Rates mightn't go as high as we think? June 23, 2023

30:54um the uh i so here's what i didn't say everything was perfect or everything was okay there are no problems i said i think it's worked extraordinarily well i think if you can have a cohesive wealthy society with 3.6 unemployment you're in a very good place and given we've had no meaningful economic damage over the last 32 years um i think i think is a is a remarkable testament to the use of monetary and fiscal policy horribly perfectly talk to someone who's under 30 and say they've heard no economic damage. I mean, they are pushing poo uphill more than anyone, like the previous three or four generations.

31:29It's not though. It's not better. I would argue very strongly. The other 30s could have cheaper houses and 15 % unemployment. So we ought to be careful what we wish for. I think we can look at the imperfections and the outcomes and say, therefore, the whole system sucks. I think that's an imperfect way to look at it because I think you look at it and say, okay, are there problems? Yeah. I mean, you and I have agreed on different things about interest rates i would have had apra use different buffers i would have different impacts on house prices i think the house price issue is far more a tax policy issue that is a uh that is a monetary policy question quite honestly and i think it doesn't i don't know that higher interest rates make any difference at all because you have cheaper cheaper prices but just as expensive repayments if you're paying five percent rather than three percent or eight percent rather than six percent now uh the house might be 25 cheaper but your repayments aren't any different i think we need to be careful at saying there is a problem and therefore this is the cause and the only solution is this as opposed to it's a multifactorial problem.

32:22I think I would much rather have Keynesian budget management and monetary policy that takes the peaks and troughs off of economic cycles. You've only got to look back at some of the booms and busts. We've talked about this before, but the late 800 booms and busts, recession every seven years, 20 % unemployment, massive dislocations to the economy. I think we need to be careful what we wish for. Do I want cheaper houses for under 30s absolutely my own bloke's 27 i absolutely get it but am i am i also happy that there's three points 3.6 unemployment so he's lucky to keep his job and we've avoided meaningful economic collapse and damage in the meantime we haven't had you know there's very little in the way of long-term unemployment these days the the not nothing and not perfect and all that's the stuff you're absolutely right but i i think this is the i think this is less imperfect than allowing booms and busts to happen unchecked because we don't want to fix the price of money yeah except that we don't take the peaks and troughs off we take the troughs off we don't take the peaks off right so again it's like well communism would be great if we had really if you didn't raise rates now what would inflation be would it be 6.8 percent i bet you wouldn't be i bet you'd be eight or nine percent that's exactly what's happening i think we need to be it's easy to look back and say well they're you know i'm not saying there's no peaks or troughs i'm saying we take the cut the tops off the peaks and fill in the bottoms of the troughs not there's no cycle there's absolutely a cycle we just it's less severe than it would have been without intervention.

33:38Yeah, no, I'd say the magic of markets is that they're self-correcting. You know, that's what they do. They are, but the damage they leave behind when they correct is huge. The human impact of 15 % unemployment. I mean, take COVID, right? Markets do what markets. If you'd left markets do what markets do, we'd have had 15 % unemployment coming out of the back of COVID. And if you can look at that and say, yeah, at least markets would have fixed it eventually. I'm like, yeah, they would have fixed it eventually. Absolutely. How much human damage would have been done in the meantime? Extraordinary amounts.

34:04I don't think the central banks got the COVID management right. Government certainly didn't get it right. But I'm glad they did something rather than doing nothing because that would have been a catastrophe in my opinion. We don't know the counterfactual because it's hard to say what would have happened. But I think I've said it before. I think there's this

34:27assumption that we can control it, which is flawed, and that we can fix it. As you say, there's going to be cycles no matter what. Yes, absolutely. And that's just a consequence of when we all feel good, we all spend, we all do better. Sometimes we get a bit greedy, we go too far. Oops, it comes off. Then we get scared, we stop spending. And that is just the natural cycle that comes off the back of human behavior. So it's never going to go away, right? Go on. I was just going to say the question, I, for one, think if taking that premise to be true, which I think it is, I would much prefer to have shorter, sharper, shallower cycles than what we do, which is like, no, no, no, no, we've got to protect everything.

35:08And again, for the best of reasons, for the best of intentions. But all we do is that we just make it so when the eventual reckoning happens, it's so much more severe. So would have COVID been really crap without all of this intervention? Yeah, it would have been much harder. But do you think we fix that problem? or did we just kick that can down the road? Oh, we absolutely kicked that can down the road, but we didn't kick the same size can down the road. I don't think you can look at 15%. We don't know the counterfactual. Do you reckon there would have been less than 15 % unemployment through COVID with no job seeker, no job keeper?

35:41I have no doubt unemployment would have been over 12 % and I have a balanced probability. Yeah, but it would have come back really quickly. It would have come back really quick. Businesses would have gone broke. Who would have employed those people? And new businesses would have been formed, right? And so what you have today is you have a scenario where in order to fix it, we're all now paying the price of double digit near enough inflation, right? And so basically we're all poorer each and every year. I mean, even if you've got a 5 % pay rise, you're still poorer, right? So it's sort of like, did we fix it?

36:16I mean, would it have been better? My analogy is always that I just think it's just sort of like, oh my gosh, I really shouldn't have had those six beers. is I'm going to have a hangover tomorrow. I'm just going to keep drinking so I don't get the hangover. And at some point when the beer runs dry, I'm going to have the mother of all hangovers. I probably should have just stopped at six and taken my medicine and be dealt with it. And it sounds really brutal, and it makes you sound like an ardent free market capitalist. And I'm saying there's a lot of things that we can do on the fiscal side of things to sort of address that and look after our most vulnerable.

36:50And that's really the true measure of a society is how it looks after its most vulnerable people. 100%. Yep. You know, that is really super important. I just think the remedy that we do ultimately just protects those that have the assets and ultimately hurts those that don't. I mean, I look at the employment situation and go, is 3.6 % unemployment good? Yeah, it's fantastic. But it's not really – it's one data point out of many. The U.S. has very low unemployment as well. But you just have literally millions of people who are classed as working poor. You would say the market can sort that. Is that what we just said with markets, the best thing to do?

37:26Let's not set wages. Let's market sort out the wages. No. How do they do for interest rates? No. What I'm saying is that you can have – I've got a job, but it's a soul-crushing, destroying job that barely pays me and it's not enough for me to buy the basics of life, i.e. shelter, which is perhaps the biggest one. So why should the market control rates but not wages? I mean, where is the key difference there? if we're saying the market will eventually get it right. There'll be less booms and busts. If people get paid less, but at least they stay in jobs, there's low unemployment, that's worth it, surely.

37:59The market will slow it up. Yeah, well, I mean, over a long enough stretch of time, it probably does because, and this is - I agree with you, by the way. This is the formation of the union movement, right? Because people are like, wait a sec, we're being screwed here. We are absolutely being screwed over by the owners of capital. And we're going to form a block of people that we can actually have our voice. And boom, we had the eight-hour day. We had all of these kind of improvements. So I'm not – I mean, again, I'm not saying – I think too many people look through rose-colored glasses at their preferred ideology.

38:30And if we only had that, the world would be perfect. I'm not saying that. I'm saying that we live in a harsh, unforgiving universe and that crap happens all the time. And there's always going to be a degree of unfairness. I'm not saying that, right? Is it going to be perfect? No. But I just think by coming in and meddling in things that we can't realistically hope to understand or control is not actually a solution to that. It's just how it is. I say to my kids all the time, they go, it's not fair, dad. It's like, life isn't fair, right? It just isn't. Get back down to the salt line, son. I wish it could.

39:09I mean, think about this with my kids. I could do it so they never have to lift a finger. I can provide everything for them. Now, am I actually being a good parent there? Now, I'm not, look, don't get me wrong, before anyone writes in, I'm not sending the kids down to the salt mines. They have a very good life. They're choosing to get into the salt mines. I honestly don't make them. They like it. Character building. It's all done for the right best of intentions. I want the best for my kids. I want them to have an ease. Of course I do. Of course I do. But you look at every trust fund baby that's out there, They're just a little entitled so-and-sos.

39:44I won't use the language I was going to use. They're not good human beings, right? They have not been helped by being wrapped in cotton wool and being protected from the reality of the world. And so we, I guess it's, I'm not, I don't want to be misinterpreted as saying, oh, if only we did this, life would be perfect. It won't. It'd be full of crappy cycles and recessions and unemployment and death and disease and all the things that just, unfortunately, we've had to dealt with since forever. I just don't think that the remedy that we don't – I don't think that the central control of money is the remedy that we all see it is.

40:21And when you look – again, we can sort of extrapolate to the future, but if we just look historically, you know, the value of the Australian dollar is down like 98 % over the last 100 years. I mean, okay, the amount of hours that need to work for me to provide the basics of life have actually gone up. into so forget about the unit we want to denominate and measure it in just like how much time do i have to spend to get the things that i want has gone up in a in a world which is a technological miracle you know like that doesn't make sense do you know what i mean like i think sometimes we just need to sort of step back accept the reality of the universe that we live in and ask are we actually helping here i think we do help short term i think absolutely when these things happen to go look look what we did it's like yep that is much better just as my eighth beer makes me feel much better but but there are longer term consequences to that and that's i i i feel as though we we need to step back and take the 40 000 foot view and not the well thank god i got a uh active kids voucher that i can now use on my kids swimming lessons and buy some soccer boots with you know it's like yeah okay isn't that great yeah but but now we've got inflation because we gave a bunch of money to a bunch of people who didn't need it and by the way where did that money came from well it came from the taxes that i paid in the first place and through a bunch of extra borrowing now think about this when when governments are in deficit that is stimulatory because where does the shortfall come from now when a government tax it when a government is in in it has a balanced budget it's neither stimulatory or not correct it's it's a redistribution absolutely but there's no extra money being put into the system when you run structural deficit deficits as the US has done, as effectively we have done over many, many years, we are pumping more and more and more and more money into the system.

42:08It is stimulatory. Yes. Is it inflationary? Yes. Money didn't exist before it was poofed into existence. And does it feel good that I can now get a bit of a, I pay less for the kids swimming lessons or whatever voucher I've got to do or whatever whatever that money has been targeted yes is it is it consequence free no we're seeing we're living through the consequences now which is we're losing purchasing power at a rate of knots at a massive rate of knots you know but it's but it's but it's it's very subtle and it's very long it's it's it's um but it's very real and and i just i i i don't know mate i don't know what it is and and this is probably not a productive conversation but i sometimes i've always thought the big innovations wherever it's the jeff bezos is all the elons as crazy as those guys are and as much as i don't like them in a lot of ways is they they their their success really came and the teslas i mean nikola tesla and you know the the big big game changing things who just thought outside the box and before they were all crazy at the time well that's as if that's ever going to happen or rockets that land by themselves or electric cars or i don't know why i'm picking on elon here but you know they're all they're all a nonsense until they're not you know and and it does take i think human humanity moves forward when we can have a objective look at things and and and and try something with a fresh perspective you know if if something is sort of demonstrably not worked and we just keep doing it's the definition of insanity is doing the same thing and expecting a different result.

43:50Yeah, that's right. You know? That's a great quote. That's a great quote. It just, I feel as like that is, I imagine historians in the year 2130 be looking back at certain periods and going, can you, like we do today, we look at the things that sort of happened in 1923 and go, oh my God, what were they thinking, you know? You didn't want to, what we'll regret or look back on in 2030. Yeah, but now it's different. Now we've got everything right now. Future generations will look back and go, oh yeah they just had it figured out we didn't need to change anything so it's a worthwhile david pocock came up he got up in parliament the other day and sort of said if it ain't broke don't fix it but if it's broke fix it right it was such a good line and and and it's i i feel as though i feel as though that applies to these big things and and we too often we too often go round and round and round and round and round and just talking about these little things within our bubble within our within the way things are structured with no fresh thinking and it it's it's it's just depressing i'm not saying i've got the answers or someone would have but i just sort of like okay we've tried this for a while yeah objectively things have not gotten better on a whole bunch of different measures um and look i shouldn't be too pessimistic i mean humanity is i mean i i have the better lifestyle than king henry the eighth right i just do yeah um so it But that is a story of technology.

45:12And I would imagine that it could be even better and more prosperous without people with good intentions coming in and distorting the very fundamental mechanism with which we use to coordinate and communicate throughout our extraordinarily complex economy. I disagree. Let's move on. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

45:41Rex. This is fascinating. Rex is regional express. The third airline in Australia. Third by a very, very long way. Some numbers out today from the company. So today, we're recording this on Wednesday, the 21st of June. They're planning to lose, not because they want to, because I think this is where we're going to end up, $35 million for the financial year ending June 30, 2023. And it's not because people aren't flying. It's not because airfares aren't high enough. they can't get enough pilots. Rex has one third of its fleet on the ground right now. They simply can't get enough trained staff to put these things in the air.

46:20And I just thought that was fascinating. We've talked a lot about unemployment. We've talked a lot about insurance. We'll talk about unemployment a bit. I forgot some time. But I just thought this was fascinating, mate, because there's an ongoing conversation and it's very ideological and very passionate, very heated at different times about you know why there's a labor shortage is there a labor shortage uh on one hand you got people saying well people should just work on the other hand you're saying well if you put prices up there won't be wages up there won't be a labor shortage these things go around and around in circles the reality is that from probably a combination of frankly the covid lockdowns and the fact that we didn't fly for a long time pilots simply aren't available for wrecks to put in the big front seats and put the planes in the sky and i i have to say mate that we've heard a lot about airline profitability if you can get the planes in the sky they're making a fortune because they're charging an absolute mozza uh for the plane tickets right now but if you're wrecks and you simply can't get enough pilots doesn't matter what the price is if the plane's not the air it's not in the air and we know that while fuel is a really expensive cost for airlines the bigger one is when you're paying for planes that are sitting on the ground rather than the sky earning you money this is a utilization game i just i was i was really really surprised

47:37your responses to me aren't exactly emphatic today andrew so let's put some context around this go on dog's breakfast of a company um apologies to shareholders and owners i mean they do they provide a wonderful so i mean as a consumer i'm really glad these guys exist right after you just call them a dog of a company go on oh well i mean it's not their fault it's just they operate in the hardest one of the hardest industries in the world yeah i could have bought shares in 2006 and i would have made absolutely nothing in fact i probably lost about 40 in real terms but how unhappy are you right now you're seeing quantis and virgin in the air making a squillion dollars you're like oh my god we could be doing that too if we could just get some bloody pilots it must be it must be particularly good like you know you lose money all the time right you're absolutely right it's a tough industry when you look at your big competitors going they are alan joyce has got the golden you know whatever uh you know even virgin's making money for the first time in god knows how long and rex is like oh come on guys you know we're gonna finally have our chance to get something as an industry and make some cash and we're actually on the ground because we can't get people to sit up the front yeah yeah i mean well i mean i could everything i said about rex i can say about the others as well right and in fact conus is probably the best airline in the world from a financial standpoint and it's it's still a disaster yes i've said it is if you're an lnco and you can leave without the company going bankrupt on your watch that is a remark that's a five-star success it's the best you can hope for so what do you now again free market it's a bit of full circle here it's just like why can't you get enough well you're not paying enough right that's the solution pay more if you if they look hypothetical you double the salary yeah a whole bunch of people are gonna pilots are gonna go stuff quantus i'm gonna go work for Rex.

49:18The money's better, right? It's free market in action. They can't do that. Why can't they do that? Because they can't charge enough for their airlines to cover, their tickets to cover costs. Why can't they do that? Because we don't want to pay that. We can't pay that. You know? So it's just kind of where the market starts to break down a little bit, you know, with a duopoly of two airlines that kind of, you know, there's something about the scale and, yeah, go on. Well, I, for some reason, and assume it as a God-given right that I should be able to step onto this tube of aluminium and fly thousands of kilometers for the price of a bus ticket.

49:56Yeah, that's all right. $99, yeah. You know, it's kind of, huh? So what happens here? Well, I kind of think charge more. You know, this is the challenge of business. Whether you're running a lemonade stand or you're running Qantas or Rex or whether you're running a CBR, this is what you need to do. you need to say what service or good can i provide how much is that going to cost how much can i charge and that's it yeah and you have this wonderful sort of mechanism that those who can do it viably stay around and make some money get a good return on their investment and their labor and their effort and their risk and those that can't fail and good because if you don't fail if you let you have zombie companies which which again leads to all kinds of massive distortions and we're all poorer as a society as a result of it.

50:45So I kind of think, well, sucks to be Rex right now. Good luck with that. Except that as an industry, we talk about the market a lot. You and I both know that if Rex fails, Qantas and Virgin are less likely to be competitive than if Rex is around. We've seen, God, it was Ansett and there was Compass Mark 1, 2, 3, and I don't know how many after that. Ausjet was around for a while. They're the ones I remember. Bonzer is kind of flying a little bit right now, trying to find a place in the market. There are some, you're right about the industry, but there's also some structural challenges to this industry that suggests that if we let it do its thing, if Rex goes broke, we all pay more for air tickets, surely.

51:26Yeah, but we kind of need to pay more. I mean, what else is this? Either the pilot's saying, Well, if you're the only person providing the service, you're going to be able to charge whatever you can. Yeah, yep. And unless there's a structural barrier to entry, And that is the role of regulators and government, right? Is not to get in there and start telling business, but is to ensure that there is free and open access to that. So there's no other airline in the world except Qantas. All of a sudden I can charge whatever I like. Fantastic. And then Richard Branson looks at that and goes, hmm, I'll have some of that 30 % net margin.

52:02Thank you very much. But I'll take a 20%. And then competition comes in and does the beautiful thing that it does, which is drive things down to the marginal cost of production at a point where it's still worthwhile making the investment, and yet we're also better off. So this is normal. This is what should happen. And this is a very strong signal to the people running the company. It's like, okay, this is not viable. Something's going to break here. So we either somehow have to find a way to operate at much lower cost, or we somehow have to be able to get away with charging higher prices. That's the bottom line reality of this situation.

52:42Now, you could say, well, that feels a bit unfair. It employs a lot of people. Let's just give them a bunch of money. Okay. Where's the money come from? Oh, from me, from my taxes. Okay. Well, now there's an opportunity. I'm not against paying taxes, by the way. But okay. But now I can't spend it on something else that may be more valuable, more worthwhile. Or I'm just going to create money out of nowhere and do it. It's like, oh, okay. No one loses. except we all do right i'm not saying there should be subsidies i'm i'm wondering about the role of competition in a market because we know that if if you end up with fewer players barriers to entry maybe it depends how you broadly you define it but the reality is we've seen uh quanness and virgin and before virgin anset use their scale and pricing power to effectively keep third players not out of the market but to crush them once they joined the market there is a that the whole competition policy rests on, among other things, the misuse of market power, the ability.

53:41Now that is, you know, misuse is a loaded term because if markets are markets and competition is competition and, you know, hey, Ansett turns up, or sorry, Compass turns up and Qantas says, well, I'll compete with you. I'll charge lower prices and I'll compete. That's good for consumers until those players go away and the airline price goes straight back up again. That's the entire basis of misuse of market power. Yep. And another example of cycles. right? And then they go put the price back up and then other people attract it back in. So you have no issue with market power being used to crush competitors, to put other businesses out of business.

54:14The whole HCCC, we disband them because it's all done now. If you could put your, the Motley Fool's biggest competitors out of business, would you? The pool wouldn't be allowed to. Why not? You got better scale, the most in the market. Because the government would stop us. I would say it's a misuse of market. That's the very idea of the misuse of market power, right? Is at some point, we've seen it with the antitrust you know the the train lines were broken up in the u.s the AT &T was broken up in the u.s they took action against this explorer when microsoft bundled it they said if you do this you will put others out of business you will stop the flourishing of competition competition the the presence of competition is the hallmark and if there isn't there we will do what we can to stop incumbents doing it do i want to grow at the expense of our competitors absolutely if the government said okay guys you've gone too far now could i complain about that i might complain about that our shelves might complain about that but policy-wise i wouldn't complain about i think you know because when if i put all our competitors out of business and then we say actually we decided to increase our prices by a thousand dollars a year because we can and we've built a war chest so big that if anyone tries to compete with us we will make sure they stay out of the market as soon as they leave we'll whack our prices back up and we will effectively earn super profit margins for extended periods of time there's no barrier to entry except as soon as you do enter the barriers are down but the snipers are ready you know look well come in it's going to be great it's fine there is there is some issue there i think yeah no there is but i think that the key delineation there is because of all the examples you mentioned they're all natural monopolies like telecommunication networks um uh systems trailers were created bit by bit line by line and eventually merged and acquired and became eventual monopolies those things don't they're not monopolies by their because they were government sell-offs they were literally built because someone thought there was some money in it until all of a sudden you you control the only transport line between two places.

56:04So if you want to get your goods there, I can charge what I want to charge. That becomes its own challenge, right? Yeah, but as long as there's nothing to stop me from coming in and competing. This is the core crux of it. So I think where, so you would press your advantage as a business by using pricing strategies by, you know, or everything you can, and that's competition, right? Who wins? At the end of the day, society wins. But only when it works out though, mate. If it stops being a competitive market and we end up with a monopoly position and charge more, the side doesn't win from that. And if I drop my prices for a couple of months just to keep someone else out and no one enters because they know what I'm going to do, I'd love to have that market.

56:42Yeah, well, think about airlines, right? Compass Mark 1, 2, and 3, Ausjet and Bonza. I mean, you're mad if you join the auction airline in Australia because it's not going to have any impact. So it keeps people out of the market because no one wants to be in that position where they put up their hundreds of billions of dollars, Qantas and Virgin drop their prices, they go broke. The consumer voters put their prices back up and say, see, competition. It seems like pretty true behavior to me, allegedly. No, as long as I can. I mean, you and I operate in an industry which is, well, I've got to be careful what I say here.

57:14It's very oligopolistic. I can't even say the word. Oligopolistic. Thank you. Oligopolistic features of finance. But within the newsletter business, right? I can spin up a sub stack this afternoon for nothing, and I can get in there and I can compete it. And so let the market do its thing, right? If you were in a position to stop me from doing that and by using your market power to unfairly inhibit the entrance of new competitors, that's a different story. It's a subtle difference, but it's a key difference. Now, in the case of what's going to stop me from spinning up a new airline if Rex and Virgin Claps and Qantas is there.

58:00Wow. I do need a license. So there's probably something that we want to make sure that, oh, anyone can have a license as long as you tick a certain number of appropriate boxes. Well, I need access to an airport. Oh, there's another natural monopoly. Airports. Okay. Well, it doesn't make sense to put another airport in Tempe, like 10 minutes away from Sydney Airport. so you guys have natural monopoly just like a toll road just like a power line just like these other kinds like a power station so that's the core difference right so as long as I get equal and fair access to airports and to licensing then I would actually say yeah let them burn if they're not viable let the best man win and the best man will win because they provide a better service the best value to their customers.

58:54Or they have the biggest balance sheet and can afford to make losses for long enough to put the other guy out of business. Yeah, that's cool too. But I mean, there will be someone who will come in and go, actually, I've got a really good pitch deck. Let's raise some money. Now I've got a big balance sheet because look, all I have to do is this. There's nothing stopping me getting the license. There's nothing stopping me access to the airport. I'm going to do it. I'm going to raise a bunch of money because they're making... All I do is go to my investors and go, listen, this guy's over there making a 30 % net margin.

59:21Okay. It's ridiculous. I think we could get a 15 % margin and still make this incredibly worth our time. Give me the money. You will get that return. Investors will go, how can you be sure that you'll get customers? Well, because I'm offering a much cheaper price and I'm offering the exact same service. And then the market will fix it all up. The failure of five airlines in the last 30 years doesn't make you think there is something. I mean, entering the market is one thing. Five have entered and five have been crushed. I don't know. You can look at that market and say that's a competitive market that seems to be working.

59:50It seems to be a market that's... We're talking about airlines because we're talking about wrecks, but the concept continues. I think if a third, fourth, fifth player can be sustainable in those markets, that's a competitive market, where competition is rewarded, at this point, you've only got to be stupid enough to put money into an airline to get one up. You're right. You can raise money, sure. But if it's never, ever, ever successful, at what point do you say the market dynamics here are not working in the favour of competition? Because every time there is a proposed, alleged startup, But putative competitor, they get put out of business.

1:00:22At some point, you look at the results and go, all the theory in the world of can someone enter? Yeah. Is it easy enough to enter? Well, it takes some money, but you can get a slot at the airport. You can get a license. Okay, you can do it. But if you can't succeed, if by definition, all we see is market power continuing to kill off competitors, I don't see how it's anything like a definition of a competitive market. Well, I think we've got a lot of data. I mean, you were flying anywhere in the 60s. I mean, only the rich could fly. Yeah. All right. Now anyone can fly. I can get up to Brisbane this afternoon.

1:00:53It probably cost me 200 bucks or something like that. I mean, it's insane. Well, not insane. It's great. It's fantastic. Same day, you'd probably pay 400 bucks those days, but go on. Really? I haven't flown for a while, actually. I'm a boy with a sword. Yeah, keep going. But that's the market doing its thing, right? Pricing signals are very important. Remember, money is a global coordination and communication system. That's ultimately what it is, right? So at points of extreme competition, we all fly interstate for$90, right? At points where that – because, again, it's cycles here. The pendulum swings sort of both ways.

1:01:25And at this point, it's swinging to a point where, yeah, that is the cost. And Qantas is going to have a good year. I don't know. I haven't looked at it. I'll take your word for it. You know? Is that going to be – I mean, history would suggest that they often have really, really bad years. and and over the grand arc of time we all sort of do better so i kind of think that's cool but i mean it's not that again it's i've got to be careful here to sort of say oh we just did this and everything's perfect absolutely not but but but i would but i would i guess i would flip the question around and say well what would you do would you come in and say no we need to subsidize rex because i think there's two that's just going to distort the system even more there's there's two questions i think my first the first question is does this it does it does a market with two consistent long-term players end up with more end up with good outcomes for customers i'm trying to find the way we're not just consumers because it'd be business to business if there's only two players in a market unless there is unless there is a meaningful chance of a third player being able to enter and be successful, more often than not, ends up with worse outcomes for customers and in our case with airlines consumers.

1:02:41So I would suggest to you that with very few exceptions, the difference between a natural monopoly and a natural duopoly is not that different. If we have a system where for seven, hello, 50, no, 40 years, 40 years probably, we've only had two airlines in Australia. There's never been a successful third airline in Australia over 40 years. And I would tell you at that point, it's possible that a two-player market is the most competitive outcome. I think it's much more probable that a two-player market suggests a overuse. I'm going to be careful with making allegations here. It suggests a use of market power that limits competition.

1:03:21I think if you haven't got a sustainable third player in a market, there's a very good chance. Woolies and Coles aren't that dissimilar, actually. I was going to mention them. Right, so they bought and put out of business other players. they are the most profitable businesses in the world. We said that last week or next week, depending on what we're up to with our pre-records. You know, those margins are there, not because they're wonderful retailers all of a sudden, though they are. They are absolutely taking advantage of effectively local monopoly, geopolitical circumstances, even with Aldi and others in the market.

1:03:50These guys are still making, you know, what I would suggest globally are profits that should not be this high, but for the market circumstance. So are we, as Australia, better off because there are two big supermarkets and others can enter the market. There's no defense. There's a couple of other small ones. Are we better off that if we had five or six, you know, regional competitive supermarkets and margins were lower? I don't think we can make that argument necessarily. You can twist it and say, well, maybe there's more supermarkets, maybe there's better service, maybe there's a better range or maybe something, something.

1:04:20I mean, there might be some benefits in having only two somehow. But I just think it's almost axiomatic that if you've only got two large players and they like third, fourth and fifth, or not at all in the case of airlines other than maybe Rex with a tiny little 58 planes doing their mostly regional trips actually. It's not even really direct competition because they're flying to Taree and Mount Isa and wherever else they're flying. I think it's almost axiomatic at that point there is not enough competition in the market to actually have proper outcomes for a business's customers, in this case consumers.

1:04:51Yeah, but despite that advantage, they've still not made money for shareholders. but Qantas is the most profitable in the world there's no surprise that Woolies and Coles are more profitable than their competitors Qantas are more profitable than their competitors what is the common denominator here it's a geopoly market where there is meaningful pricing power and relatively rational competitors you know we version of Qantas both say we're not going to add capacity we'll just have the planes full we'll cancel the ones that are half empty we'll just play along this game it'll be fine and when Bonza turns up or Rex tries to do too much or whatever we'll just tickle up the numbers and make sure they're not successful so we can keep raking in the dough.

1:05:28I mean, that's almost the definition of a duopoly. So what do you do? That is an open question. And it probably differs by category, I assume. Everything we're up to and including breakups, if you get to that point, I don't think we're there with airlines or supermarkets, but we saw the railroads were broken up, the telecommunications players in the US were broken up, basically to create competition where there's too much concentrated market power. um i they should have done more to reject or or modify recent takeovers willies bought safeway willies bought flemings uh you know iga bought franklin's it kind of it kind of just sucked up and sucked up and sucked up until there's only two left um so you there's probably a bit of emergent acquisitions that you do um airlines are a very different one because you do have limits to the amount of license and stuff and there's probably more room for for example international players to be flying domestically in australia there are limitations unnecessarily on domestic flights in australia i would i would lower those barriers there's no real need for there you go it's not not i'm open by uh run by whatever i'm not i'm not saying i don't even know the answers mate i just but i think it starts by acknowledging that there is a undue concentration of market power which probably ordinarily more often than not leads to uh higher profit than otherwise be the case at the expense of consumers or customers and if that's true then then the aim of or the role of an ACCC or someone else, including policymakers and legislators to say, hey, this isn't working.

1:06:58What can we do? And that's probably different with every industry to say, actually, in this area, this should happen. That area, that should happen. We saw ISPs. The whole concept of the internet service provider was born by saying, we have a monopoly provider of cable. Let's add competition to a market by allowing people to take part of that. So is it, I don't know, you don't do it with airlines, but there are different options available to regulators and legislators, I think, to make a difference. Yeah, I mean, I do agree with that. I just think that too often it's the first order thinking response that gets done, you know, which just makes it worse.

1:07:35So, I mean, again, I would come from the foundation of what do we need to do to allow more competition to flourish? Yes. Not, hey, let's give them a giant subsidy. I have not for a second said we should subsidize them. No, no, no. I know you're not. I know you're not. But too often that is the response, right? Yeah. Which just makes it much, much, much worse. I mean, I've whinged to you before. It's just like the absolute nonsense of the AFSL, the Australian Financial Services License Requirements, which all it does is protect the big guys. Yeah. And it's like, wait a sec, don't you want more?

1:08:15I mean, do we want to have an open, like do you want it to be like the crypto market where every idiot offshore Ponzi scheme can come in and start flogging unregistered securities? Like, no, we should have regulation. Okay, great, I'm with you there. To get that regulation, do you need to spend literally hundreds of thousands of dollars, have really high-paid lawyers and do all this other kind of stuff? Like, whoa, that doesn't actually – actually, counterintuitively, all that does is entrench the power of the existing people who have the resources to do that. If anyone out there is thinking of getting into the game that you and I are in, good luck.

1:08:52You know, it's like it's nigh on impossible unless you have very, very big backing from entrenched players. And so it's just like, well, what do you do there? Well, you make it. There's a company on the ASX called Novati, which I won't go into the – but they tried to get a – I mean, it took them forever to get a banking license. I mean, just like, wait a second, shouldn't we be doing – should we let anyone come in and start lending money? No, no. I'm not saying that. I'm not saying that, right? Yep, exactly. But are the hurdles so ridiculously high? I mean, this is – I guess my point is that can something and should something be done, to your point, in certain circumstances of objective market failure?

1:09:41Yes. You and I are on the same page. Yep, yep. And I know you're not saying this. I'm not saying that you are. That's when you're going to go. But too often the response, the cure is worse than the disease. Throw money at it. Yeah, exactly. And then it just distorts things even further and actually just helps the incumbents even more. Correct. Because they all bank the subsidy and then try to make money on top of that. So you're basically just fattening the profit margins. There's no requirement to give that back if something goes wrong or it doesn't work. I think that's true, mate. I think that's the, I 100%, again, as always, we're kind of slightly different perspectives, but end up in the same kind of situation.

1:10:19It's a very challenging situation to try to resolve without knowing what the right solution is. But I do think it starts with the understanding that markets do become, can become counter or anti-competitive and that solving for that is worth doing. and then we get into as you say what do we do about it how do we make it work what is the result AFSL is a great example right like I'm a big fan of the AFSL regime for what it's worth but the fact it costs upwards of tens and tens and tens and tens of thousands of dollars and takes six months just to apply right and you kind of think you know there's no that's not required for the rules to be followed so it's not even necessarily it's the it's the you know sometimes the calcification of the process rather than the objective and sometimes it is worth saying hey we agree with the objective but the way we get there is broken let's try and fix that yeah yeah agree that's a big podcast mate will you come back on Sunday mate you know I will I love I love I love these discussions we will get stuck into the mail bag until then 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.

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