The beauty of the ‘affinity play’. November 1, 2024

27:45And, you know, like that is a barrier to entry for us. It just turns out that relative to other players of scale, it's not. So my point being is that if you were, you'll find a way to put the square peg in the round hole if you look hard enough and you'll convince yourself, oh no, there's a moat here. Remember an organization I used to work for, one of the exercises they would go through is like, right, what are the risks and what are the moats? was part of the process. Every company had a moat. Because someone goes, oh, well, they can do it. Oh, that's true. Yeah. And so it's hard. I mean, of course it's hard, right?

28:21Investing is hard. If it wasn't, we'd all be screwing. And business is hard. And business is hard, right? Yeah. So all of this stuff about moats is actually super legitimate. But also, you know, there are different types of moats. There are different strengths of moats. There's different durability of moats. It's hard, right? So you want them, but you also want to make sure that they're pretty deep, full of crocodiles, you know, not just something that's a little trickle around your castle that can easily be stepped over. That's a great way to put it. Hey, let's move on. Otherwise, we will spend the whole time talking about moats.

28:54So, again, look behind the scenes, listeners. Andrew said, should we talk about the US election? I said, yeah, we should talk about the election. Andrew's going, you know, there's no reason we can't just do like two minutes and move on. We have to talk about 40 minutes on every topic. And I said, no, there's never been a reason we had to. We just do because we can't shut up. And so we're going to try and do the US election in, I'm not going to say two minutes, because that's just stupid. We will try and do it in a relatively short amount of time. Now, you and I have heard a lot. No, you and I, not me and Andrew, but you and I, you the listener and I, us, we've heard and talked a lot about the US election, right?

29:24And should we do the US election? We both kind of went, no, let's not do that. And then we kind of thought, well, hang on. This is the last Friday episode before the US election. And we're not going to give you predictions. We're not going to tell you what's going to happen or what might happen or what will happen or what you should do about it necessarily except to say that if history's any guide come tuesday uh we might or when's our time i suppose we might uh well see some market volatility depending on who i don't know who's going to win i don't know what they're going to say we're not god knows what's going to happen with the american public after that there will be it's going to be a big week a big week there'll be wall-to-wall coverage hopefully you'll come back next friday uh we're doing a sunday episode of course but hopefully come back next friday for a break from the u.s ramifications and we'll probably mention it in passing but hopefully not for too long uh i can i can i share with the listeners mate just a bit of a dig at myself um i i famously in 2016 uh was sitting in uh the uh lobby of sky news when it was in north city macquarie park and i'm sitting there i'm there early i've driven into the studio i'm sitting there got the computer open working away before i'm due on air and i look at i'm looking at the news and someone's like oh hillary clinton raging favorite right paying a dollar ten to win the election or whatever the price was.

30:35And so I've gone, you know what I'm going to do? It's absolute shoo-in, right? I'm going to open up a Betfair account from scratch. I'm going to put$100 in the account. I'm going to make, it's only$10, but I'll make$10. I mean, are there any easier, is there any easier money to make than$100? Annualize that, right? Like 10 % annualized over the period. You don't have to annualize free money. It's like, someone's giving me a free$10 note. How hard is this? This is easy. Now, of course, we all know what happened after that. I did my dough and I think I've ever used the Betfair account since and I was probably an idiot for doing it in the first place.

31:04So sometimes you get what you deserve in life and I did then. I will say at the same time, we had, there was a journo who wrote, I'm not going to name them, a journo who wrote an article who basically said, I'm going half to cash in my portfolio because Donald Trump might win the election. If he does, he's just going to go to hell. Now you can have your own political views about Donald Trump. I certainly have mine. I've expressed them, not in a party political sense, but in a fitness for office sense. I probably won't bother going too much further into that today. But whatever you thought of his character or ability to run the country or subsequent decisions, the market went up on his election.

31:40Fell hard as soon as the announcement came out, by the end of the trading day or the day after it was up 2 % or 3%. And it was a reminder back in 2016 that the risk that this journo saw simply didn't eventuate. And in fact, the market went up. And so often, and we say this regularly, there are a million risks, a million negative headlines. And for every one of those headlines or for every million of them, there's probably 10 that actually come to fruition. And actually even then of those cause any significant harm whatsoever to your portfolio. And of those, exactly zero thus far have been permanent.

32:11Yeah. So you kind of think, hang on, how much are we paying to this stuff, go on, mate? Well, it goes the other way too. Sometimes you have news which is like really objectively good and the market sells off. And this is normal. Like I can't stress this enough. when you're there is again i'm not there are people can interpret different events as positive or negative but you know you often get things that are just objectively good or objectively bad in the context in which they're framed and yet the opposite reaction happens why why is that there's partly it's like by the rumor sell the fact you know people speculate on it turns out that it was true yes it was good news but we factored it in we're taking profits does that make sense actually in their context it makes perfect sense yeah you know and there's enough liquidity and volume put through that that's the outcome of the market and the rest of the lemmings followed along which is it happened and then to your point it's just like oh my gosh trump is going to be an absolute disaster and it's like but but then you could say well but the uncertainty as to what was going to happen has now been resolved and here's the new narrative here's the new interpretation in fact it's back on the right back back to the races exactly how we will retrospectively explain it We always can.

33:22Retrospectively, it's easier to do, right? No one predicted 9-11. A year later, every expert was writing books as to why it was inevitable. What's that with COVID, the pandemic? That's why I should have saw it coming and all that kind of stuff. It's always, always, always, always, always that way. And so, yeah, you've got to be very careful with this kind of stuff. The other thing that's in, you got me, in terms of Betfair, now, these days, In 2016, we were so young and so innocent and so naive. These days, it's far more sophisticated ways that sophisticated investors can blow themselves up. Who needs to be a film with this Robin Hood?

34:01Is that what you're saying? Well, now you've got Polymarket, and you've got these peer-to-peer sort of betting markets. I don't know if you ever looked at them, but they're fascinating. And the argument is, I don't know what I think of this, but I'm not negative on it. I'm actually, I think there's a lot of merit to it. I just haven't formed a hard conclusion yet. But the argument is that these are better than polls because real people have bet real money on this. And if you look at polymarket, which is the biggest, liquid, most deepest type of sort of these betting markets in the world, it's putting Trump at 63.7 % versus Kamala at 36.1%.

34:36Right. Now that's huge. So some of the conspiracy, sorry, go ahead. No, go. Well, some of the conspiracy theories is, oh, well, that's just Elon putting billions towards it because he wants the right outcome. right yeah um actually you got me thinking before when you sort of talk about tariffs and bans on evs and like well maybe that's why he's cozying up to oh yeah to the don you know or god knows what but anyway and and so someone was putting that to me and i thought that still doesn't make sense because if that were true does that not represent the most insane arbitrage opportunity you have ever heard of so in other words if if some billionaire is distorting the market so much because they've just put on these massive bets that make it go, wow, Trump's going to win 63%.

35:19That means I can put a bit of money on Harris and get much better odds than what are actually implied there. Yeah, yeah, yeah. And again, when there's real money on the line and when there's... It's different if it's like a tiny little dark corner of the internet where there might be a few thousand dollars that you pay. When there's literally hundreds of millions of dollars, there will be people who go, actually, no, I'll take the other side of that because the math just adds up. So I guess I'm just saying all of this to sort of say that this is the first election, at least a bit on my radar, where you have the polls calling it 50-50, and yet the betting markets are going, oh, no, it's a one-horse race.

36:00In fact, and so in discussing this, I looked up Betfair. And guess what? I'll do this in real time when you're talking. They're also giving incredible odds to the Don. So I don't know. What do you make of that? I've done it while you're talking, actually. And Trump is$1.58. Harris is$2.74. Okay. The two-horse race is remarkable. You'll get worse odds on Penrith in the NRL or the All Blacks in the rugby. But other than that, a two-horse race, this close to the election. It's not Hillary Clinton odds, but it's interesting. Do you know what I mean? To me, it's kind of like, who am I going to – when I say believe, it's got to be careful because everyone's so distrusting these days.

36:43But one of them is clearly wrong, right? Like they both can't, it can't be like a two thirds to one third on one sort of arena and yet 50-50 in another. And I tend to, if you were to say, well, which flag you're going to, you know, plant, which camp you're going to plant your flag, I'm going to go for the betting market. Because there's someone saying something as they exit a pre-polling booth. I voted for this person. There's another person saying, no, I've put hard, cold cash on this thing. You know, it seems more serious. But as I say, I'm still trying to wrestle with all of this. It's hard though, right?

37:17Because I think instinctively, you know, Paul Keating quoting Jack Lang saying, if in doubt back self-interest, at least you know it's trying. Right. That's your point about the markets. That being said, my very point about the 2016 Hillary Clinton thing was the market said, Hillary's a shoe-in, here's$1.10 for Clinton, and it would have been$6,$7, whatever it was for Trump. And I went, okay, I'll back Clinton. So the smart money allegedly in the betting market was wrong. um yeah in the u in the australian just we clear away from politics at some point in the australian context um there is a general view among some of the political commentary that rather than the popular vote the ones you want to pay attention to the seat by seat uh odds because in theory the locals know more about the local situation where you've kind of got this smaller market where where it's a much more kind of, it's a smaller geography.

38:08There are fewer component parts. If you're talking about who's going to form governments, who's going to win an X number of seats, okay, I'm not going to go around the country, work at which seats they're going to win, which seats they're going to lose, and work backwards from there. On a seat-by-seat basis, now you can aggregate those seats, but on a seat-by-seat basis, you say, well, hang on, this is kind of the battleground states in the US. You kind of go, okay, well, in my local electorate here, I know the candidate, I know the issues, and people in theory in this electorate who have some awareness of it are going to be onto a place in the bets.

38:36So the thinking from some, and I have no grounds for this necessarily either way, is just the local electorate odds are better indicators than the national numbers. For those reasons, you don't have to aggregate everything up. You're just saying in one area, if I know something about my local area, i.e. which candidate's compelling or what local research has been done, the edge is likely to be for the person betting in the local electorate. I don't know if that's actually borne out by evidence, but that's certainly been one of the consistent tropes over the past few elections in Australia too.

39:05Gosh, it's hard. And so, well, okay, so here's the other thing. It doesn't matter, right? Because this is why, hence my comment of, I don't know, what are we going to talk about here? Because when it gets to the pointy end of all, it's fun to discuss. It's fun to ruminate. It's fun to guess. But when the rubber hits the road, what am I going to, me, individually, as an investor, going to do? next Wednesday? Yep. Probably nothing. And that's why I want to talk about it. And what am I doing now in preparation for it? Well, when I say nothing, nothing different. Yes. It's a really unsatisfying answer.

39:41Well, no, no, it's not. Well, I mean, it is yes. But that's also why I wanted to raise it, because if you think about the reality of the election, and why I wanted to address it particularly was, come Wednesday, there may or may not be volatility on the markets. And people shouldn't be taking investing advice from a podcast. By the same token, people were wondering, you know, if things change, what should I do? How should I react to a Kamala Harris win or a Donald Trump win? How should I react to uncertainty if no one's a clear winner? And to your point, mate, I guess what I wanted to impress on our listeners is my view, as same as yours, is nothing different.

40:20The history of this is that there is zero correlation between stock market outcomes and the colour of the party in power going back in the US to 1900 something. Actually, your favorite Vanguard chart overlays. Yes, that's right. I think they do it in the Australian and the US context. So just for those that have been living under a rock, Scott likes to talk about this for good reason, for good reason. But it's the Vanguard chart that goes back a gazillion years and basically it's just like buy equities and sit on them. The TLDR, right? But it overlays Labor or Liberal who was in... And there's no discernible pattern.

40:58And it's not just something that you can eyeball. Like statisticians and other much smarter people have looked at it and goes, there's absolutely no pattern whatsoever. Which is not to say that politics doesn't influence things, but a lot of the policies, they are such big lag effects. And they're such a unity ticket, a bipartisan ticket on some of the very big issues. Like the Libs and Labor, neither of them are getting rid of the central bank, right? You know, in other words, it's kind of irrelevant for your investment decisions. And you see very smart, in theory, very well-paid professionals with this dead straight face every single time.

41:41So, oh, if this happens, you want to rotate out of that and you want to do this. And we see this party has a bigger infrastructure spending plan. So that means you want to rotate into some of these building companies. It's just like, give me a break. Like it never, ever, ever works. Yeah, yeah, yeah. And so it's not just us trying to be, you know, shrug of the shoulder and don't worry about it. It's just sort of like there's no – it's very appealing, seductive thought that you can divine some of the political wins and then make a buck out of it. And maybe if that's what your skill is, go to Polymarket, right?

42:15Yeah. Don't play the markets markets. Don't play the equity markets because they're going to be very unsatisfying if that's the itch you're trying to scratch. Yeah, I think that's right. I mean, look, there are, here's the other thing, there are policies that the majors have which are meaningfully different in some areas. Trump is all about tariffs. Harris is all about price caps. I mean, there's stuff around there which is not frankly, well, here's the thing, right? So I guess there's two answers for me. One is what should most investors do depending on who wins? The same as normal. Like, why would you change?

42:43Except if you have been, can I say silly enough? I will just, I made it kindly with a smile and a pat on the back. If you've been silly enough to make an investment based on, hey, if Trump wins, I will make money because this tariff is going to do this to this industry. Firstly, you're probably not going to be right because people generally tend not to be. Secondly, if you are right on that basis, you better get the outcome of the election right. Because we've just talked about the fact that there are upsets and there are, you know, certainties and there are near things and nittany misses, sorry.

43:09And that's the kind of just be careful what you assume. And thirdly, if it is super obvious, the market's factored in it. It's not like you're the only person who's got this information. The world has this information. And when something becomes very apparent, it's already priced in. And we can talk about what the bond market is doing if you want to have a look in terms of interest rate decision. It's no secret. I love that. I think it's a New Yorker cartoon where that guy's on his computer and he's turning and goes, Honey, I just discovered something on the internet that all the experts missed.

43:44You know, it's just like, how many of us do that, by the way? I'm guilty. I'm guilty of this myself. You think, ooh, you know, I like no one. It's the Homer Simpson, everyone's dumb except for me kind of view. And it's just, it's sometimes a good hard dose of humility is really, really well served here. Having said all of that, can I opine a little bit on the different policies? Because - I'll go on. Oh my God. Price caps? We've talked about that, but that's not good for inflation. Tariffs, we've talked about that. Oh my gosh, that is not good for inflation. So we finally, prices are never going back to where they were pre-COVID.

44:25That ship is long, never, ever, ever, ever, ever, ever, ever happening, right? But the pace of pain has slowed down. The thumbscrews aren't being tightened as much as they were. So we're finally getting back to our comfortable level of increasing pain. and whoever wins, they're going to be spending much, much more than they're bringing in. It's already been plotted out by Treasury. You don't have to go to some random pick your favorite analyst. This is the government itself, Treasury, giving you the forecasts. You know? And they're probably pretty tame, right? Yeah, that's right. These are the tame inside the 10th forecasts.

45:05and they're both basically saying, oh my gosh, nothing stops this train. This is unsustainable in either direction. Trump's worse fiscally for a bunch of reasons. So it comes back to the point, it's like, don't do anything different, but hopefully what you're already doing is factoring in the ongoing demise of this institution because it's just, it is, you think things are weird now. Like you wait to some of these populist agendas, whether they're populist on the left or right, start being implemented my goodness it's gonna get wild and here's the other one more thing i'll throw it back over to you here's the other thing so if trump wins okay that's a that's a uh i don't really care i'll i'll lay my cards on the table it's a scary thought that's a that's a that's a weird world if he doesn't win that's also pretty scary because he's not going to say i've i lost well done uh democrats you have my support best of luck no he'll fight it he'll fight it again and so like you're getting into civil war territory not maybe that's a bit too uh hyperbolic but you know not you know it's it's gonna be whether he wins or loses it's gonna be super interesting so i'll just i might just push back a little bit on that comment of the day after the election it all goes back to normal go on maybe not right right maybe not right like and that's almost the point because we don't know right there is no point trying so who wins i don't know yeah if someone wins someone else loses what will the response be from the public i don't know yeah or allegedly responsible i don't know what issues will win or lose i don't know yeah um how much will they win or lose by i don't know will those impacts be big enough to overcome broader economic impacts i don't know what about the industries that win with individual companies that lose i don't know barack obama was especially great for solar panels right and some stupid number of solar panel companies went broke during his presidency.

46:56Not because of what he did, just because the assumption that Obama is pro-renewables, therefore renewables will do well, therefore I should buy solar panel companies, was about the worst investment decision you could have made, even though those statements were all true. Yep. Because the outcomes aren't necessarily... All right. That's probably more than our two minutes, mate. Should we let it go? So, so... Do we have to, like, rub our own noses in it? Like, so... Yeah. Apparently we do. Apparently we do, yes. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

47:32Okay. I'm going to let you talk about property. But only for a bit. Let's try and keep it short. Oh, jeez. I want to say try and keep it short in a US presidential conversation. There's probably no value in even suggesting that because I'm going to let our listeners down. Mate, I... Lay it up for me. Lay it up for me. I don't even think we need to. So, the data came out Monday afternoon, Monday evening Australian time. And the numbers are phenomenal. This is the median house price. Median. So, in other words, you take all the houses that are bought and sold, and you find the very middle one. Not the average, because the average is skewed by, if you sell a$10 million house and a million dollar house, the average is$5.5 million, which is useless, right?

48:18but the median says like have all the houses sold from the cheapest to the most expensive let's say there were a thousand on let's find the thousand and one to make my life easier let's take the 500th and go right that one or 501st i've screwed us up already that is the middle one that is the middle one the middle one is the median yeah here are the numbers in sydney the median house sold in september 2024 was 1.655 million dollars dude i remember when it passed a million dollars. It felt like yesterday. That's up 6.1 % on a year ago. Now, yeah. Melbourne,$1.024 million. Brisbane,$924 ,000. I knew we were better than Melbourne.

49:07Adelaide, 973. Canberra,$1.08 million. $894 ,000 in Perth. $709 ,000 in Hobart. $593 ,000 in Darwin. The combined capital is altogether the median. is$1.156 million, up 8 % on a year ago. What's the average household income? I don't know. What is it these days? I think the average salary is 80 or 90, so bump that up a little bit. 150 or something, probably. Let's be generous, and let's say 150. So on average across the nation, you're looking at a price to household income multiple of eight or nine times. And Sydney, well, the average Australian isn't the average Sydney necessarily, but yes. That's true as well.

49:51But it goes to, well, you know, the average teacher and the average nurse and the average fiery in Sydney are not on much more than they are elsewhere in the States. Which is why we should be talking about median income to average incomes, because again, we're mixing our terms a little bit here, right? So what is the median income? The average, you take Gina and Twiggy on one hand, you put the cleaner on the other side, so the average is still$5 million. The median income, most people are not earning an average wage because a lot of them are working part-time, a lot of them working at lower incomes.

50:16The median income, I don't know what the number is, but I dare say it's lower than the average almost by definition. Now, again, who is there to say what that multiple should be? Yeah. The multiple should be whatever the market is happy to bear, really, frankly. However, in history and in other similar markets around the world, you tend to have a three to four times multiple around that. Now, maybe it's in some markets. Hong Kong, maybe it's a bit higher. In Idaho, it's a little bit lower, et cetera, et cetera, et cetera. But it is so distorted from normalcy as to, I don't know, defy belief. So here's my rant for you, mate.

50:58And my rant is - You said no rants. Well, my rant is I give up. I mean, I said to you off air, I don't know if I could have been more wrong on housing than I have been. And I'm happy to publicly acknowledge it right here. It's not like I was a little bit wrong. I was a little bit early. If you had traveled back in time and you'd said to me, you might be surprised which this is going to go. You never could have said to me in late 2024, the median Sydney house price was 1.6 million. He's just like, no way. Because it was like, well, at a million, it was completely unsustainable, like mathematically.

51:37And yet here we are. So this is me eating humble pie. And it's also, there's a couple of lessons here is that one, just because something doesn't make sense, it can't eventuate. And the other great one, I forget the name, there's a much better technical term for it, Simpson's law or someone's law or whatever. But things can always go on much, much longer than you think. You know, that old sort of related saying is the market can remain irrational longer than you can remain solvent. And that's just another reminder of this. Now, I'm almost at the point. I'm not, but I'm almost at the point where it's like I'm tempted to just go, you know what?

52:17I'm just taking, I'm drawing up to the eyeballs and I'm buying as many investment properties as I go. That's how close I am to capitulating and just going, the world doesn't make sense anymore. well if you can't beat them join them yeah right at that point we should all uh sell our property and that is the top that is 100 % the top of the market yeah it's um i i've always been yeah always probably the right phrase less uh ott than you about this stuff right um i mean i've not been as aggravated by it um but i but i have to say i'm running out of patience um because it doesn't necessarily need to be this way.

52:55I've said to you privately, and I need to expand on this thought more, but if you look at the Australian economy, including everything we spend, everything we own, and look at the Yanks, our savings rate's roughly the same. And yet American house prices are much cheaper. So you would, in theory, at one point say, well, if our price was cheap as Americans, we'd have more money. The American experience is they don't have more money, they spend on different things. And you say, okay, well, I wish I could spend it on something else instead and you I said well what's more important to spend money on a new toy that depreciates or breaks or I don't mean literally toy but a car or a house or a pair of jeans or a computer or something or the house you're going to live in and occupy and spend hopefully quality time with family in there's a there's a there's an argument that says there was no there's nothing good or bad about paying more for housing than Americans do because we spend less on other things and if we value them or we pay more for them we value other things less because we don't buy those instead.

53:48As a society, we're kind of making a choice. And I don't... There's not a defense of high house price. It doesn't matter. It doesn't matter because I would change a lot about housing policy. I'm just... I think it's... I don't have a strong view necessarily, but I do suspect if... We wouldn't be... I don't think we'd be materially better off if housing was cheaper. We'd find other stupid things to spend the money on. And some people would say, I would love to spend money on a car rather than a house. Other people would say, well, they'd rather spend money on a house than a car. The Australian economy, I mean, society as a group are saying, here's where we're placing our chips, quite literally, or maybe metaphorically, here's where we're putting our money.

54:23We're voting with our wallets. To your point about it's the market, it's the market. That's kind of what we did and what we do. So I guess I'm just wondering that in different circumstances, our express preferences or reveal preferences, as the psychologist would say, it's kind of telling us all we need to know. And as much as I, on one level, think it's crazy and ridiculous, I would change a lot anyway. So again, I'm not defending price or saying, don't worry about them. there is part of me that just kind of thinks given you can only spend 100 % of what you earn you're going to do it anyway on something i'm not sure how big the problem is i think the biggest issue we've got is distribution of housing and the fact that the bank of mom and dads and the those who got in early and those who leave it up to your point before we're going to have a a continued divergence in outcomes based frankly on who you were born to and what your parents had when you were born and what they left you when they died that's the bit that worries me more than anything.

55:12But I guess I'm just holding out the kind of the devil's advocate position, which is maybe my whole view is wrong because we have to spend money on something anyway, and our reveal preferences are our reveal preferences. I'm going to come back with a strong disagree. Yeah, go on, please. I hear what you're saying, but you're taking away choice. But we're not because we're choosing. That's almost my point. Our reveal preferences are. Collectively, we're choosing. But individually, no one is sort of saying, gosh, I would love to work until I'm 84 and put every ounce of my savings into paying off this bloody house.

55:50I agree with that. No one says that. Now, if I choose to then go and waste it on Beanie Babies, well, that's cool, but that's my choice. I've got that optionality. Maybe I want to retire. Maybe I want to go to the casino and punt it all up against the wall, but I don't have that choice. I just don't have that. The choice is, do you want, and like when you ask people what you want most in life, I mean, housing is so up the top there. Like, cause it's, it's your cave, it's your castle. It's your, it's where I've, I heard the saying a little while ago and I'm probably using it too much, but I love it.

56:25It's just that everything is downstream of housing. Everything is down. When you have secure housing, it frees up a lot of mental bandwidth for you to pursue other ventures, learn new skills, open up a business, do things that are productive and enriching to yourself. we've structured the entire bloody Australian economy around punting on which completely unproductive assets completely unproductive I mean wonderful assets because they provide shelter I've just said that shelter and having a home is so vitally important for everything yeah but but but they don't make anything and that money at least if I'm if I'm weeing it away to choose my language carefully on some stupid thing.

57:14There is a business at the other end of that that is making money, that is paying employees. It is increasing our GDP. It is increasing our economic wellbeing. Ideally, in a sane world, it is increasing the capital stock, which increases our standard of living. I mean, we should all be working less and be far richer in terms of the optionality that we have. We don't because of housing. Now, it's fine. It's fine if you've already got a bunch of assets and this and and this is why this is why you have the divide i think in australia whenever this comes up and if you really want to know what someone's opinion is ask if they own their house and how much they've paid it off if you've paid if you own a bunch of houses you've mostly paid it off you're all for higher prices and that's not i'm not having a go at you of course you do of course you do if you if you're renting and paying a gazillion dollars a week and then on top of that you've somehow got to save a deposit and that we're now talking about We're now talking about saving in Sydney$320 ,000 to get a 20 % deposit.

58:12How are you paying rent and saving that amount? How are you saving that without paying rent? I mean,$300 ,000, if you could save$30 ,000 a year and not pay rent, you're still doing bloody work. By the time you've earned an average wage, you've paid tax, you've fed yourself, you've put clothes on your back. I don't know anyone else, even without housing, how do you save$30 ,000 a year off an average wage? It's just where... Then you pay rent and then try and save 30 grand. I mean - Here's my point. No one wins here. No one wins. Even if you say, well, I'm fine because I've got 200 properties and they're all paid off.

58:46Yeah, but I mean, if anyone looking at that going, well, that sounds good to me, I'll sell you a ticket to Zimbabwe or somewhere right now. Sorry, Zimbabwean. Listen, that's unfair. There's other far worse places in the world. But I'll sell you a ticket to X where you can be the richest man in Babylon, right? You can do that right now. I was like, well, I don't want to live there. Exactly. Exactly. That's the point. Right? Like, you know, there is so many different bits of evidence that suggest, you know, and I'm not a socialist. If anyone's listened to me for more than three seconds, you know I'm not a socialist, right?

59:20But you certainly do not want an ever-widening wealth gap because that leads to trouble. It leads to guillotines. It leads to pitchforks and tortures every time without exception. And, you know, I just think that's the direction that we're heading. And I say it as someone with a house. I say it with someone who has assets, you know. I just, in a way, you're going to think, well, I'm fine. But I just think it's so, oh, man, it's so bad for all of us. And it's bad for our kids. That's what gets me, mate. I suspect my kids will be okay. Well, my, so I've got, you know, so a 27-year-old, a 29-year-old and an 11-year-old.

59:59So back then to the spectrum. him um the 29 year old's already mortgaged himself to get a small place up near you um the 11 year old's 11 and you know god knows what price will be by the time he wants a house um i'm he's probably gonna be okay frankly um between you know small adherence from grandparents and we'll probably be able to help him out if he needs it he'll be fine it's only by putting debt on your balance sheet that'll do it like you can you can provide collateral or however you want to frame it up correct correct no but my point is he'll be he will be able to get a house yeah there are other people who don't have that optionality right and what i've said a lot of times and i'll say it again my biggest fear policy wise for everything else climate is number one if you screw that up the rest is moot right but number two frankly for australia is inherited inequality and if you fast forward that a couple of generations the people who can afford to help their kids and those who can't then think about those kids who can afford to help their kids and those who can't the the breadth of that left unchecked for an very very very ugly world you end up with effectively a landlord class i mean think about the think about the phrase landlord i mean it goes back to serfdom and and you know this is this is the very idea um fast without any number of generations and things look really really ugly real fast as i said i'm not i'm not the richest bloke in my areas you know i'm not the richest bloke in my well house let alone let alone the rest of the street let alone the suburb and the area and the whatever but my kids will be okay they won't be they won't be you know they're not silver spoon kids they'll be they'll be okay i'll be able to help them that's a nice position to be in but there are kids literally the proverbial kid next door who doesn't have that opportunity the one down the road the one across the street the one in different suburb or area what are they they're locked in a lifetime of renting and the compound look we're all for compounding right to your point i'm a capitalist too but think about compounding over generations and think about lack of compounding over generations think about the gap that creates warren buffett's been around for 60 years, he's compounded to billions.

1:01:57Imagine, you know, had Buffett left all his money to his kids and left that to their kids. We're talking about trillions easily over a long enough period of time. And then the person who can't compound, their kids can't, their kids can't. The gap just gets bigger. And I don't know how to solve it, frankly, Matt, but that is my biggest concern for the long term. Politicians can't think about next week, let alone the election, let alone next term. But if you think in decades, that's what's got me worried. Do you know what's interesting too? Maybe this is what's happening right now. I don't know.

1:02:30But you have this really interesting phenomena in markets called the melt-up. So we're all familiar with the meltdown, right? Like everything just collapses. And we know that. There are melt-ups as well. And it's a really counterintuitive scenario where things just reach a completely unviable, untenable kind of level, and then they jump, gap up 30 % or so, right? And there's a variety of reasons as to why that might be the case that we'll experience in Australia. Either that's what we're living through right now, or we will see more of that. Because you get to a stage where, to bring in politics here, again, because you can't divorce the two is that it's so two-thirds of Australians own a house or are paying off a house right so they're the dominant political 63 percent is the most recent number by the way 63 percent and behind even i think the us the uk and new zealand like where it's not particularly pretty uh okay we're still right either way sorry 63 percent yep so they'll do whatever they can to kick the can down the road there'll be more incentives put in place they'll like tap your super no worries we'll give you a bit more of a handout he's a first homeowner grant it just it It will because they will do everything they can to address the problem except addressing the problem.

1:03:51And that's why as bearish as I am and as wrong as I've been, I wouldn't short it because it's just, you know, it's a madness that just knows no bounds. And I would never bet against that kind of stuff happening because the only thing that will kill this is something that is unstoppable, even when governments themselves can't do anything about that. Like what happened in most parts of the world, of course, except Australia, back in 2008. When, remember, Spain, Portugal, Ireland, Greece, the US. I mean, these aren't backwaters, right? They all had very sharp, sustained, terrifying housing price collapses.

1:04:40And the governments did try to sort of stop that. But they couldn't because the thing just falls in on itself. So I feel as though things will get crazier still until we reach that point. Again, by the way, that was 15 years ago and still hasn't happened here. So that's the hard part of trying to work out what and when and how. So I'm not betting against it. But gosh, it makes me nerve, especially when you still read stories about, you know, the 26-year-old who owns eight properties. and here's how they did it. Sneak peek. They always do the same by using insane amounts of debt, taking huge amounts of risk and getting - And mum and dad's money.

1:05:10And mum and dad's money to sort of get them going. And it works so brilliantly well right up until the point that it doesn't. Yeah, which again, could be soon or not. Could be tomorrow. Could be 10 years. I don't know, but gosh, don't read those stories and go, yeah, I'm going to do the same too. Let me go very quickly, mate. We need to wrap this up, but very quickly into my, I've got a four-pronged solution just for the fun of it because we talked about the issue and we kind of lamented what's going on and I have lamented regularly gutless politicians with no vision and no interest in actually having the hard conversations to make Australia a better place and people say, well, they can't because of this, can't because of that.

1:05:45So if you can't give up, resign, let someone else have a go. If you're not prepared to make the hard decisions to improve the country, if you honestly think this is fine, that's a problem and if you don't think it's fine, you won't fix it, that's a problem. So have that grow some, you know, relatively important ones and do something about it. So here's what I would do. And we had talked about this before, but I'm just tacking it on the end because it's, I think, hopefully relevant and useful. Firstly, I would meaningfully reduce population growth via immigration until such time as we had larger vacancy rates because housing is too unaffordable and there are too many people living homeless because they can't get accommodation.

1:06:16And that is just a pox on both their houses for allowing that. Supply and demand 101 right there. It really is. And in the short term, regardless of your views on bigger Australia or smaller Australia over the long term, measured in more than five years, in the short term, we've got to make sure we've got enough houses for the people we've got. That's just madness. And the prices will follow. Secondly, I would grandfather but stop negative gearing on residential property tomorrow, regardless of structure. People say, oh, well, the companies will just buy it. No, no, no. No one is allowed to negative gear property, residential property, no matter who or what you are.

1:06:44Thirdly, I'd reintroduce the indexation of capital gains and drop the 50 % discount. There was never justification for that. it was allegedly to simplify the system. It was transparently vote buying and it was policy madness and ridiculous. Would you do the same for shares, just to interject? Yeah. Okay, cool. Only because it, well, so I'm doing it specifically. Well, it's a good question. It's hard, right? Because you can't argue for one another. So yes, absolutely. No, I would absolutely do it, yes. But in terms of why, I would do it for everything because the policy was stupid. Yeah. But the reason I'm motivated to do it is because if shares and are volatile, I don't care.

1:07:16I mean, I care for myself, but it is what it is. Why would I do it? What's the burning reason to do it? Because of the housing implication. But yes, I would do it for every asset. Thirdly, or fourthly, sorry, I would get APRA to use the lending buffer counter-cyclically. And this is really important right now. When rates fall, whenever they do fall, prices will go up because debt is cheaper and you can afford more house for the same repayment. And if APRA don't sit in front of that, if Treasury doesn't stand in front of that, then he deserves every bit of condemnation because he has a chance to fix it now.

1:07:44If he chooses not to, that's up to him. But the impact is going to be long felt. So those four things is... I know. But you don't know. He won't. I know. But, well, if he's thinking far enough ahead, when he wants to go back up again, he'll stop house prices falling. So that's a win. That's true. Yes. That with the self-interest bit to appeal to is, Treasurer, don't create a bubble. You're then responsible for... Don't create a bubble. You're responsible for busting. Avoid the bubble in the first place is how I'd pitch it to him. But you're right. That's the absolute risk. Any thoughts on those?

1:08:13No. Look, we... No. I broadly agree. And you could get into the minutiae and really debate it. But the thing is, is that the serious, the people who can do anything about it, is just so 10 million miles away from what you just said. Like none of those things are going to happen, right? None of them. Not even close. You know I'm talking to you to believe that. No, I'm not. You're probably right, but I'm not going to give up. That's between you and I. I mean, I love you. I love your optimism. I love you talking about it. I'm going to hit my head against a brick wall, damn it, because I want to. I 100 % think it's just sort of like anyone that's got like anything that's half sensible going to get my vote?

1:08:50Because no one's got anything that's even half sensible at this kind of point, right? So I was sort of like, we could probably throw it about for a bit and pick it apart and split hairs. But it's sort of like, no, that's a really good plan. I like that plan. What's the alternative? Business as usual. That's not working. So let's not do that. But yeah, it's really, really, really, really, really depressing is all I can say. I'm going to write something about it this week because I've got a B in my bonnet. It's not exactly investing related or directly investing related. I'm very lucky I get a pretty wide remit when it comes to what I'm just going to write about for the full.

1:09:26Here's the investing angle on it. And there's a number of lines you could draw here. But again, when this black hole of a financialized asset sucks in so much capital, that's money that's not going into capital markets, into equity markets. You think about the things that we would like Australia to be, world leader in a whole bunch of different fields and at the forefront of technology and a high standard of living for everyone. The more money that gets sucked into just keeping these pile of bricks and tiles around us, it weakens us all in those ways. So if you're someone who feels as – what am I trying to say here?

1:10:17It's not – it's a bit of a zero-sum game, you know? Not technically, but kind of in the sense that a dollar going to service off a mortgage is a dollar that isn't in the real economy, that isn't invested in business, et cetera, et cetera. And that's the big shame of it. Yeah, I think that's exactly right. There are many, many better ways to fix the economy. I mean, I've said before, I only did six months as treasurer, mate. People would hate me. I'd never get reelected, but I would have a lot of fun fixing some of those problems. And then it would all be repealed three years later. Exactly, exactly.

1:10:48Maybe I'll have a referendum. No, that doesn't seem to work. Anyway, yes, they might all be repealed. At least then I will have done my thing. But yeah, you're right. Don't depress me. Sorry, mate. Sorry. The world does not need my cynicism. It needs your optimism right now. No, yours is more accurate. Mine just lets us believe for a little bit longer and pretend the dark clouds are really just blue sky waiting to pop out. Yeah, yeah. The truth is probably somewhere between the two as well. That is, as is always the case with us. Mate, will you rejoin me on Sunday? Looking forward to it. All right.

1:11:19I will look forward to it too. Until then, enjoy the first half of your weekend. We will see you on Sunday. Until then, fuller. 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.