Not even a blackout can stop the rants. January 17, 2025

23:57We'll have a gentle jibe at the banks and talk about the actual issue in a sec, because there are some really significant economic kind of issues. It's just behaviour is fascinating, right? I'm going to think there's going to be nothing gentle about it from my end, but please go on. Well, I'll do that bit. You do the other bit, I'll do that bit. Commonwealth Bank came out this week and said, actually, we think, Mr. Prime Minister, that you should ban all credit card and debit card surcharges. Oh, yeah. And it's been a topic where everyone hates them. It's one of those, talkback radio, man, that just blows up.

24:29whatever you mention it. So there's that, right? So Commonwealth Bank are saying to the... By the way, the Treasurer's already announced an inquiry into this. So the OBA's already looking at it. An inquiry. CBA jumps on the bandwagon and says, actually, we think... And why this is funny is not only because CBA is kind of, you know, trying to put its oar in the water on this, but it was less than a month ago that CBA came out and said, we're going to charge everybody$3 to take out cash over the counter. Yes. And, of course, everyone went nuts. That policy lasted less than a day. And all of a sudden, they're anti-surcharge and they want them all taken away.

25:00So I've been, I did about four radio interviews this morning and I've used this. This is three parts PR, one part probably good idea. So, but I thought it was, I thought it was interesting. Look, that's the, well, have a go at CBA, but I actually do want to talk about card surcharges, mate, because it's just, as a financial kind of phenomena, I think it's really interesting in terms of what it talks to, why it could be good, why it's bad, why consumers do or don't like it. But have your swing at the CBA first, feel your boots, and then we'll talk about the surcharge itself. What it is is it's a PR exercise more than anything else, right?

25:33It's just like, look at us. We're so good. We're on your side. It's so disingenuous as to be laughable, you know. And I also think there is the anger is often misdirected, I think, here. So there's a – you really – it's actually quite a deep rabbit hole when you go down it. There are absolutely valid reasons as to why they need to charge for this. At the very basic level, Visa and MasterCard who run the networks, who run the bigger networks, there's infrastructure and processes and systems that need to be paid for there, right? The person who puts the terminal in needs to recover that. This isn't about gouging or anything.

26:14This is just about any business, whether you're the local baker, butcher, candlestick maker, you need to recoup your charges. Otherwise, you're not in business and otherwise no one wins. So, yeah, fair enough. You've got to make a charge there. The other thing that's complicated as well is that when you tap with your card, you're paying straight away, but the merchant actually doesn't – that settlement, depending on the network, depending on whose banks are talking to other – the settlement period can be quite a lengthy period of time. And there's things like chargebacks as well, where people have to go, well, actually, I didn't pay for that.

26:51And, you know, so there's fraud protections and these things get very, very sort of expensive as well. So I want to just start by saying, surprisingly, on the side of the providers is like, well, they have to charge a fee, right? So let's not get angry at that. Like, you know, in much the same way that no one's upset that the baker charges them some money for their bread, we shouldn't be upset. at them. The question is, is the one of proportionality is the question, which is a much harder question. And there's also, and on that, I think, yes, it is disproportionate. And you've got to ask, well, why is it that you've got such pricing power there?

27:30And the very easy answer is, as we always talk about, this is hardly any competition. There's two big networks. There's a handful of very, very little tiny ones. And so, it's good to be close to a monopoly. You can charge a lot. And so then you have to sort of ask, well, what is the appropriate one? How do we regulate this? And then it gets even more complicated because a big thing for me at the moment is this concept of regulatory capture, which is really a bit of a head mess because I think a lot of us would sort of say, hey, there's a lot of things that need to be regulated because it just sort of stops a lot of egregious behavior.

28:12The trouble with it is, and the CBA is a master at this and all the big banks are. It's like, hey, you need to regulate us. Look at all these bad actors and things that have happened. But what it does is it actually just makes the barriers to entry really high and stifles competition and allows more pricing power for the incumbents. So I'm always a bit skeptical when a large market player says, hey, can you regulate us? Reading between the lines there and looking closer, it's sort of like what you're really saying is, can you make sure that you limit the competition? And that's not overt. It's maybe Maybe not even, you know, maybe there are people there who genuinely think that.

28:47And I think a lot of the pollies that respond think they're acting in good faith. But that's the bottom line that sort of happens here. Anyway, my view is a lot of this will be obfuscated when there's a, I don't know, some kind of thing that offers instant settlement. Can I say the second? In minimal charges. The senior senator of the payment networks went, oh, God, I know where this is going. It's going there. It's going there. So I think that's a really good background, mate. And I think what – this is where this gets interesting, though, because no one's really talking about any of that stuff in terms of this particular policy.

29:20This is should consumers pay more on top of the bill or should it be absorbed by the retailer in the final price? Much as you can't list a price without GST and then add GST later, you have to say it's going to cost you$15, including GST. It's$15, including GST, but I might charge you 1.6 % if you use Amex. what this change would be. CBA is not going to take money out of their own pockets or even out of Visa or MasterCard's pockets. CBA just saying, yeah, I think retailers should have to absorb the price, which I think is fascinating from a whole lot of angles, including, by the way, I'm sure there are a lot of small business customers who aren't stoked about the idea.

29:54But it was interesting. This was introduced, I don't know how many years ago now, to promote competition. And the idea was, and I think this was the right idea, and you're right to try it. If it doesn't work, you should stop it. But the idea was, hey, it's going to cost you, I don't know what the numbers, I'm going to make them up, so apologies in advance to anyone. It's going to cost you 1.6 % to pay by Amex. It'll cost you 1.2 % for Visa. It'll cost you 20 cents for a debit card or it's free for cash. And the thinking by the RBA at the time was adding that transparency will increase competition.

30:22If those prices aren't, if it's$5 for a cup of coffee, no matter which way you pay, you're not incentivised to choose the cheaper option. And so, because you don't see it, right? And the retailer wants to offer all options, and most still don't, well, many don't offer Amex still, but because of the price. So they make the choice. But the idea was, hey, let the consumer choose if they want to save some money by choosing to use cash or debit rather than Visa or Amex, they can do that. And that was a very good idea. Now, apparently, by the way, the data shares, there has been a small but noticeable change in the proportion of transaction types on that base.

30:56Well, which is on that basis correlated. We can't prove causality. Correlated, it seems, people are actually choosing in very slight numbers the cheaper method given the choice. The result, this is where kind of, this is why it's fascinating from a behavioural sense. We just go absolutely burko about it because we don't like the idea of not seeing the final price. And I kind of can't get myself that worked up about it because we know it's going to happen and it is what it is and it's, you know, six cents for a$5 cup of coffee, which is not nothing, but it's kind of one of those things where I'm about six cents or four cents for Visa or two cents for debit or nothing for cash.

31:30in everyone's life. The financial cost of this is very, very small, right? And again, if it was absorbed, we're paying the same price anyway. The average price would be$5.05 and those of us using Amex will get a better deal than those using cash. But that's kind of the reality. I think it's interesting that people are kind of losing their collective stuff about the fact it's a surcharge. And that's just a psychology thing rather than an economic one. I don't think anyone in their right mind thinks Woolies are going to make less money. Woolies don't actually do it. Your local cafe is going to make less money if they don't put the surcharge in.

31:59they're just going to put the prices up, right? That's what the market will do. That's what I was going to say. Yeah, absolutely. And they're entitled to. I mean, if electricity went up, if rent went up, if employment costs, they would. And again, there is a difference between just over gouging and just running a viable business here. You know, it's not, it's very easy to sort of shake your head, shake your fist at the retailer and, oh, you greedy buggers. And it's like, you know what? But businesses and people as a general rule have always been greedy. It's just a default part of our operating system.

32:33We're all a little bit greedy. That's nothing new and that's nothing to be angry at. But again, I'm sorry to bang on the same drum, but that's why competition is so good. That's the check and balance that you have because the person who wants to be overly greedy will lose business to the person who's not. And I just – that was actually in the Fin – was it this morning I was reading? They're talking about – they always get to cafe owners, right? And I was talking about the different owners, sort of, you know, how much they have to do it and how much they have to charge. I've run a cafe and I can tell you it is a hard business.

33:06The margins are razor thin. You know, it is super tough. And it's not, I don't think it's fair to sort of say, turn around and say, oh, well, you should just absorb the cost here. You know, when you don't look at the underlying sort of problems that I think are sort of driving all this, or even just recognition of the proportionality of the problem in the first place. So it's one of these things which frustrates me a little bit that we get super worked up about while there are like injustices 100 times more unjust that we just complete. They're either much harder to see or we just don't seem to notice them because they don't impact us as well.

33:46But as you say, five cents extra on a$5 cup of coffee is the biggest crime in the world where printing 27 % of the money supply over the last three years is like, what? That's not even true. That's so true. That's so true. You know? Yeah, absolutely. What do I say? I don't know. What do you say with all of this? This is another part of the reason as to why cash I think is important to maintain because it does offer that choice there. When you go to a completely cashless society, which is mediated by only essentially a duopoly at the underlying layer there, it's not really a great recipe, I don't think.

34:28And I also don't think too over heavy regulation is the kind of answer because I tell you what, when it comes to working out the finer details of the regulation, you know, Amex, Visa, Mastercard, when the government is engaging quote unquote stakeholders, they're going to have a seat at the table. They're going to have much greater say. You know, the poor old lady running a cafe in North Sydney is not at the table, right? And they are absolutely not going to get the say. And I just don't think the best interests of consumers are going to be served. I think that's fair. The other thing I will say about cash very quickly too, by the way, is cash has a cost.

35:06And just because it's not charged by a third party as a proportion of revenue doesn't mean it's cost-free. So when a business charges no surcharge for cash, they're effectively absorbing the cost of storage, theft, fraud, the banking process itself, any other losses, change being made. Right? And again, it's not saying the same thing at all, But again, think about the economics. Not only the economics, think about the psychology of this, right? On one hand, there is a charge levied as a percentage of each transaction that can easily be quarantined and passed on or not. The fact that your cash handling isn't charged to you as a business, as a proportion of your revenue, means that as regulators, they've taken two separate views to this.

35:49If you're going to say there's a charge, they should have said a business can calculate and fractionalise their cash cost and put that as a surcharge. Now, they're never going to, and people would go absolutely burka if they tried, but the idea that they've then chosen only some, and I take your point about the duopoly, but if you're objectively trying to be fair and representative here, you would have absolutely said let's put the cost of every payment method, including Bitcoin, if you should choose, Andrew, on a board, and let people choose their payment, but let's have a level playing field between, I mean, not that I'm sticking up with the card companies.

36:23I don't really care. I don't own shares in them. But, you know, or the banks either. But if you think about that cost, you know, why don't you fractionalise your cleaning cost? Why if you're eating in versus taking out? Should there be a different price? If you're, you know, using plates rather than paper, you know, you can fractionalise every cost at some point. No, you shouldn't. I'm not arguing for it at all. What I'm simply saying is when you said you can surcharge for card but not the same for cash, you are choosing, as regulators were and businesses are, choosing things they can see, the easy thing to grasp.

36:52It's kind of like your point about the money supply thing versus the surcharge. You see one, you notice one, it's levied independently. You can count it and calculate it at a transaction by transaction level. Just because that's not true of cash doesn't mean it's costless, and yet that's kind of how the surcharge implies. Yeah, that's such a great point. You know when you go to the States, sales tax is not on the sticker. So you're looking at – you're at the shop or the store if you're in America, and there's a can of Coke there, and it's$2 or whatever. And then you go to the cash register and the sales tax is depending on the state.

37:25Yeah, so it'll be that on top. It's like, oh, that's extra. It's like, well, now I think from the consumer's point of view, it's just like, I just, how much is this cost? I need to give you a certain amount of money to walk out of here with this. How much is that? And as you say, we don't, we don't talk about what component is rent, what component is labor, what component is electricity, you know, but when you break that out, it's sort of like, oh, that's what gets seen and that's what gets discussed. But it sort of puts an, I mean, any service delivery or product delivery requires a whole cornucopia of different inputs and costs.

37:55And it just, it's a very interesting discussion is to sort of say, well, which ones do we highlight to the consumer, you know, and why those ones and why not other ones? It's super fascinating, right? And the other thing I was going to say too, is just in regards to why is cash being attractive for a lot of businesses, despite a lot of the inconvenience that does come with it. Well, everyone, let's be real, right? It's like, I don't have to pay tax on that. My local sushi joke gives a 10 % discount for cash. Obviously, right? Obviously. And also, too, that is obviously why the government would be, you know, in favour of minimising cash transactions because it makes that stuff harder to do.

38:43So, again, there's lots and lots of different layers of incentives here. I guess I'm a fan of the market working it out, you know, and really just – look, we're all just trying to get along with our lives. I want a cup of coffee. How much? That's all I want to know. I don't really care what costs go into it. You just tell me how much I have to pay you to get that, and I will make a decision on the quality and the cost and the other options that are available to me, and I will sort of go there. So a lot of these things start with a good intention. We should show this so the market can decide. We should show this so consumers are more informed.

39:20It's got a nice appeal to it. But I think that the unintended consequences, it makes everything more complicated. It makes the management of that, it's another burden for the business operator. and there's more regulatory bodies that have to spout up to sort of look after all of this kind of stuff, which are all just going to be gamed and structured in favour of the bigger players anyway. And it's a very common phenomenon, I think, in a lot of economic discussions where there are things that sound good at first glance and then look good at first glance, I should say. And then on reflection, you actually end up with something that's objectively worse, more complicated and doesn't solve the problem anyway, which is the bigger issue.

40:07Yeah. I really don't. I don't want to make it a Bitcoin conversation, but I just, I always struggle that people find it so confusing and it's just sort of like, what is, tell me the problem here of something that is instant settlement. There are no chargebacks. I can't pay if I don't have the money. And the moment I pay, you get the money. There's nothing. That's it. There's no middleman. So there's a much, you know, and the costs are much lower, particularly on these L2 networks like Lightning and Liquid and all that, which let's not get into. But, you know, and even if you wanted to pay in Aussie dollars or whatever, it's only a matter of time before some of these providers just say, we're just going to use this underlying network to settle the transactions and we'll flip it in and out of AUD when we need to.

40:55And, again, from the consumer standpoint, put all of your biases aside. you forget about all of this crypto nonsense that you've read in the page like at the end of the day here is a technology that will absolutely solve this particular problem right it's not even on it's not even being discussed but it is it's a little bit frustrating frustrating for those of us that have sort of looked into it and get the technology to think why are you against something like this you know it just seems like a really good solution and i know people go oh but i don't want to hold bitcoin and it's volatile i was like uh yeah but you don't have to deal with it right There is the network and then there is the token.

41:31There are two separate things here. So anyway, let's not go into it, but I had to be a little bit exasperated. And here's a perfectly good solution that no one even wants to talk about. Sounds good. It would be unkind of me to mention that you probably can't trade your Bitcoin with your power out, but that's okay. We'll move on. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

42:00Mate, speaking of not being able to do anything, Star Entertainment is in a world of hurt. Oh, boo-hoo. Yeah. Also, you know what's funny? So what I want to talk about is the games versus the company because that's where I think this is fascinating. So they burned through$107 million in cash in the last quarter. So all the revenues they took in, the cost they paid out, was net minus$107. They spent$107 more than they made. They've got$79 million left. Now, very simple maths, about$8 million a week. If the cash burn rate is flat, that's probably not. And if it doesn't change, and it probably will, they've got about 10 weeks of cash left.

42:43Maybe that's 15 if they can stretch it out and not pay some bills. Maybe it's less if they have a really quiet time over the summer period and less people gamble. I don't really know if they do or not. Well, that'd be a tragedy. Wouldn't it? In any case, Star, well, so here's the problem. Star is a business. And this is, I've had so many people say to me, but how do casinos lose? Doesn't the house always win? What the hell is going on here? It's a great question, yeah. And so I think, and that's what I find, by the way, if Star goes broke, the licence is going to go away. So the state governments love gambling revenue, so we shouldn't have too much schadenfreude.

43:18I mean, we can about Star specifically, but some phoenix will rise from those ashes, Star or otherwise, and plenty of Australian punters will be dragged into, or enticed into, casinos to gamble away. They're hard-earned. So I share your disdain for the acts, but I don't suspect this is the end of gambling in Brisbane, Gold Coast or Sydney if this goes away. No, no, no. It absolutely will not. But what Star will be saying to some idiot politician is you have to help us out. Oh, yeah. They already have. We've got X thousand number of employees. If we go out of business, they're all going to lose their jobs.

43:52And look at all the revenue that we provide. Oh, please, please, please, please. and they will cave because they, well, they have caved in some degree and they will cave. But you make such an excellent point that like the buildings not disappeared. The tables haven't disappeared. The people who work there are still happy to work. It will be bought out cents on the dollar by some other operator and they will hopefully run it in a more judicious and viable manner. And everyone, you know who loses? The investors in the company. And you know what? And I'm not, I'm not celebrating that, but I, but in a way it's kind of like, well, anyone who's listening to this, who's operated a small business, ask yourself how much the state government has bailed you out when you, when you ran an unviable business.

44:38The answer is exactly zero and never will happen. And it's just like it feels like rules for thee but not for me when it comes to big business. And it's just sort of like, again, why are you bleeding cash on a business which is mathematically guaranteed to deliver a positive return? It's because you mismanaged it. It's legal ways. Yeah, correct. You mismanaged it. They bought a bloody super yacht. Yes. They bought a bloody super yacht. And so once you take away the, okay, I'll use throwing some allegedly's out here just to protect myself legally. I appreciate it. Yes. So, you know, when you allegedly take away the money laundering and the overseas junkets behind that rollers, turns out that your cost basis was way overblown, right?

45:24And so that sucks. I get that. But, you know, you made a decision. You ran the business this way. You broke the law on multiple occasions in multiple different ways. and now you're going cap in hand to the government saying, oh, help us out because look, oh, these poor people. You buggers. You buggers because it's easy for them to say, oh, the government should do this. The government should do that. It's like anyone who pays tax, which is literally everyone who's listening to this podcast right now, should be boiling mad that you're working your butt off, paying money to the government, and then they're turning around and giving it to these business people who are really bad business people.

46:04Like, self-evidently not good business people. They've run it into the ground and it just, obviously I'm a little bit worked up, but you can - I can hear that. Hopefully you can share my anger though, right? Like, well, tell me why maybe I'm being unfair. No, you're not. The government should have, well, so purely pragmatically, if you were a, well, there's a couple of angles here. Let's go with them. The most, the strongest defence you can raise for a government in this situation would be that the gambling revenue foregone is greater than the cost of the taxpayer of keeping this thing afloat so there's no period of, what's the right word, shutdown basically, just being closed, right?

46:47So if this was going to administration, the liquidators say you're going to have to close the doors, it'll be six months until someone else gets a casino licence and that's going to cost the government X hundred million dollars in gambling taxes and if they can pay a fraction of that, then they actually keep the thing afloat. That would be, and I'm not saying that they should do it or even that it's, I don't know if it's a reasonable defence or not, but if I was going to try and find the most reasonable way, it's the idea of, I'll invest$100 to get$200 later. That would be, if that was the case, and I'm sure, I probably don't think it is actually, but if it was, I think that would be understandable and maybe even defensible.

47:23The next level down is the political one, which is not defensible, which is, well, again, they would argue it is. We want those 3 ,000 people to keep their jobs so that they don't go on the dole queues, they've got work. Again, is that defensible? At some level, yeah, but to your point, there'll be more than 3 ,000 people over the next month and a half fired, made redundant in businesses right around the country and the state who don't get that. So is it fair? No. Is it still better than nothing? Again, you could make an argument. Again, I don't suspect it's anything about this. I think it's all the politics, but if you actually did think, what would I pay to keep 3 ,000 people in work, and you could justify that socially, politically, economically, you might do it, but they're the closest I can get, mate.

48:02I mean, and that's it, right? That's the closest you can get. Imagine if I said, I've got a business, I've got a network of heroin dealers, and we import heroin from Colombia or wherever it comes from. Hypothetically, right? You know, hypothetically, and then I turn around and I say, oh, you know, the other mob boss has run me out of town. All my dealers are going to lose money. Can I please it for government support? I'm not having a go at croupiers or any of the hardworking people who work in the bars and all of this, you know, the hospitality industry and stuff. But again, very, very few people would argue that there's a social good being served here by these.

48:41We say gaming because gambling's just got a bit of an edge to it. Right, isn't that funny? Yeah, yeah. Let's use the word gaming. Gaming. But it doesn't really serve anyone that well. Now, look, I like a bit of a FUD. I don't mind a bit of poker, a bit of blackjack. But, you know, again, we all know because people have looked at it that the majority of money is made through problem gamblers, right? And high rollers. So it's not like the person who's out with their mates who's after a bit of a flutter, throw 50 bucks and have a bit of fun knowing they're going to lose it. All a bit of harmless fun.

49:11I'm going to rain on that particular parade. But when you say, well, we need to keep these people in jobs and the cost of that is literally families and lives ruined. I just, you know, I just find like, well, I'm with you on keeping jobs. I'm with you there. I'm happy with that. But at what cost? I just find that a little bit egregious. A good example might be Ansett. For those below a certain age, we used to have an airline called Ansett. Think about Rex, but about 30 years earlier. 30 years earlier. And they ran it into the ground because airlines are a brutally tough business and I'm not going to have a guard.

49:52They did what most airlines would do without government assistance and some kind of support. But guess what? Those planes didn't disappear. Virgin took it all over. All of the engineers, all of the - That's right. That's right. It went on and the investors lost their money. And again, I'm not celebrating, ah, sucked in, capitalists, you lost your money, you invested. But that's the game we are in. People have got to stop thinking about investing as some God-given right that you have an entitlement to a double-digit return every year without risk. The nature of the game is that I allocate money in an environment of risk in the hope that my vision of the future comes true.

50:33And if I'm right, I'll make some money. And if I'm wrong, I lose some money. And you're going to be wrong for right reasons and for wrong reasons just because the world is chaotic. And that is the system that we have. And it's just like when businesses fail, it isn't something to celebrate, yet it is such an imperative part of the system that we have that ensures really, really good service and product delivery, high value, low cost. That's what drives it forward. Because when you just want to just support things because of jobs or because of whatever sort of thing you want to throw at it, we are all poorer.

51:07Even the people whose jobs have notionally been saved. You know, it's sort of, it's hard to see, but it is, I'm so firm on this. I think any economist, even the Keynesians would agree with me on this front, that it's just sort of like at a system level for all of our sakes, it is far, far better that when people do silly things with business and they fail, that they suffer. And the people who invested in those, not suffer, but they lose their money. By the way, no one's holding a gun to your head saying, you must buy shares in star entertainment groups. I can leave it in cash. I can buy some gold.

51:42I can put some art and antique cars or BHP, whatever I want. But it just sticks in my craw and it's something you particularly see in property. It's like whenever that goes, oh, someone's going to help me out. You're like, no. Welcome to the world of investing, my friend. No one said that when money was raining from the sky, you didn't offer to give half of that to everyone else. You know what I mean? I'm choking on my own rage here. But are you feeling better? A little bit. A little bit. No, I agree with this. So I think I, yeah, there is, politics is politics. And I think we, both in investing in politics, actually, we suffer from a lack of clear information and understanding and a sense of responsibility, right?

52:28So the government says, because the other thing is, people will be complaining. The unions will be up in arms. The opposition party will be blaming the government for losing those jobs. will go through the charade of the mudslinging that makes a political party. I mean, realistically, if this wasn't reported in the papers, there would be no drive to save the... By the way, both Queensland and New South Wales governments have ruled this out. So we are talking hypothetically, and hopefully they stick to that approach. But, you know, why are they doing it? They're doing it because they feel like the political fallout is more damaging than doing nothing.

53:00And that's our fault, and that's the opposition party's plural fault. I don't care which colour you are. for making it a reasonable conversation would be the newspapers and the opposition and the government all going, man, that sucks. We've got to look after those workers, but we're not going to waste taxpayers' money doing this because that's just, you know, it's not a good idea. It's not a good precedent. There's not a good return for taxpayers. We feel horrible about those people losing their jobs, but this is the least worst solution. And that is the rational, that's the only answer, right, that makes any sense.

53:28But for reasons of political cravenness and other things, they may or may not be influenced to do something different. I think I do want to come back quickly just to the business, mate. I think you've kind of highlighted in your rant, which is mathematically you can't lose. If you let me just buy the games, the machines and the tables, I would do it in a heartbeat, right? Because you can't lose. Play long enough and the house always wins. So why did the house lose? Ask any club. Right? So why did the house lose? The house lost because they created a business that had a cost structure and a debt structure that assumed the future was always going to be a certain way.

54:04And this is, to your point about investing, firstly, yes, if you're investing in any company, assume you may lose some or all of that money. That's just reality. But secondly, business is not just the products that you sell or the delivery of those products. In this case, I'll call it a service in quotes. But running gaming tables is really profitable. But that doesn't mean you're necessarily going to do well as a company if you can't structure your costs and your debt such that you are a little bit, well, anti-fragile is probably the wrong word in this context, but you have some redundancy in your business.

54:39You don't take silly risks. We've talked before about, quote, lazy balance sheets, but just the broad idea of actually, hey, guys, what if revenue falls? Are we covered? Oh, no. Shouldn't we do that? No, no, don't worry about it. It's fine. You know, the assumption that, and we saw this through COVID, the assumption that nothing can go wrong, and therefore I should, you know, maximize my upside and not protect my downside, is just crazy. And that's exactly, by the way, I will say quickly, not to defend them for the sake of it, but there's very few people left on the star management and board who got them into this mess.

55:07So we need to be careful. We're talking about the company. It's all the same company, but the people are very different. The new mob are basically desperately trying to get themselves out of a hole that someone else dug for them. But the reality was the company was structured, assuming everything would always be okay. And that's, again, their entitlement to do that. That's stupid. Let's call it what it is. But what I was going to say is I'm not telling them they shouldn't be allowed to do it, but as an investor, your job is to make sure you understand how close to the edge those businesses are and what can happen or not based on how close to the edge that they are.

55:40I mean, that very point of, you know, and I've used the example many times, I own shares in corporate travel, everyone knows that, over COVID, corporate travel, webjet, flight center. Same issue largely for all three because they're in the same business roughly, slightly different, you know, webjet, more consumer, flight center, a bit of both and corporate travel, mostly in corporate, But they all kind of got smashed by no travel, right? Webjet and Flight Centre had to raise more money because they had either too much debt or not enough cash or both. Corporate travel had run itself conservatively.

56:07And rather than raise new capital, actually made some acquisitions during that period. And that's a really nice example of same industry, same sector, same pressures, same types of costs, just structuring yourself differently, making sure you're alive at the end. You talk about survivability being number one. That's a great example. and star may well fall to that exact problem. Yep, yep. And I just want to walk back some comments here because it makes you sound so evil and you're relishing in the failure. And it's not that, but it's just the reality of things. And, again, it would be different if the same conversations were had because the local plumber decided that they had to buy one of those tesla trucks what are they called um cyber truck and to buy four cyber trucks to run their business and operate out of a you know a tower in the middle of martin place and it's like oh i've gone out of business and like the government and you know oh let's let's all throw in and save this this person like well why did you do that for you know it's just it's just how it has to be you can play it forward logically in like some of the rationale that gets applied here, if this was applied at large across society, we'd still be building roads with chain gangs.

57:25You know, we'd still have, you know, barrel makers and blacksmiths and stuff because jobs, you know, and it's sort of like the constant evolution and the cut and thrust of the system that we have is ultimately what makes us all rich. And it's just, you know, it makes you feel like, It's a feature, not a bug, right? It's a feature, not a bug. And it's not that you want anyone to suffer, but the reality is that in trying to make everything perfectly even and wrap everything in cotton wool so that there is never, ever, ever any suffering ever at any time in the world actually just means that we all suffer collectively and we all fall well short of our potential as a civilization.

58:07We'd all do it if we could. If we could actually do that successfully, we'd all do it. Of course we would. Why wouldn't you not? By the way, they tried that. It's called communism. It doesn't work. Economics is the study at the base layer of scarcity and the allocation of scarcity. Because human demands are unlimited. We will take as much as you will give us, right? Yeah, that's right. But the world doesn't, you know, we actually, I was going to say we don't live in an abundant world actually compared to our forefathers. We absolutely do. Again, hello, thanks productivity, chainsaws and log splitters, right?

58:39Like that is kind of why. But even with all of that advancement, we do have scarcity. We do need to allocate that. And the best system we have ever devised to do that is the – I've got to come up with a different word than capitalist because it's too loaded. And it gets muddied with crony capital and all the crappy stuff that we do see in the capitalist system, which is a lot of pure form of capitalism, I would sort of argue. But it is something that we should sort of celebrate. Right. There was an interesting article recently with what's going on in places like France versus the US. So back in, I want to say about 10 or so years ago, just before the GFC, the GDP, oh no, sorry, it was the Eurozone in general.

59:24The GDP of that in the US was about the same. And since then, the US has just shot the lights out and Europe hasn't. And the article was sort of saying, well, let's have a look at some of the reasons here. It takes 144 days to start a business in France, it takes two days in America. Your business fails in Europe and you're never going to do it again. The obligations, the costs are so difficult. In America, declare bankruptcy, you dust it off. Culturally, it's seen as, well, you had a learning experience, but good on you for trying. In other places, it's like, shame on you, what a race of resources you sort of done.

1:00:00And it's that. I would point, not as the sole reason, but as a very significant part of this what they call American exceptionalism. It's nothing to do with the people per se, but more just the culture. Yeah, probably the culture of just sort of like we celebrate having a go. And when you fail, and we expect as part of this system, failure will be, again, a feature, not a bug. And there'll be a constant failure as we tussle things out and winners sort of emerge. But good on you. We're not going to make it so that if you – and it's the same in Australia, I can tell you. It's like you try one or two businesses and fail.

1:00:41You have to have some serious issues to try it again and again and again. One, the costs are so hard. The price of failure is so high. You just won't do it. In America, you can try – there's a lot of things wrong with America, okay? So let me just put that out there. But in this regard, I think that is such a key to it. to, and this is where Europe, I think, has gone a little bit wrong, where it's just this idea of, you know, no, we can manage it centrally and from a top-down approach. And we know what is best for, quote-unquote, the economy. And we are going to make sure that everything is regulated to the nth degree.

1:01:21And it all comes from a really good place. But again, it's the people that suffer. And on a per-GDP basis, you can see that in the numbers when it plays out over a long period of time. So, okay, all of this is to sort of say, look, it sucks for a lot of people who had no influence over the outcome with Star City, but okay, it didn't work. It failed. People took risk in regard to that in terms of investors and management. It didn't work out. Okay, you failed. And it's not like, haha, in the gutter, sucked in, let's ostracize you and poke funny. It's like, no, you gave it a go. You didn't do a very good job of it, evidently.

1:01:55But off you go. Give someone else a crack at it. Now, that is more the attitude I think I would like to advocate for, because again, overall, we all win as a consequence of that, as opposed to, as you say, take it to its logical conclusion and we have communism where everyone's really poor, everything's super expensive in terms of the time we have to put into it, and the quality of everything's super low. It's not what system I'd prefer to live under. I think that's right. And that's really where you get to that reality. And I think, you know, I think we both agree we have to take care of the loot.

1:02:33We are too wealthy and too successful and hopefully too caring to let people, you know, fall through the gaps. Safety nets are important things. Sure. But the safety net is not about preventing failure. It's about allowing people to, helping people to manage their lives. Some people will lose their jobs. you know, if you're a cooper making barrels and you're 58, you probably never worked again, right? And we have a responsibility, I reckon, as a caring society to look after that person. Agreed. Not to keep barrel makers in business so that the cooper doesn't lose his job, right? There's no future in that.

1:03:03And that's the key difference. You let capitalism do its thing, but you also make sure we smooth out the rough edges where we can and we take care of those who lose from it rather than pretending we can change the structure and make the basic... You mentioned scarcity, right? The allocation of capital, or the allocation of resources the other way, I'll put it, but they're exactly the same thing, which is just - Same thing, right? Capital and resources, yes. Right? And you're much better, and this sounds easy for me to say because I've got a job and I'm okay, but you're much better off being poor today than rich 200 years ago.

1:03:36And that's not just because there's been another X thousand trips around the sun. It's because progress during that time has made it so. And so those who kind of look at capital and say, oh, terrible, you shouldn't have it. So, well, which progress would you like to give up on? And yes, there've been side effects, right? pollution sucks and companies, chronic capitalism and, you know, manipulation and people we take advantage of, there are absolutely rough edges all over capitalism, right? And that's why we have governments. Otherwise, we just say, let's have a capitalist anarchy and we all be fine.

1:04:03Right? And no one thinks that's okay. But it's, to your point, it's pulling the right punches, putting the right safety nets in place and making sure that the basic foundational kind of reason for being is that we do that, let that allocation of capital happen so that we can reap the maximum benefit and then make sure that benefit is appropriately shared and those who lose from it are appropriately taken care of. And I think what people get really upset about, and rightly so, is it's the idea of capitalism on the way up and socialism on the way down for big business. That's right. So these captains of industry, so-called, like the people who made the decisions in Star City that ran it into the ground, you know, all happy to wave the free market banner and the rest of it, but they're the first ones putting their hand out when it goes bad.

1:04:54And it's also, they're the ones most able to withstand the failure, right? I don't even want to name names, right? But the people who made the former CEOs and senior management and C-suite that made those decisions are still living lives beyond what you or I will ever imagine, right? Despite their failure, despite their failure. And they'll go on, they'll be employed somewhere else. They'll pop their head up in another business that they'll destroy down the track. And it happens again and again and again. They're like, oh gosh, I would love to name names. But there are just these serial entrepreneurs who suck and somehow just continue to find gainful employment.

1:05:30And it's sort of like there's one thing to look after the poor soul who has had the world change on them through no fault of their own and needs to be looked up. Absolutely. I'm the first one to put my signature on that petition. But when it comes to protecting the, you know, the, the uber rich ultra connected person who was directly responsible for all of the, the, the mistakes, that's what again, sticks in your craw. It's like, well, why are we helping? You don't need help. Why are we, why are we even discussing bailing out sort of sky? Like, okay, this person here has got, you know, down on their luck and their job has been taken away from their folder.

1:06:11Absolutely. Different stories. Social safety net is a really important thing. Making sure the bloke with three power yachts and 12 mansions is looked after. Exactly. Get on. Anyway. Anyway. I want to just quickly, I want to tie my bow on it. You can keep going after the, but just my thoughts on this one. I think what's important then as investors, and this is kind of, you know, so what, as someone who, maybe some people own shares and style that are listening me this right now others thinking gee i hope doesn't happen to me a couple of things i think to say firstly whether it's property or shares or anything else as an investor you are taking risk and you are you're engaging in this great game of capitalism which is really really successful over the long term for almost everybody but which does have its you know downsides and occasional stuff ups and blow ups so you know when whether you're investing in star or not remember that this could happen to you in any other company you own and so be diversified that's the first thing i'd say second thing is recognize that there is a difference between you the shareholder and your executive management there shouldn't be because they're supposed to be working for you but what you just talked about mate which is largely about sometimes you're entrepreneurs sometimes the ceos if you're the ceo of a market about star here because i don't don't be in trouble i don't really even necessarily want to want to make any allegations about star but if you you know if your ceo is running a business and you say to him if you do well you get 10 million dollars if you do badly you lose your million dollar job Now, I reckon most people would say that's a pretty skew, asymmetric to use your term, Brad.

1:07:38That's a pretty asymmetric outcome. So I'm going to do everything I can to maximize my upside. And if I lose my job, well, at least the risk was worth it. Now, what does that mean? It means as a shareholder, you don't have that same upside, right? You don't have the chance of losing a million or making 10. I mean, in the long term, maybe your share is 10 bag, but they probably don't. If you're on shares in Woolies, for example, you're not going to get a$300 share price anytime soon. But if your manager has different incentives to you, just be aware of that. Be a little bit careful about what could happen as a result and think about the remuneration of your executives.

1:08:06Think about the risks they're taking, the rewards they're offered. Not because they're going to go badly necessarily. Just keep that in mind because when you say they're looking after my interests, they are a bit, and I think they all want to do the right thing, but human nature is human nature. Subconscious incentives are exactly that, and we all love it if they get their bonus because they made a squillion dollars for us. Just be mindful. Their upside is bigger than yours. Their downside is less than yours. And so just be not cynical, but skeptical. Be thoughtful about who is running your business because at the end of the day, you want the person who says, I want to get my bonus, but I'm not going to jeopardize the company versus those who say, I can really grow this thing.

1:08:48If I just take on a bit more debt, if I just add a bit more cost, if I shoot for the moon and miss, well, I lose my job, but I'll get another job somewhere else. Versus the shareholder who says, you shot for the moon And maybe I might have made 15 % more, but at the end I've lost 85%, 95 % or 100 % of my capital in that process. Yep. Which is why we often talk about skin in the game. And there's no more important metric than just making sure. I mean, it doesn't guarantee anything that management hold a bunch of shares in the company that you're buying. But it guarantees you that a big part of the reward is going to be your reward as well.

1:09:26Like, you know, if they want the share price, you both benefit equally if the share price goes up 10%, right? If that's where the significant part of their sort of wealth is. So it's, yeah, absolutely. But it's just important to underscore that point that you are in the game of risk. And that is what gives you the upside, right? It's just like, if I get this right, I'm going to make a bunch of money. But again, you know, you can't have heaven without hell, the Christians would say. and Charlie Munger used to talk about that all the time, right? Like it's just sort of, it's a really, really important thing.

1:09:59So I think we've flogged it to death. Mate, I'm a little bit mindful of the phone batteries. They're still going strong. It's all right, mate. We're well until the end of our chat anyway. I think we can probably call it here. Well, I just wanted to say, can we, because I'm on a roll. So you say, I'm waiting for my phone battery, but I want to keep talking. Is that what you just said? There's so much to say, but while we're going to put the boot into big corporates, can we talk about Telstra's latest brain fire? If you want to, I was going to leave that off because I figured you'd want to go off the phone and save the battery, but I'm very happy to if you want to go down that path.

1:10:27I do want to save the battery, but this is just too much fun. When this podcast cuts out halfway through Andrew's rant in 15 or 20 or 40 minutes, that will be why. Listeners, just so you're aware in advance. So two big bits of news in the last couple of weeks, both in the AI space, which sounds tautological, there's so much news, more than just two bits, but two big bits for big Australian companies. The first is Macquarie is investing$5 billion in some data center joint ventures in the US. Such is the expected growth of computing power required to perform these AI tasks. So that's the big one.

1:11:01Telstra this week has said they're going to spend$700 million over seven years, so$100 million a year, in a joint venture, 60-40 owned by Accenture and Telstra, respectively, so Accenture's a 60 % share of it, to build AI processes and systems that will improve, again, speed of productivity. Telstra hoping it'll improve their productivity, help their staff work smarter and better, better outcomes, cheaper, faster, better for customers, better suppliers, all that good stuff is what Telstra is hoping to achieve over the next little while. So I'm going to, look, Telstra is a company. I think it's fair to say they are absolutely bereft of ideas, right?

1:11:44There is no innovation in that organisation. It's full of bureaucratic bloat. and they're at such a size and scale that they're really an ex-growth company. Now, that's okay. I've talked a lot about on the pod. It's just sort of like the pursuit of growth for growth's sake can be a little bit self-defeating. You want a growth which comes through a positive return on investment. I put so much in, I get much more out. That's the kind of growth that you want. What happens with a lot of these so-called blue-chip companies is there's not a lot of growth opportunities, but rather than just say, hey, there's not a lot of growth opportunities, but we are a cash cow.

1:12:27The cash that gushes out of this thing is incredible. And maybe over a very long period of time, that'll eventually come to an end, but we got more money than we know what to do with it. How about we stop doing stupid growth initiatives and what we do, because Telstra is only, they've got three options and none of them are ever executed well. First is we cut costs. And the old saying is you can't cut yourself to greatness. If you get a management team that come in and go, gosh, things aren't great, but it's okay, we're going to fire half the staff and we're going to pull back on this and that.

1:13:00It's like, yeah, that's going to make profit a bit better in the next year or two. But overall, you're just hobbling the business. It's very hard to sort of do that. um the other thing you can do is um buy a business and acquire and and statistically most acquisitions don't work out well and hello telstra you're you're an absolute master of this you've done all kinds of stupid acquisitions and the third one that you can do is innovate is that you can be an innovator in other words you've come up with a new process a new product a new service that the market just loves. And this is the way that you must go because this is the way that builds growth.

1:13:41If you can, surprise, surprise, offer increasing value to your customers, they will continue to be your customers. They will enjoy the relationship. They will give you more money. The more value you provide to someone, the more happy they are. Again, it's a mutually beneficial relationship. That's why Apple and NVIDIA and these companies are the biggest companies in the world because everyone loves their product, right? And they continue to just knock it out of the park. Each year is like, wow, another chip that does this. And, you know, it's like, and they, that is a huge investment of their time, money that would otherwise be spent or given to shareholders, the owners of the business.

1:14:18Now, Telstra has been shown totally incapable of innovation. Every cost-cutting program is just not great. That's what they're the boss, I reckon, by the way, the PE of Telstra is 20. It's 20 at the moment, right? For a company whose earnings, dividends, you name it, has gone backwards over a 10-year period. Backwards. And this is a blue chip, right? Now, someone's going to go, oh, but dividends, fully fake dividends. They're like, yes, they're really nice. I get that. But when you factor in everything, dividends and the lot, it's been a really mediocre return over a long period of time, all because of a failure to accept the reality of the situation.

1:15:04And when I open up the paper and I read that, oh, we're going to spend$0.7 of a billion dollars on AI. And did you notice how vague it was too? It's just sort of like, it strikes, again, I'm old enough to remember the internet going mainstream. and a lot of companies, we're going to go online and we've got a website. Everything.com, that's right. It's the new hotness, it's the new black, they're going to do it. And I predict, and I could be wrong, I hope I'm wrong for anyone in holding shares, but I dare say that they will end up torching a huge amount of money, a huge amount of money, or in the sense that maybe you get a bit of growth out of it, but the growth relative to the investment will probably be subpar.

1:15:48In other words, take$700 million, buy an ETF in the NASDAQ, and you'll probably get a better return for shareholders than what you're going to do, I dare say, right? Am I being too cynical? I mean, the past track record is all I'm saying. Yeah, that's right. I'm kind of with you. I've got to say, though, if you put me in charge, you outlined beautifully the ways you can manage a company like Telstra. and I'm not entirely sure. If you made Telstra my private play thing, and that was my net wealth, and I had to maximize my returns from Telstra, I think I would probably give up on trying to grow or innovate, because even innovate, I just don't know whether there's enough upside.

1:16:39Given who Telstra... I mean, in a perfect way, you could start again and do whatever. But if I owned Telstra outright, and I wanted to innovate in the telco space, I wouldn't use a big old calcified business. I got to say, I'm actually not as harsh on the management as you are over the last 20 years because they took this government instrumentality with bloated numbers of staff and a copper wire network and then spent the next, what was it, 28 years now going through the internet revolution and just keeping up. The business was designed to lose market share from listing because they allowed Optus, then they allowed other competitors in, then the internet, then the NBN.

1:17:12I mean, every topster CEO has had the job of dealing with market share decline from day one since it was public, right? And so if I look at that and think that's the cards I'm dealt, what would I do? I honestly think I would be trying to – efficiency would be my number one game. I don't think I could expect to innovate with new products or services. I mean, is it possible for somebody in Telco to do it? Yes. Aussie Broadband have done spectacularly well, I should say. I know she has in Telstra, by the way. But could that have been done inside Telstra? I mean, realistically, I don't think so. And that's kind of the biggest challenge.

1:17:45So I guess that's where we find ourselves. I don't know that they've done much differently or wrong or any different way that I would do it. But I also don't think that makes it a great investment. And that's kind of, I think, partly where you're getting at is the investment itself is different from the company, the way the company's run, the quality, or the kind of approach we should expect. So that's my kind of take. I think that's probably where I'd go with it. Yeah. Anyway, mate, I think you've done extraordinarily well well to get through what was going to be a short podcast and unsurprisingly for you or me or our listeners, I did love the battery reference.

1:18:23The battery's almost dying, but let me talk about Telstra, which I appreciate. I did do it. That is pure commitment to our listeners. It also is pure commitment to, we got an emergency in the week, which I will read out later, probably maybe on Sunday or maybe another week. But it did suggest that the sign off was that our listener I hoped you were enjoying your twice-weekly therapy sessions, which is a nice way to put it. Yes, I am. Thank you. There is that. Mate, you've done very, very well. Listeners, thank you for bearing with us. Andrew's audio call was pretty good, I think. I'm not sure how it'll come out, but it seemed pretty good.

1:18:56I think you do sound like you were on the phone a little bit, mate, but thank you for making the effort, mate. Sitting in the car to get this done for our listeners is very, very much appreciated by me, and I'm sure by them as well. I do. Don't think me. All you had to say was we were talking about Star and Telstra. I was like, I would have jogged to your house in barrels, right? And you had a Bitcoin reference in. And I go, hey, you know, what else do you need? Oh, and a bit of bank bashing. It's like, get out of everything. Everything. Very good, very good. Talking about the jogging in my place, that might have to be your Sunday morning exercise for our mailbag episode.

1:19:30It might have to be. I look at this rate. That's exactly what we'll need to do. All right. Mate, thank you for making the effort and spending the time. Listeners, thank you for tuning in. We will, if the good Lord's willing, and the creaks don't rise, be back on Sunday. And the power's back on with a mailbag episode. So we look forward to talking to you then until we do. Fool on. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener.

1:20:05The Motley Fool operates under Financial Services Licence 400691.