Shock! Banks call for a reduction of the lending buffer. October 25, 2024

28:46There are no shortage of former religious people who have been guilty of having done wrong things during before and after. Oh, I was going to say let us count the ways, but we don't have time. But yeah, absolutely. I tell you one thing that I find really peculiar in the case of Chris Ellison at least is allegedly is I can't fathom being worth more than a billion dollars. I know. Yes. And taking the risk. So in other words, had he paid every single cent of tax that was ever, like you're still richer than writers. It's a rounding error. If you approximated his wealth to two decimal places of a billion dollars, you wouldn't see it.

29:30Yep. To three decimal places, the last number would have changed by one integer. Yep. Now, he's not going to go to jail, right? He's not. because rich rich people don't go to jail let's be real um you know it's depressing is that i mean when when the ato came and knocking it wasn't like this is what's going to happen it's like no they entered into negotiation it's sort of like oh you're allowed to do that like we'll talk about what fine that you you should pay i was like can can i commit tax fraud allegedly and then and then and then we can talk it out or i i'm pretty sure i don't get i'm pretty sure i don't get that.

30:09Well, here's the problem with tax law though, mate, just to that point. The stronger the case, if I have to pay 38 % on my tax, I pay 35%. The math is pretty straightforward. When it's a complex web of companies with an uncertain outcome, I mean, in the event he's admitted it, the ATO's accepted it, they're done. And this is a problem with regulators more broadly. The ACCC is the same. We think you've done the wrong thing. Yeah, well, I don't think I have. Well, let's go to court and find out. or you could pay us a fine. I get the scalp and some money. You get to take away the risk that you go to jail or there's a bigger fine.

30:43This is the problem. And I know that people will say courts have settled cases to minimize court time and maximize certain kind of rubbish. But that's, I mean, maybe it's partly because he's rich. I'm sure it's partly because like we've got 15 people working on this case and it's stupidly complex. And the law, the court may or may not find in our favor. If we can get a settlement, we'll take it. And they've got incredible, he's got an incredible, well, this is what the money affords. When you're very rich, you can afford the QC who's$25 ,000 a day and, you know, we'll get you, you know, again, just to throw ourselves completely in hot water would have gotten off, allegedly, if he didn't have the legal representation he did.

31:19I doubt it. I doubt it very much. And so, I mean, that's, it's so wrong, but for so many years. Or by the way, if you got off because you have the right representation, other people who would have been found guilty who shouldn't have been. Right. Should have got off. I mean, the point is the double standard. Not that he's necessarily guilty, but for better representation. But to your point, if he didn't have any and he was found guilty, if the difference was the quality of the representation, that's the problem with the system. But just to my point, though, I just, I can't fathom taking the, I guess that's the, there is a lot of these people have a bit of a God complex because they, you're surrounded by yes men and sycophants.

31:54And, you know, you just have a demonstrated history of being able to get what you want when you kind of want it. You know, no one sort of lands in that mindset in year one after becoming wealthy. But after 20 years of that, it takes, I'm sure it gets to the point. And so it's more of I can, so I will. And I don't think that I'll get caught. And if I do get caught, it's a slap on the wrist. And maybe that's why you take the risk. And it's a massive universe, right? You've probably got this self-inflated, well, allegedly, not about, let's be clear, not about Chris Ellison. People in those situations can have inflated senses of their own egos and importance.

32:28They're so used to being in charge and running things. I look at the government and say, they're not running it very well. I'm within my rights to pay less tax. If I can, I should because I can get away with it and all that kind of stuff. And yeah, we end up where we end up. But still, my initial point stands is that I just can't fathom taking the risk, however small it is, when it just makes zero difference to my life, like zero difference to my life and my wealth and the means I have available to me to do what I want. Anyway, greed gets you at all levels, I guess. That's the thing, right? and I was talking on Twitter this week fascinating difference between this is going back a few years for those who are old like us Kerry Packer and Rupert Murdoch when they were both the two dominant media scions in the country and it was all about media right this before they moved on and Rupert Murdoch famously bet the company two or three times each growth from the other advertiser to News Corp from News Corp to Fox bet the entire company if it had gone badly he would have been effectively it would have been over and Kerry Packer famously said he would never bet the company he just wouldn't do it and it's just interesting because i think most entrepreneurs are like murdoch more than packer and probably interesting that packer was inheriting a family media dynasty from his father uh yes ruper murdoch you know inherited from keith murdoch but it was one newspaper so maybe there was less to lose maybe less of a an expectation less of a family kind of uh responsibility or whatever but yeah really really fascinating oh musk did the same just quickly i mean yes he's the richest person in the world he he took the paypal money you know bet all of that and just just but he went into the casino put it all on black and left it on black on one to twelve like it was exactly right it was yeah these were not these were not even 50 50 odds at that point there is there is again i the musk is a whole other topic of conversation but it is just yeah exactly but with with those kind of people i i do think that sometimes it teaches the wrong lesson what you don't get is the silent in history like someone got incorrect again it's not just again humans are complex right so like hard working yes smart yes talented yes all of those kinds of uh things but but there's people who were equally talented who went to zero like probably statistically like more likely than not but you you don't see them no one's written a biography on you know bob smith who was ten times out of iq twice that of musks and all these brilliant you know just the fate of the Smith Electric Vehicle Company in 2012.

34:54You know? And then you read the biographies, oh, I've got to be like, Musk, I've got to do this because that's how you succeed. It's like, is it? Or did they just, like, combined with their talents, also get incredibly lucky at the same time? Yeah. Hard work, talent, it's necessarily not sufficient. That luck and circumstance. Steve Jobs doesn't invent, doesn't rescue Apple if Wi-Fi and Gorilla Glass doesn't exist. Yep. you can't make the iPhone unless you have glass that's tappable I know that sounds in hindsight well of course there was always I mean the BlackBerry existed as a hard keyed phone had Gorilla Glass been a decade later Apple goes broke in the meantime yes oh maybe it doesn't the iPod maybe gets him across the line but you know the idea of tapping the glass to select something not having a keyboard visionary hugely visionary but circumstantial you bet well if it wasn't for him it would have been someone we'd be lionizing someone else right now who we don't know of and history will never record their name correct correct correct um last one on this one mate for me ceo wise is for all of the what should we do what's right and what's wrong the other thing we have to account for i think is the market reaction and this is the kind of second order thinking question that i haven't necessarily even got a lot of answers we don't have today um so i don't have an answer on but turns out whatever i think about wise tech whatever i think about richard white whatever i think about chris ellison or mineral resources The share price has been hit pretty hard by these things.

36:22There are newspaper column after newspaper column for both men to resign or at least temporarily step aside. I am not as confident as you on these two companies that they don't need these guys at the helm to be as successful given where they are in their histories. Mineral Resil is still making big bets. The sort of bets you can make getting a lithium, for example, which I don't love, but they might be right. The sort of bets you kind of have to be a founder owner to make because very few professional CEOs are going to bet on a left turn or right turn unless they're in real trouble. At WiseTech, how much of the culture, drive, passion, all that sort of stuff is driven by Richard White?

37:00I don't know. But I'm not convinced it's zero and I'm not convinced a professional CEO would do as well because we've seen that change, right? So we've got the – there's part of our thinking that needs to be, do they deserve to be sacked or not? Don't know. Should I invest ethically or not? Don't know. But also, what does it mean for the company? If the public response, the public opinion, go back to Albo's house purchase, right, didn't change public policy one iota, and yet the optics, as they like to say, were meaningful. The optics here are pretty ordinary. If these guys are forced out, and I'm a WiseTech or mineral resources shareholder, and they are more important than some I give them credit for, it's not a zero-sum outcome, right?

37:39I mean, whether I think they did the right thing or the wrong thing, if they do go, they're gone. I don't get to then put my version of morals or ethics on top of this. I've got to deal with whatever the board and shareholders decide that has to happen. And I'm kind of a bit torn on this, man. On one level, it's a shareholder democracy in action. It's what should happen. On the other, I am a little bit concerned. I don't want to get into kind of political speak or any of that kind of horrible social media jargon. But there is some element of kind of the big super funds in particular and the proxy advisors kind of getting into that realm of what should we be seen to be doing rather than what's best for the company or what's best for the shareholders.

38:19The super funds may say, this is icky. I would rather not be icky because I might get tarred by association. So let's just get rid of it and deal with it later. Maybe that's the right thing to do. But if it's not, and they're doing it because the optics are better, as a shareholder, I've got to kind of allow for that too. Yeah. This is why ESG is so hard. Yeah. I've heard that card being played. It's like on ESG grounds, you know, super funds or whatever should divest on that. And again, it's just, I get it at a broad level, but when it gets to the business end of things, like, well, who decides what's ethical or not?

38:52Because, I mean - And that investment hurts me even if I'm not part of it because the share price will, if super funds choose not to buy WiseTech anymore. Right. You know? Yeah. There are whole departments in every university dedicated to people who have been wrestling with these ethical conundrums for, like, thousands of years. There's no easy answer to these things, you know? Right, and it's a whole field of study. Yes. I think especially, you know, it's one thing to say, you know, I will agree with most laws, disagree with some, but the law is the law that's got to follow it. That's kind of arbitrary, but it's fixed and reasonable and generally fair.

39:25Yeah. When you have this idea of, well, it's not illegal, but it's unethical, and therefore there's going to be these swathes of people. You need to have a place to shoot. Philosophers are wonderful people. I'm glad they're around because they kind of wrestle with some of these ideas and help us be more kind of aware as a species. That's a good thing. Yeah. When you start to take some of that stuff too, and therefore the arbitrary decision as a result of some of that current thinking by some of those people who others disagree with is X. And therefore it's going to impact the company, the choice of CEO, the share price, the future of the business.

39:53I'm with you, mate. I find it really, really – again, I'm not anti-ESG. I'm not anti-people using their own ethics. You've said stronger than me before that knock yourself out. Buy what you want, don't buy what you don't want. But when you've got this kind of organization starting to make these – Don't force it on me, right? That's what I don't like. I don't need – And even when it aligns, it's a slippery slope. I don't like it when there's some central authority that's going to tell me what is ethical. Again, there are some like murder, rape. There are some things that are just kind of like, there's black and white.

40:24There is a red line. You do not cross that, obviously. But then again, as I say, there have been very smart people for thousands of years debating this. They haven't worked it out yet, right? There is a huge shade of gray there. And it just, when it starts impacting business in this way, it can kind of, the pendulum swings too far in either direction. Gets to a point where it's like, laissez-faire, do whatever you like type thing. And that's, well, I'm not on for that. And then there's the other, you know, people would sort of label it as sort of like, you know, wokeness gone mad. Right. Where it's sort of like the CEO has to.

41:00That's why I'm trying to avoid some of this stuff. Exactly. Yeah, that's right. You know, and it's so tricky where I feel at a point it's just sort of like, is it legal? Is it not? Operate within the bounds of the law. And if we've got a problem with it as society, we need to sort of legislate it, debate it, all of that kind of thing. It's like having the offshore tax havens. I'm so against it. I'm so against it. It's such an obvious con. It's so obvious. Hello, Santos, if you're listening, by the way. You know? Allegedly. And they're like, where is he so as a nation being taken advantage of? but at the same time I look at them and I go well there's a game theory dimension to it it's like well if we don't not others will, others are so we're competitively disadvantaged if we don't and if I can legally do it then why would I not and our responsibility as directors is to maximise performance for shareholders so we're only acting within our within our mandate here and so for people to go but that's wrong it's like well yeah I agree but talk to the government, right?

42:03Exactly. They're the ones who set the rules. So, I don't know. We think you should fix it too. Let's fix it. But don't blame someone for... Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

42:19Can I get one that we prepared earlier, mate? Because this is fascinating. And I've... I'm not very... I don't... It's so much easier, right? It's just choose your political side and kind of just, and your illogical side, just kind of yell about that because everyone loves you and it's all fine. Hello, Vivian Thorpe, if you're listening. That's not for a bit of controversy.

42:40It's just easy to kind of blame this. And when I do this, when we have this conversation, I'm going to do radio, media or whatever, TV, I kind of try, I'm always mindful of like, I'm going to give you the complex nuanced answer and a lot of people are going to hate me right now and throw things at their proverbial radio and TV. Qantas. So Alan Joyce, allegedly, supposedly, the worst thing since sliced bread. A lot of, by the way, some subtle racism here. A lot of Irish kind of references and leprechauns and all that kind of stuff, which is really unsavory in general. It's kind of okay because we think it's okay.

43:08He's rich, but it's a bit uncomfortable a little bit of time here. Considered a terrible CEO, baggage handling issues, sold tickets on flights that weren't supposed to take off, sacked people who couldn't have sacked, all that kind of stuff. And at the same time, delivered Qantas a record profit. And you say, well, he forgot the record profit by doing the wrong things. Okay, fine. So since then, the ACCC settled its case with Qantas. They weren't allowed to sell tickets to flights that were never going to take off. Surprise, surprise. We found out this week they're going to have to pay 1 ,700 workers, more than$100 million in total, because they sacked them when they shouldn't have.

43:41Cool. Fair enough. Good. Good. That's solved. That'll be, by the way, when you read the next report, there'll be a significant non-recurring item. Non-recurring item, exactly. And profit will be reported as normalized or underlying. You know, so they didn't have to pay it. Well, no, they did. but it's not it's non-recurring is it definitely non-recurring well don't look at that here's the here's the right yeah that's right there is something i look i'm actually a big sorry to digress but i'm a big fan of normalizing and looking at underlying because you do need to get to an underlying truth and there are there are some things that are genuinely one-off and you know i think you you can exclude but boy do companies take advantage of of uh uh of that potential.

44:23Normalize, recurring, yeah, exactly. Non-cash is the favorite one when there's a massive write-down. They go, we're writing, we're writing, we were carrying this asset on our balance sheet at$20 million. It turns out it's worth zero. Don't worry, it's non-cash. Oh, phew. So we didn't lose any money this year. Not this year. Exactly. That's right. What? I mean, it's just like... We wasted the$20 million last year. That money is gone, right? Real money was spent and evaporated. It's absolutely a cash loss. The equivalent Someone that was buying a lemon car for 10 grand last year, and then this year you send it to the wreckers, say, it's okay, honey, we didn't lose any money this year.

44:59Yep. That's exactly what happened. But we spent 10 grand on the car. Yeah, but that was last year. This year we didn't lose any money. Well, some companies are just like every other year there's a non-cash write-down. But don't worry, it's non-cash. It just sticks in my craw. Anyway, go on. So back to Qantas. And for all of that, for all of that, the Qantas share price is, as of this week, at an all-time high. Can I eat some humble pie on that too? It's not just for everything that you're saying is like, that's interesting. But if you've gone back 10 years ago, in fact, dig up podcasts that you and I have done 10 years ago.

45:35Has it been 10 years? God, it must be close. No, it must be close. Go to episode one and there'll be you and I saying what a rubbish company Connors is. By the way, the last 10 years, it's gone from$2 to almost$8. It's like nearly 4X'd in that period. So don't listen to my advice. I guess is the takeaway there. Well, I'm not sure we were wrong in our thinking, but certainly wrong in the outcome. That's a different question a little bit. The reason I bring it up, mate, is because we just finished talking about the wrongdoings of companies. And we're talking about alleged wrongdoings of people in their kind of entirely and quasi-private lives.

46:10This one was all the PR grief. Everyone hates Qantas now. No one wants to fly Qantas anymore. If you listen to the newspaper headlines, if you listen to the talkback, if you listen to the people writing into the newspapers, letters to the editor, Qantas is terrible it's going to go to hell it's a terrible business haven't invested in the brand they've done this they've done that Alan Joyce said dodgy little leprechaun all the stuff that come out right and yet Qantas is at an all time high and I just think it was an interesting and again I've heard of this during the week because I'm an idiot and I just I don't like courting controversy but I kind of feel like nuance is important right and no one's ever really popular for putting out nuance because we all like Team Red and Team Blue and Team Red isn't great sometimes and Team Blue is okay sometimes not other times there's not many people in the center right you don't you don't radicalize people to the nuance you radicalize people to the extremes it's easy to say our interest is terrible or hey quantos you make a fortune the the the the uncomfortable bit the middle is for all the stuff that people would have said this thing happens or happened therefore quantos is clearly going to make less money is worth less we're just dead wrong you and i had a different view on quantos i still hold that view by the way maybe i'm gonna be wrong again but not because of short-term issues my my argument here is that the people and this is it's got between our biases this is confirmation bias writ large right i don't like what quantus did therefore i think quantus should suffer therefore i wouldn't buy quantus shares because they're going to make less money and that's just it's just not the case fundamentally not the case in other words the things they did wrong don't actually matter and if that sticks in your core if that drives you nuts i apologize in advance and after the fact and during the fact for that being true except it's still true And this is where we've got to be careful to see the world as it is, not the way we wish the world was.

47:54Does Qantas deserve to be worth less because they've been run in a way that isn't perfect? Maybe. Think about call centers. Qantas in particular, by the way, but any call center. They're rubbish, right? They're terrible. And why are they terrible? Because companies have made an objective decision that being terrible is not going to cost them business. They are going to save more money in costs than they're going to lose in revenue by having terrible customer service. It just is. right i've said this before i dealt with a major insurer had an awful experience but i'm one person they got it resolved eventually for the other 99 of people it's just easier to have a crappy customer service and an app and be done with it because most people won't have a problem with it won't complain why would you create a cost structure that allowed for the exception rather than the rule you'd happily lose one percent of your customers who cost you more than they make you because you don't want them and the others who don't give you any grief you help you keep them and keep your costs as low as possible.

48:48Now, that might feel unethical, speaking of unethical. It might feel crappy. It might feel like the world shouldn't work that way. There's a lot of things it should or maybe do feel like. But the Qantas example, and look, it's a single example. It may have been worth less at this point for all we know. But it's just worth remembering that that is the reality of the world that we're in. Not everything you think should count actually counts. And in the Qantas case, for everything that's gone wrong, for everything we think we wish they were different with, the business is making record profits and is more profitable sorry more profitable more valuable at 12.23 billion dollars than ever in its corporate life because of that yeah and that's where the signal the noise matters lots of signal i'm sorry lots of noise pr disasters baggage handling customer service weight lines discounts covid handouts by the way um throw as much of that rubbish as you want at them i'm not saying again i'm not making i'm not passing judgment any of those things i would have done things different i would like them to do things differently turns out what they did is actually been value generative for the company and for shareholders not everything you think should impact the share price does yeah i mean well we'll we'll see some sometimes you can make things look really good for a few years by just cutting everything to the bone and until until it does come and i don't want to suggest that's necessarily the case yeah Yep.

50:10Yep. It's absolutely true. Yep. It is. I, I, I find this just to broaden that out a bit. I find it hard when I'm looking at companies that have a product or a service that I don't directly use or I don't like. Yes. Yeah. You know, uh, after pay might be a good example here. Um, in the sense that I never used it. I never felt a need to, why would anyone do it? And, and that kind of thinking can cost you a lot as an investor because it's not about you. it's not about you right and i think it's it's one of those challenges whenever you're trying to be objective is to take your own worldview out of the picture the question is and the only question really is for an investor is is this company earning more on a per share basis over time and does the price accurately reflect that however that's done whether it's appropriate where the rules were, you know, there's like, there's all, as you say, a lot of nuance underneath all of that.

51:09And I'm certainly not saying that some of them aren't super important and well worth discussing and debating, but that's kind of the only North Star that really matters. And there are all kinds of companies doing all kinds of things that I am vehemently against right now, but have made absolute fortunes for their shareholders. You know, and so it can, I guess the broader point here is it can blind you and it in this case look i'm not losing any sleep over it but maybe there's a there's a potential for some self-reflection for you and i to kind of go well actually even like okay what is it quadruple uh 4x over the last 10 years in quantus even over the last 12 months let me look it up uh we went from 480 to 780 that's a hell what's that 80 percent something like that return have i has my prejudice bias whatever you want to call it cost me money potentially right question yeah it's a really good question and again like you know i'll probably say well you know money was elsewhere and that still did okay and the rest of it and i still think i made the right decision and time will tell you but but but but also but also i do know that as i say those things am i just protecting my ego or am i it's really i don't have an answer here but i just I try to, I say it because I think it's something to be alert to.

52:31And just to double down on your point here in regard to Qantas, like everything that you would think is right and just that should happen to them as a consequence of their actions didn't happen. And why didn't it happen? Because the people who owned shares weren't prepared to let go of them below a certain price. And those who wanted to buy shares were happy to meet them and pay that price. Were they right? They were wrong? Well, there is no right or wrong. It just, it is, it is. it's what it's what happened you know and it's it's sort of like by by clouding your judgment too much with some of these other considerations it can cost you as an investor the only the only relevance really from and again i know i'm being brutally mercenary here and i want to suggest for a second that these factors don't matter to me but just just just from the pure investment lens here the real question is it only matters if you think it's a keynesian beauty contest right It only matters if you think it matters to enough other people.

53:27Yeah. And that's a lot harder to sort of answer. Exactly. You know? Yes, exactly. Anyway, it's a tough one. It is. It is. And I'm not, again, yeah, we don't know what might otherwise have happened. So, I'm not making necessarily a judgment on that. But it's just worth thinking through in the context of the wise tech and mineral resource issues. the result from Qantas or what may have otherwise happened given different circumstances. Yes, absolutely. While we're being controversial, can we go to Woolies and Coles? Yeah, sure. I find this really, really... It's fascinating from many different areas.

54:07This is largely, a bit like some others, this is largely a PR war, right? It's not really about the results because whatever the court case finds, if Woolies and Coles are guilty of something, they'll pay a small fine and it'll be fine and what a move, get on with things. If they're not responsible, people still think they're responsible anyway. So this is very much more of a PR issue. And we'll still shop there anyway. Well, yeah, that's actually the Qantas thing, right? That's exactly right. So you can't say, what's really at stake? So look, the story is, William Cole's first accuser of price gouging, that went nowhere.

54:36So the ACCC came back and said, well, you're not price gouging, but you gave discounts which weren't reasonable discounts. You had a lower price, then you put the price up, then you put a discount on it, and when the price reduced, it was still more than the original price, therefore it's not really a discount and that's kind of true as far as it goes i've worked for woolies i've worked for grocery supplies more than a handful of them about a handful actually um and so i kind of know a bit about this but basically woolies and colds this week came out said actually we didn't put the price up because we wanted to make more money we put the price up because our supplies came to us and said dude we're paying more for beans and the baked beans can we're paying more for the can we're paying our stuff more we're paying more for freight we're paying more for electricity, we're paying more for insurance.

55:17This thing costs us more money. We're going to lose money if we don't put our prices up. Now, I know for a fact, Willis and Coles never, ever, ever say, okay, fine. Like, no, no, show me the evidence. We're going to put the prices up. Why? Because they know how much they're going to get blamed if it happens. They've known this for years, right? If they're the ones who put the price up on the shelf, it doesn't really matter why. They're the ones who get whacked with it. So they will come back to the supplier and say, nope, you're not having a price increase, or you can, but it's going to be half of that, or show us the money, show us the data.

55:42In any case, that's what Willis Coles this week came out and said is the suppliers are the ones who put the price up. Now, I'm sure we've had this conversation before, mate, so I won't do it in too much detail, but effectively, here's what happens in the supermarket world. The supplier sets a price, the supermarket set their margin, and that's how they work out the shelf price. Subsequently, when the price goes up, they simply do the same thing. Supplier says, it was$1. Now it costs$1.20. Well, he said, okay, well, I was charging$1.20. Now I charge$1.40. I'm just making up numbers. And the supplier says, okay, cool, thanks.

56:12And the supplier comes back and says, actually, we'd like to put our baked beans on special again. We're going to give you some money because the suppliers fund the discounts, by the way. Speaking of people who get screwed by supermarkets, it's not the consumer. It's the supplier. But so they say, we'd like to promote baked beans. And we'll say, well, I'll drop the price to a dollar for you on special. But you're going to give me 40 cents to do it. And the supplier says, well, I really want the sale. So I get here some money. We'll just put it on sale for 99 cents. They sell 10 times as much as they normally do on a normal week because we all have a special.

56:40And normally everything's okay. The challenge here is that discount, I used an example where the price was lower than the original shelf price. Some of the shelf price went up 40%. And they give a 10%, 20%, 30 % discount. Now, the discount's real. The new shelf price is higher. The discount is a reduction on that. It is a genuine reduction on a genuine shelf price increase, which is fine. What people want to do now is look at the current discount and say, hang on. I'll go back to my baked beans example. It was$1.20 on shelf. Now it's$1.40. You're selling it at$1.30 and saying it's a discount. i this is that's why this is why it's a pr war this is an optics is the word of the week word of the month probably word of the year is it really a discount or not well yeah because if they didn't promote her it would still be a dollar forty can you really claim it's 10 cents off if the price previously was higher than that this is what the court will decide and we don't know how the court will decide by the way the problem is it hinges on some really very loose wording like reasonable length of time that the price has to be up before you can discount it again But here's my question is, what would you have the supermarkets or the suppliers do?

57:40Do you really want to pay more for your baked beans because you don't want them to put a discount on shelf? And no supplier is going to give a discount, not claim a price discount, because if you don't do that, why would you bother? So it's a really, really, really difficult one. Again, I've been on both sides of this particular fence, right? I'm not here to defend the supermarkets. If anything, I think the supermarkets should pay more to suppliers because they're the ones getting screwed. The multinationals are okay. The poor farmers are getting absolutely smashed and plenty of small suppliers.

58:03There's a couple of gone broke recently. More will go broke in future. um it's a really tough game right so i'd be happy for the supplies to get a bit more we'd pay more as consumers not less uh so i have some sympathy for the supermarkets in terms of being blamed for what's going on maybe they should have kept those short prices higher for longer i dare say in future that's exactly what they'll do i'm just far from sure it actually is a benefit to anybody because as you say we're going to shop there anyway it's going to have to wait longer until our favorite baked beans are on special and i don't know how that's actually a benefit for me as a shopper i find the whole thing if anything they're getting a benefit of each other well he says discount coles doesn't so you go to woolies coles discount willie's doesn't so you go to coles we're going to shop one of them anyway the price is gonna be the price anyway i don't know mate i'm out of step with public opinion here but gee it feels like a beat up yeah oh it's just an easy target it's it's the most visible thing that gets attacked you know and then when you go and i mean we all go to a supermarket right very few of us are you know growing all our own veggies we all go to a supermarket we all see that cost of living impact it is the focal point isn't it it is the focal point it's why petrol prices get so much attention it's just so visible but to me it's just a massive clown show it's just it really the suppliers are putting their prices up because their input prices have gone up this is why inflation is so awful you know it is and and again look not to go down there but it just like it is so convenient for the government who sees an angry electorate to go we're going to pick on them even though i would argue that they are this they are they are the root if you really want to dig down into like why have we had inflation it's because of your policies now i don't know if that was still a better than alternative kind of thing but but let's face it it was because you guys printed up a bunch of cash that that's why we've got just hard or otherwise this is what's going on i will Also, very quickly, mate, sorry, just to interrupt, it's international as well as domestic.

1:00:00It's not just the Australian government. It's not just the Australian government responsible for Australian inflation. But yes, you're right. Whether the decision were right or wrong, decisions were made and we're now living with the consequence of those decisions and the lack of decisions to fix it in the aftermath. Yep. We said as an electric globally, we don't like recessions. Recessions are bad. And the government said, okay, we'll get rid of them. And they pretty much have, right? Yeah, yeah, yeah. Very effective. I mean, the seven-year cycle, which was, as we were sort of cutting our teeth, was gospel.

1:00:29Like, on average, you'd have an economic cycle with the last seven years. We haven't had a recession since the 90s. Take off the blip of COVID, the economic blip. We haven't had a recession. It wasn't a consumer recession either. I mean, it was GDP fell, which is the definition. So I don't want to paper over it. But the reality is it wasn't a recession in anything other than name. Yeah. So they said, well, that's what you want. That's what we'll give you. And they've done it just by monetary means. And it's sort of like, again, there is no free lunch. It's one of the core lessons of economics.

1:01:00And we much prefer the invisible, slow pain of inflation until it's hard to ignore, which is kind of where we are at the moment, to the brutal, very visible recession. And then when we say we ignore it, we prefer it. We still do. yeah that's that's even now when we're when when i'm saying to people gee the inflation's a bit high it would be nice if the government had stopped spending and the ova put rates up a bit earlier people are still saying to me oh don't you care about jobs so that we still we still prefer the seemingly and to your point it's not it's not um not blameless there are there are people responsible for it but it feels less caused by someone than interest rates because you can look at interest rates say michelle bullock put those rates up phil low put those rates up they are responding food put inflation up well it's complicated nobody and everybody and baked beans went up five cents and petrol went up five cents and they go out five cents last month as well but no one actually said hey the price of baked beans are five cents higher because i'm the i'm the head of the you know pricing agency of australia so it doesn't really get caused by anyone and we still even now are saying i would like higher inflation please i'd like lower rates i'd like lower unemployment um because i can i can put a line on that and say that's caused by someone yeah i we say it all the time mate i'm not going to get to your biases paper but i do want to get back to it at some point maybe maybe we'll kick it off on sunday um but if you if behavioral finance is all there is you reckon it's all about the money and you're probably right it's also all about behavioral psychology that that tells us everything the things that we well the behavioral stuff manifests itself through the money right right i would say yeah and and outside that but yes i mean that's it is all behavioral it is those our inability to understand ourselves and each other that is fundamentally at the root of this because that governs the decisions that we make out of i'm not perfect i'm not i'm not i'm not and the slightest bit immune from any of these myself by the way i'm not saying you are all the problem i have the solutions but when you when you at least understand it you see it in yourself and you see it in others yeah that is not something if you don't understand it you keep blaming other things uh that simply you know is are easier to buy there's of all you've got three parties you've got money printing you've got federal budget deficits and you've got supermarkets who do you reckon is least responsible in that case for inflation and the answer is easy right except so easy it's very hard to explain monetary policy in the newspaper or the radio and talk back it's very easy to say my price of tim towns went for four dollars to five dollars i want to go and you know find someone to hang yeah it's it's you know and again understandable totally understandable but a little bit of self-reflection a little bit of understanding of the psychology of this stuff is a massive, massive way.

1:03:39The best way I've come up with to explain it is just as simply as I can, there is so much stuff in the world. Add up all the stuff and then add up all the money, right? Yeah, right, exactly. One is the measuring stick for the other. And if you relatively increase the amount of money relative to the stuff, and that stuff includes capital equipment, which is just a fancy way of saying stuff that you use to make other stuff. You know, there's only one mechanism that corrects that change in balance, and that's the price. It's the only thing that can change. Correct, exactly. It's the only thing that can change.

1:04:15Like a three-year-old can understand it. It's just like we're all playing Monopoly, except every time you pass go, I'm going to give you$1 ,000. What do you think happens? Like, I mean, there's no more park lanes. There's no more Mayfairs, right? Like that's why you get inflation, period, full stop. I'm 100 % on Milton Friedman's side on this. It is always and forever a monetary phenomena. You know, that doesn't mean that prices don't change in the absence of that, other than my point being is that prices should change in regard to supply. And that's actually, that's the point of it, right? Fundamentally how it happens, yeah.

1:04:49It's how we coordinate this global, insanely complex economy that we kind of have. But if you can just wrap your head around that point, it is so fundamental as to just everything sort of flows from that. And I'm not saying there is a good argument to be had on, well, actually, we need flexibility in the monetary supply. We need to be able to create credit for people who don't otherwise have it so they can go on and create businesses. And this is a really good thing. You know, without that flexibility in the monetary supply, we don't have as much capacity to react. There's a whole depth of arguments to it.

1:05:27And I'm not even going to get into that. Yeah. However, it doesn't negate the observation that I'm making, which is when one quantity increases relative to another, there will be a change in price, all else being equal. That can be true at the same time. Yep, exactly. I think that's right. I will say, I think on top of the monetary stuff, there is fiscal and kind of timing differences that do matter. So over the absolute long term, you start with$100, you end up with$1 ,000 in 50 years time. That will drive it. In the short term, government debt, borrowing, and propensity to save versus spend also matter, which is more downhill than we've got time to go into.

1:06:02But I think you're absolutely right. This is where blaming the supermarkets is madness. Politically, very understandable, by the way. If I'm the government, I want to deflect attention. You bet I'm going to blame the supermarkets. By the way, they still haven't gone at the insurance companies. No. And you know what? I'm a million percent sure why. It's because, again, they're disembodied. We pay it once a year. It's over there and we can't put it in writing. The price of a Tim Tam versus the price of my car insurance for 12 months that I paid three months ago. It's just, it's just, it's pure focus group politics and it's everything that's wrong with our political system.

1:06:36Yeah. And that's the only point I would make is just don't, don't be angry. By all means be angry. I don't want to delegitimize, if that's the word, people's anger and frustration. They've got every right to be angry. Just be angry at the right people. Yeah, that's right, please. Exactly. Mate, let's finish off with, speaking of our favourite whipping children, the big banks. The Australian Bank Association has in its infinite wisdom and because it cares about our economy and the poor first-time buyers. Oh, they're so nice. Aren't they? So what they've decided to do is say to the government, look, I mean, look, there's a chance we possibly might benefit from this, but honestly, that's not why we're saying it.

1:07:14We don't really want to. I mean, we might benefit. We don't want to. Okay, we do want a little bit, but we don't want to. Anyway, can we talk about the first-time buyers? because they're the ones who are suffering here. And we would like to help. We would like to fix it. And we would fix it if we could, but the government's stopping us. See, what we should be allowed to do is not actually apply responsible lending standards for those first home buyer loans. The lending buffer that says, will they be okay if rates go up? That's nice to have. But if we took it away, if we didn't really care if they'd be okay, we could lend them more money.

1:07:45And I mean, that would help them, that would help them get to the housing market, right? Because if they could borrow more money, they could spend more money and make house prices go up. Anyway, but it would be nice if we could help them out. So, government, would you mind, would you mind, would please help us help them? Just remove this silly lending, pesky lending buffer that helps keep them safe. And can we just take a bit more risk? Can we just get them a little bit deeper in debt, please, for their own sake? How'd that go? They're so nice, aren't they? Aren't they? And the government will oblige.

1:08:17I've got, you know, I shouldn't be so definitive on it, but I'm just going to be so not shocked even when that kind of happens. Well, there is that too. You know, it just, where do you even start with that? Exactly. Where do you even start with it? And I get it too. Again, when you don't live and breathe this stuff and it's just, I want to buy a house, the bank won't lend me as much as I need. It'd be good if they did. Like, yeah, I get that. I really do get that. When you just, I'm not, it's all good to navel gaze and talk about these big economic sort of policies and stuff. But just like, I'm just trying to get by.

1:08:57I'm working nine to five, five days a week. I want to buy a house. I can't do it. If this was changed, I could. Does that have ripple effects and consequences longer term? Yeah, I don't know. I just want to buy a house. I get it, right? I 100 % get it. But it just, the irony of ironies is it actually doesn't help you. Is that right? It helps you. there's a first in best stress phenomena. So it's called the Cantillon effect or something. Economists have a term for it. But it's sort of like as the new money is introduced and new money is introduced with new lending, that benefits the people who are first because it hasn't had a chance to pocolate through the economy and do the things that we were just sort of discussing.

1:09:34So it does help you if you're very, very early. Other than that, it doesn't because just as with the first-time buyers, everybody just pushes up prices and you're back to where you started from. And the banks can lend some more money. So, yeah. Imagine that. Here's who it benefits. It's vendors who benefit. Yeah, that's right. I get to sell my house for a higher price. Yeah, fantastic. That's fantastic. There's no more housing. There's just more people who work. Speaking of, you mentioned supply and demand. All you do is say, let's bring more people to the party, but let's squeeze them into the same space.

1:10:04Yeah. Pretty much it. That is pretty much it, right? Yeah. So, it's a madness. It'll happen. But again, it is – this is – we said at the start, or I said, you've got to distinguish between the way the world is and the way you would have it, right? Yes. And the way that I would have it is very different to the way it is. But nevertheless, it is this way. And that is why when you – well, I at least look out and look into my macro crystal ball. I see higher than normal and longer than lasting inflation. I see continued deficit spending. I see continued indebtedness I see as bearish as I am on the housing market I just see that they'll kick this can down the road until it just collapses under its own weight there's nothing they can do they will because the alternative is just not politically palatable it's not economically even conceivable in so many different ways it's just it's kind of it's hard not to be I really don't try to be I know I am but it's hard not to be cynical It really is for all of the reasons that you've just discussed.

1:11:11It'd be different if you were saying, hey, look, a lobby group is advocating for its own self-interest, but it's not likely to get through. They're like, ha, ha, ha, bless their little cotton socks. That's right. No, they'll get there. I'll frame it this way. There's a good chance they'll get their way. And if it's not on this particular angle of attack, it'll be on others, whether it's letting people tap their super or whatever it happens to be. and it leads in a certain direction and I think as an investor, you need to either make your peace with that and plan accordingly or you need to have a very, very, very good realistic reason as to why things are going to change course.

1:11:50I'd love to have someone lay that out for me but I've yet to come across a good explanation other than, oh, it's all right. We're going to have this incredible unprecedented period of growth and it's all going to be nicely, evenly shared and we'll just all pay everything back and it'll be, you know, hold hands and sing Kumbaya. That's the only solution I've had that's been put forward. Wait up beer and Skittles, please. Yes, that's exactly it. Mate, I think we've probably done our dash. Hopefully we've entertained and amused and maybe even helped some people invest a little bit better. Hopefully we got you angry.

1:12:23That's what I want out of it. Yeah, I know. Be angry. And kind of, this is what I'm saying. It's kind of, I don't know how we radicalize people to the center, but that is the answer, right? Don't get angry and run for the extremes. We already know that politics is factoring in that. No one has helped from that perspective. Get angry about the policies, not the politics. Get angry about demanding better policy, not choosing a team to barrack for. Be on the referee's side, which I know it hasn't come naturally. When you go to the footy, you don't hate the other team as much as you hate the ref, right?

1:12:55But the ref's the guy keeping the balance and making sure the rules are applied and the game works as it's supposed to. That's kind of the point. So I don't know if it sounds stupid saying go and cheer for the ref, but the more people who do, the better the game. That's kind of the point. Yep, absolutely. Well said. All right, mate. We will cut it there. Let's chat on when you come back on Sunday. You're not too busy on Sunday morning with your feats of endurance, strength, and all-round impressiveness. I've always got time for both. I can do two things at once. Our listeners very, very much appreciate it, mate.

1:13:26Until then, enjoy the first half of your weekend and fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under financial services license 400691.