry on crypto, which is like a disaster waiting to happen? Or is it a big international or a big national conglomerate full of the machinery that actually makes the world go around and underpins the whole damn thing? I don't know. I don't know. I think that's fair. Yeah, again, though, you've got to make your own call.

1:15:27If you're not capable, you're not happy, then do it. the chance the empire fails and destroys value and happens within 10 years. I mean, we're talking about really small probabilities. That being said, you say most U.S. portfolio is in the U.S. market. I mean, think about that as well. I don't know that I would put most of my portfolio in the U.S., personally. Not that I have a lot of it in the U.S. Would I do most? Probably not. Would I do it 10 years before retirement? No. If I was worried about the U.S., Would I do it? No. So managing a portfolio, building a portfolio or adjusting it to suit your worldview and your expectations is really, really important.

1:16:07There have been plenty of bad administrations in time. We know that over history, they don't correlate with a particular political, the market doesn't correlate a particular political party. I don't know, mate. I don't blame you for being concerned what's going on in the US. I think there's, you know, the mad people are in charge. But do I think that's the end of the US empire? No, I really don't. Again, I shouldn't have said it that way. The US is not going to go away anytime soon. Is it an empire? Does it end at some point probably? But even then, it's not really an empire in any other sense other than just it's the dominant economy.

1:16:45It doesn't own, you know, vassal states like a Roman empire or the British empire. I would say that we're a vassal state of the US empire actually just to be controversial okay fair enough do you think has there ever been an instance that you can remember where the US asked us to do something and we said no no but I'm thinking more in terms of the I own the vassal state was my point for the empire to crumble they would have to lose something you know the British empire crumbled because the countries just decided they were independent and whatever value they thought they had in those Caribbean islands or in this little country down under was not accruing to the UK balance sheet anymore, right?

1:17:25So what is it? Yeah, it's probably late in the podcast. What is an empire, I suppose, is a question we could spend half an hour talking about. Yeah, I could talk about it all day, yeah. Yeah, so I don't, you know, if the US loses influence, is that tragic for the businesses in the US? No. Some of them maybe possibly, but again, as Ram says, they go broke. Coincidence go broke all the time for good and bad reasons. Australia doesn't have an empire. we are almost as wealthy as the US on average. We're more egalitarian than the US on average. You know, if the US empire, the Australian empire doesn't exist, we don't need it to be an empire.

1:18:00I don't think there's a massive downside of not being an empire. In fact, if there's any empire over the US, it's actually a cultural empire, right? And so think about, you know, the size of Coke around the 140 countries of the world. If the US crumbles, there's going to be less Coke sold. Maybe, but probably not. You know what I would avoid? Go on. I would avoid, I mean, one of the hallmarks of a empire in decline is it tends to be hyper-financialized. Yeah. And that is definitely where you do not, if you have these concerns and listeners can make up their own minds, but if you are concerned, you've got to remember that depending, it's a broad term but generally speaking a lot of financial businesses don't actually do a lot of stuff there's not a lot of genuine value there or it's the kind of value that only exists when times are good and when times are gone it's like i actually it turns out when the poo hits the fan and s gets real you know i don't need an investment banker to refinance my condo you know like it's useless i do need a farmer to grow some corn right i do need the garbage man to come and pick up my waist.

1:19:11I do need the nurse to stitch up my gash on my knee. It's hard times bring into sharp focus what matters. And I certainly would be avoiding something like a hyper leveraged investment bank in that scenario. If you're coming, things could go great, right? And in which case, they're actually the better place to be because they're so leveraged up that they make even more than you know just having a light and all that kind of stuff yeah but but but but but if if you are concerned about that then it's just sort of like they are the places that just fall fall apart very very very quickly again think about real value people yeah people will always you know need food they'll always need shelter they'll always need medicine they'll always need entertainment one of what i won't mention names but i've got shares in a in a company it's very closely tied to the sports industry and i kind of think it's super recession proof it's a bit of a controversial take because you think like a sport sport like you know when when things are real like we like we're really going to keep kicking a ball around a rectangular patch of dirt yeah we 100 % will because you know the people need the bread in the circus and it's a lovely distraction and it's actually a pretty cheap one when it happens and it's sort of like you know so you can be much more creative than i am being here we're talking about like farms versus investment banks there's whole bunch of shade of gray in between but just think about that think about the not not value through a dcf kind of lens necessarily but value is like what is it likely that the world is no longer going to demand this good or service produced by this company yeah you know at least at least to any meaningful material like i'm sure things will have and flow as they always do but like will it they completely the rug pulled out from underneath them in certain circumstances yeah you know i i i don't know does that make sense no it makes perfect sense i think i think that's absolutely right i'll i'll just finish on the empire thing for a second the you made the point already so i'm just gonna echo it the british empire didn't disappear when when the u.s rose as a as a world power um you know if we'd known exactly at the right point to jump off the british ship and onto the u.s ship would we have done better sure but there's nothing you know the roman empire took hundreds of years to slowly decay and die you're right about slayer than suddenly but realistically the suddenly is the very very end of it when it kind of falls over it didn't go from being a world power to being nothing in you know a week and a half or even 10 years right this we're talking about generally so and again i'm saying that i'm not i'm not saying it's not going to happen rome took 500 years to collect right exactly exactly so yeah anyway that's that'll do us i think we've probably empired such such great questions this week like it's so deep i look i can talk about this all day long this stuff just because it's fun to think of No, I got to be careful with the wording there.

1:21:59Not funny because some of these are pretty serious implications. No, it's the world of ideas, right? It's like what could happen and how does it work and how does it come together and all that kind of stuff. I think it's just valuable too. Sorry, I know you're trying to wrap it up. No, no. It is valuable. I find it intellectually fascinating, but it is valuable to think through these things. I think it is very potentially dangerous just to think, ah, it's always been like this. It always will. And again, in our narrow timeframe, it may have been, but it's just like, if that is the sole leg of your investment thesis, is just pure over extrapolation from over a 10 to 20 year period, I just think that's really, really, really dangerous because it does, it shows that a complete lack of comprehension of the more prime drivers as to what's going on.

1:22:50underneath you could very you could very easily look at australia you know 100 years ago and sort of say the future is in sheep and wheat yeah exactly right right because that's what that's what that's how we did it extrapolation yeah exactly that's right and not that we had when we were much we produced a lot more sheep and wheat than we did then but it's like it's been like a gravy train of profits for like you know it's like anyway and and i dare say i dare say the the economy of tomorrow regardless of what happens in which countries are in control were very, like, so insanely different from where it was, like, at the turn of the century.

1:23:23Like, there'll be, you've made this point before too, which is a really good one, is that the biggest companies in the world today didn't exist 30 years ago. Yeah, absolutely. Right? And if you had gone back to 1995, you know, and mentioned, like, you just, you would have, and extrapolated from there, even if you thought tech was going to be a thing, you probably would have bought some chip fabricators and maybe some IT services firms. A couple of telcos or, you know, yeah, exactly. Like Google? What's a Google? Amazon, isn't that a forest somewhere? Like you wouldn't have seen it. And it's funny now to look back in hindsight.

1:24:04The reality is like in the year 2055, the names that people, we won't be doing this anymore, we'll be dead, but like whoever's doing the podcast, they'll be talking about names that no one has even heard of yet. And maybe the founder isn't even born yet, right? Like, it's wild to think about. It's crazy. Here's, I know we're going to finish, we will finish, but I've just pulled up. This is the Fortune 500, top database of 50 years of fortunes. So top, this is 2000, pick the year because it's just 200 centuries, you're up. Top, I won't go through the whole lot. I'll go through the top, a dozen or so.

1:24:37What do you reckon the most valuable company was in 2000 in the US? Sorry to put on this one, just for fun. I want to say, I don't know, Procter & Gamble or something like that? Listeners, have a think of what you would think it is. P &G, I think, is not US listed. Oh, right, right, right. Maybe it was. No, maybe it should have been, actually. No, it was not. It was 23rd biggest business. Okay, okay. I'm in the ballpark. Gosh, mate, I don't know. Something really surprising, I'm sure. General Motors. What a terrible investment. Number four, Ford Motor. Wow. In between those, Walmart was number two.

1:25:10Exxon Mobil was number three. Ford was four. General Electric was number five. Speaking of tech companies you would have got behind, IBM was the sixth biggest company back then. Microsoft would have been a contender. Back then? Oh, not big one. Yeah, sorry. It definitely was around. Then Citigroup, AT &T, speaking of cable companies. Okay. Altria, the business that is Philip Morris. Boeing, Bank of America, SBC Communications, which I think has been split up and renamed, Hewlett-Packard, Kroger, the grocery mob, State Farm Insurance, Sears Roebuck, AIG, the insurer that went broke during the GFC.

1:25:48Enron was 18th. I was going to say Enron. Enron's up there for sure. A mob called TIAA-CREF. I don't know who they are. And Compact Computer was number 20. I mean, we shouldn't be surprised, should we? Nope. And remember, things are accelerating too. So the rate of change is increasing. us so i would imagine even in in 15 years we the the asx landscape will be very very very different i'm sure that's right exactly yeah anyway just just fun so you think about the thing about that you got you got you got gm general electric ford walmart you know yeah yeah the the uh the there's other businesses that were around at that point and that that's kind of the that's kind of the key the key message extrapolated from there um you know things change fast I'm we're really going to struggle to finish this but I I think one of the things talk about an evolution and journey for an investor as a much younger investor I did settle on the idea pretty quickly that you want big established blue chip kind of businesses because they're less risky, they've got proven revenues all of that good kind of stuff, which is true but I've now come to a point where I actually think in a lot of ways they can be the most risky and i say that because once you hit maturation or saturation might be the better word growth goes and that's not a bad thing right honestly it's like yeah there's no more growth so we're just gonna just spin out cash and pay it out to our shareholders but the multiple comes down it's not a tragedy but no one likes that right ceos don't like it for their egos boards don't like it for their ego shareholders want growth and so what you have is you have this weird situation where the big, big, big companies are forced into making more and more moonshot type investments or gutting out the business as they try and extract savings and efficiencies and costs and the rest of it.

1:27:46And it's usually with a broader context, you kind of think, actually, in a lot of ways, these are the riskier companies, at least if you're paying high, at least if you're putting any kind of growth multiple on them, because that is the least that they've got no capacity to grow anymore. Like, why would we expect them to? And if they do, it's going to be because they have to take a bunch of risk, which by definition means it might not actually work out. Now, just hasten to add, that doesn't mean that you just go and look at incubators and only buy, you know, pre-revenue startups. Like, obviously not.

1:28:20But there is something to be said for trying to buy businesses that are on the ascent. And, you know, I would still to this day very much put a lot of weight on companies that actually I can point to revenue growth. Like whatever I think, at least today, there is evidence that more and more people are demanding their product. Maybe they're not doing it at a profit yet or maybe there's still challenges ahead. But that's, I want something that is on the ascent. Things that are, not even on descent, but at the top of the curve, it's just like, unless I get them really cheap, I'm not interested in them at all.

1:28:54I don't care what you call them in terms of blue chip. I don't care how dominant they are in the index. to me they strike me as as as risky companies because of the hubris of of humans that's absolutely right and it of course depends on the price it depends on all that kind of stuff and but it's also why we say buy to hold we'd mean buy to hold not buy and hold regardless i mean you know i i do you know what i wonder going back i wonder which one of those we would have bought and i you know in hindsight we go oh gm that's ridiculous i don't know i you know i would I have looked at that and gone you know I watched I was in the UK in 2000 and I don't know what year now 8, 9 something like that I watched the movie Who Killed the Electric Car did you watch that?

1:29:35it was about the fact that Tesla got killed by the big guys because they basically did what they needed to do it was in the past tense killed the electric car not killing will kill it was over it was done you know would I have bet on Tesla winning EVs in general, you know, GM and Ford, I don't know what I would have done. I don't suspect I would have bought those companies, but I can't promise that I wouldn't have. And they've looked really cheap at different times too. So you're right. The hubris factor is massive. Growing businesses are just better in general. They just are, because, you know, they are, if they're already growing, either they're filling a niche or they're finding new places to do it.

1:30:16And that's cultural as much as business-wise. 3M, great example. They just spin off business unit, business unit, business unit. They had smart people, scientists working. The post-it was invented, we all know famously, at 3M, trying to do something else with it. Hey, this might work as a notepad. Boom, business goes off. Berkshire Hathaway, conglomerates are going to get a bad rap these days. The more I think about it, if you can redeploy your capital sensibly rather than saying, but this is what we do, so we're going to do more of it. That's how Kodakos broke. That's how airlines suck. When you say, I'm an airline, I'm going to build more planes, it's like, you could use that money for something else.

1:30:48you know that's the stuff that i think a conglomerate structure not the only solution by the way some terrible conglomerates in the past people just kind of bought pull something because they could but if you have a decent capital allocator who can keep doing that that's what berkshire i mean berkshire's textile warren buffett bought a business or bought into a business in 1965 i think it was there was a textile couple of textile mills they no longer exist right and had he done the the hubris thing you mentioned he would but i'll buy more buy more textile mills. I'll buy some in different countries, different states.

1:31:17I'll make a conglomerate out. I'll diversify in terms of production. Geography. Right? Yeah. The best decision was actually this is done. Shut it down. Use money for something else. And that's not done often enough. Well, the beauty of the conglomerate is, I mean, one of the great challenges of any business is you need capital to grow. And ideally you reach a point where you stand on your own feet. In other words, any growth investment is actually generated internally. That's when you get compounded. That is just a thing of absolute beauty. The thing of the conglomerate is that they can redirect capital from the subunits that have excess capital and don't need any reinvestment to the places that do need the reinvestment.

1:32:01And it's all internal. So I don't need to go to an investment banker. I don't need to go to a bank, full stop. I don't need to go to the market and ask to raise the shares. It's just sort of like, I've got this big, you know, slow plotting business, but it just throws off a bunch of cash. It's not growing. But there's this other thing over here. It's got all the potential in the world. It's getting good traction. They need a whole bunch of growth capital. I'm just going to put that money over there, and I'm going to direct the capital in a way, and I'm going to give it to them at incredible mates rates because I own the whole thing.

1:32:30I want everyone to succeed. And it's just – you've got to give a shout-out to Rob Milner and Solpats, right? They do the same kind of thing. Yeah, absolutely. There is no core business at Solpats other than buying good businesses, buy more of them, selling when they're no longer good businesses. It is capital allocation. That's their core business, what they do. They don't even know the chemists anymore. It's just purely we allocate money where it makes most sense to allocate and they've done a spectacular job of it for decades. Did you see his interview on, was it Livewire or something? Oh, I did not.

1:33:00We'll check that out. Yeah, it's interesting. He was lamenting the state of Australia. as we often do here. But what's interesting with them, one of the points he was making was that increasing, you know this as a shareholder, but increasing proportion of their equity investments are private. Yeah. And he's making the point, he's like, why would you list? Like, why would you list? It's so cumbersome. There's so much box ticking. There's so much compliance. There's so much regulation. Not that he's, again - Whinging from investors too. You know, whinging from investors. It's all of this kind of nonsense.

1:33:35and he's just like, wait a second, we've got a bunch of cash flows. Let's direct it to these businesses where there's not a share price quote at every minute of every trading day that's going to distract people and worry about, you know, we just get on with the business of buying a bunch of companies and nurturing the ones that are going good and we can do it outside of the public markets because we just don't need the cost and the hassle, frankly. And you kind of think, yeah. I mean, I applaud the decision because it's just perfectly rational. I do lament it, though, as a citizen. because like, isn't it a shame that we have made it so onerous and difficult?

1:34:07That's crazy. That we as ordinary people can't participate in a lot of that growth because it's just, I mean, you'd have to be a masochist really to list, I think, these days. Like, you just, there's no other alternative for a good source of funding that you do. Unless you cash out. Yeah, you can cash out. And just market baltives. Which is not a great reason for you to invest. And you're like, well, I really don't want to be in this anymore, but here's to take my shares at a premium. Yeah, I don't know. But then again, I'm just underscoring the benefit of the conglomerate. It's like, yeah, don't worry about that.

1:34:38We'll sort out your capital needs. You just get on with it. Oh, great. I don't have to go and talk to a bunch of idiot analysts. No. I don't have to worry about a share price. No. I don't need to listen to the ASX compliance rules and get issued a please explain every three days because of this and that. I'm like, no. It's like, yeah, I'm doing that. Oh, yeah. Exactly. It makes perfect sense. It makes perfect sense. All right, mate. This is officially our longest ever podcast. So we will finish up. Thank you for listening. If you're still here, thank you to my mothers who are listening and probably nobody else.

1:35:06Thank you to Link, who may or may not have got the end of this one and edited or just given up halfway through. That's been lots of fun, mate. That's a really good chat. Yeah, have a great week. Until we speak on Friday afternoon. Fool 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.