The importance of understanding the ‘base effect’. July 31, 2026

24:42but the guesses have gone from right right the guesses have gone from maybe a slight chance of increase to no increase Westpac's own forecast now is actually no change until August next year when they're expecting it to start dropping I was well ahead of the curve on this I'm going to do a victory and I'll I'll lay out it's not that Nostradamus here I just think when you've got a proper lens to look through things just become much more obvious I won't flesh it out the good news is The good news, actually, this is the kind of hidden bit. And it's both a statistical trick, but it's a trick on both sides.

25:18I don't want to let this get too cynical about it. The 3.6 % and the 3.8 % include a half a percent increase in July last year. And effectively, let's assume, just for the sake of making life easier, let's assume inflation is dead flat for the month of July this year. So when you roll the data forward, you pick up the month of July 2026, you drop off July 2025 because now you're going August to July, that's 12 months, the half percent drops out of the numbers. And so it's actually possible. I'm not a cheerleader for inflation coming down quickly without action. I propose the Reserve Bank I would actually increase rates the next meeting.

25:59They probably won't, but I would. But that aside, if inflation was to be flat for the month of July, the rate will actually come down by half a percent. And that's a much more comfortable position to be in. I think that's part of the thinking of people who are looking at the numbers. But what a nonsense. What a nonsense, though. It's both ways. It's what you call a base effect, right? It's sort of like, wait a second, inflation's not that bad. No, it's really hard. I'm telling you, yeah, yeah, yeah, but you've only got to measure from this point. It's like, what? Yeah. Like, it doesn't make any sense.

26:30But it's also true of the current number has that higher base. So that's why I was talking about not being single. It's in both lots of numbers. Yeah. Why you've got to look at an aggregate over a much longer time frame? It's the same as looking at a share price chart. It's like, here's the weekly chart for BHP. Meaningless, you know? Meaningless. The intraday chart, meaningless. And it's the same with these kinds of things. Signal only reveals itself under much longer time frames. Let's talk about investing for a second, mate. I was talking to the team this week about this. I was talking about COVID being six and a half years ago.

27:03The COVID crash was actually in February and March 2020. so just over six years ago. And I made the point to the guys, the COVID dropped out of the five-year price charts. And the reality is because that fall was so fast, there was a 38 % fall roughly for the all lords, right, top to bottom. So effectively, and it's really hard to do on an audio. I've never been able to even really do it properly in writing really convincingly and clearly. But think about the base effect, right? February 20 was the high, 2020. The market then fell over a month and four days by 38%. Now, if you compare to share price, between those two points over five years, that 38 % difference on the starting base makes everything look really, really, really different.

27:44And all of a sudden, right? And so you go from, you compare against February 20 and like, well, my shares are, let's say flat because it makes my life easier. And then you compare it against March, whatever it was, 24. Yeah, six weeks later. Right, yeah. But not six weeks later in this, it's just in the base. All of a sudden, oh, it's a great stock. It's up 40 % since then. Yeah. Look at my five-year trailing returns. They're fantastic. That's exactly it. So, yes, it's up. But even over five years, the base effect is really important. So, just to double underline your point about inflation, but also specifically to talk about it in the context of the share market and why the base effect is a worthwhile conversation to have.

28:22Dog agrees. Oh, he's got his bone in his mouth. He's looking at the door. I don't know if he needs to go out or not. So, it's a dog owner. I'm like a dog with a bone too, mate. We're on a roll here with this kind of stuff. diesel and around, peas in a pod. I think he was saying this on Barry's actually what I think he wants to do. So we may have to pause this. We'll see how we go. We'll see how we go. We'll see how we go. I want to make one quick, I was just really, I've missed my chance, but I'll force it back in. You made the mention before with Clinton saying that it's the economy, stupid, which it absolutely is.

28:55But I think in the Australian context, it's always the economy. It's not some wonkish GDP. It's just our lived experience. But what I would extend it to the Australian context to say it's housing stupid. It's all about housing. It's all about housing. When you look at, and again, I'm just talking about the middle of the bell curve here, that for the vast, vast, vast majority of Australians, their wealth is all in their house. So it's super important. And for, I was going to say the vast majority, for literally everyone coming up in life, a house is something you want. I've never really met someone who said, you know what?

29:31my dream is to live in a tent. I want a really nice tent. No, everyone wants a house, right? And it's sort of like, and what is going to make you feel comfortable, secure is if you've got a house that is, a roof that you can put over your head without being under absolute extreme financial duress. And that is just, it's not a thing. That is not an option unless you have got a fortunate family situation, or you happen to be a tech entrepreneur founder who's got, you know, $30 million in the bank, you know, except for those fringe examples there, it's just sort of like, it's never been harder. And it's just these, what happens when an immovable object meets an unstoppable force?

30:14You know, what do you do? Who do you want to help? Do you want to help the people who want a house? Or I want to do that. Okay, great. Well, we have to screw over two thirds of the populace who actually own a house and don't want it to go down. Like that's the impossibility of this situation. And everything around that, when we talk about the broader economy, I think stems from that. Because having housing so unaffordable sucks up the productive energy and production of people. It's like, I work like a dog, so does my partner, everything goes on the mortgage, which means it's not going on a holiday, or it's not going on this, or it's not going on that.

30:49I want to start a business. Great. Here's the rent. I can't do that. That doesn't make it. The numbers don't work. So everything seems downstream of housing when you get to this sort of point. So it's sort of, yes, we are like a dog with a bone on this thing. But you know it. The media knows it as well. You put housing on the front page. People click on that story, right? Like it is close to all of our hearts. And not for some irrational, silly old humans. Aren't they dumb? You know, they're so Australians in particular. We're so obsessed with this. So kind of like when you consider what the stakes are and you consider our direct personal experience and the implications it has for all of us, it's like it's the housing market.

31:30It's the housing market. And there's an impossible choice that needs to be made that no one will want to make. So we're going to try and keep threading the needle. We're going to find that that's like very hard to do, I would argue, almost impossible to do it exactly as you want it to do. And so it's, I don't know, it's just going to get wild. It's going to get really wild from here. And then the thing that I find very tricky, if we lived in a world that doesn't exist, which is a perfect free market kind of system where you could sort of use some core economic principles to extrapolate and get a sense of things, that would be one thing.

32:09And predictions would still be hard under that environment. But what makes it absolutely diabolically tough is that you've got the X factor of government response, which do they, how much do they intervene? Right. How do they intervene? And that's what makes it so tricky. We've talked before about poor old Steve Keane and his walk up Mount Kosciuszko. Yeah. You know, it's like, well, I would have been right if the government didn't do this. It's like, yeah, but they did and they will. And they'll do something. I guarantee you they'll do something, whether it's good or it's bad. I'm not trying to make a commentary, a political commentary here, but the pressure will be so great, is so great that they will do something.

32:44And how good that something is and how effectively it is administered, it's going to matter. It's going to almost, you can't push against the tide, but it is going to make a more first principles analysis much, much more difficult. which is why I can be at the same time super bearish on property, but you couldn't make me short it, right? You put a gun to my head and say, well, if you're so convinced on it, short it's like, no way, because I can absolutely see a world where it continues to pump. I want you to be super bearish just to be clear, because if you were super bearish, you would short it.

33:22You're super critical of the expensiveness of it. You're not saying it's going to necessarily crash. There's no rationality to it. Yes, absolutely. There is no economic argument for it to be where it is. It is not supported by rents, by yields, by incomes, by nothing. The only way property makes sense as an investment, let's put housing, shelter aside, is the greater fall theory. I mean, you are literally, in most people, engineering their investments to lose money because negative gearing is a religion in this country. Only until July next year, though, so there's that. Well, that's true. We'll come back to that.

33:58But my point is, even without that, the only way it makes sense is that you can find a greater fool who'll buy it at a higher price. It's like, I'm happy to have a negative yield. It's like, well, hopefully there'll be someone in 24 months who'll want an even lower negative yield for a higher yield. That's so true. How have you framed that? That's the bet. That's literally the bet. Because in the olden days, it would be like, oh, well, okay, the market's a bit crap, but I've got a couple of great tenants in there. And each week I put money in my pocket. It turns out. It's a positive year. That's the point of an investment is positive cash flows, right?

34:32You know, and like, no, you don't get that with that. So why does that make sense? Oh, because someone else will be even sillier in the future. Like, okay, it seems like it's on firm ground. Let's see how that goes. Yeah, and I'm only refraining because we are going to talk about property, so we might as well make the pivot I suspect. Sure, sure. I will only - We are coming back to bonds though. I'm not letting that one slide. No, we are. We are. No, property first, then bonds after that. I will – I'm probably just picking an argument for the sake of it. I mostly agree with you about everything that comes back to property, but I actually think it's more broadly still the economy.

35:09And I think – and property is a massive part of that. Two sides of the same coin. Yeah. So, property is, I think, in my view – and you may disagree, and that's fine – property is the largest contributor to the it's the economy, stupid question, which is your point. Yes, that's all I'm saying. I think on top of that, though, the inflation we've seen and everything else is kinder. I suspect most Australians would grumble but make their peace with fluctuating interest rates because they know that's how the game is played. We've all been alive long enough. Oh, rates got up, rates got up. Okay, it sucks, but they'll go down at some point, so it'll be okay.

35:37Again, it doesn't make it okay, and the house price is stupidly high, and I'm not trying to wave that away. I guess I'm making the point that on top of that, you've got price of everything else to go up and then keep going up and then keep going up, which has always been my argument about rates and inflation, which is you want higher rates for a short period of time because rates go up and then they come back down again. When the prices go up, at best, they then go up a little bit less quickly after that. The inflation rate comes down, but the prices don't come down. And so you've kind of got this permanent ratchet, which interest rates don't have.

36:09Property prices have had for 40 years, and that's starting to change, which we'll get to now. But that's why I think it's the economy overall, mate, for all of the things. It's all of the things you described about property, plus consistently increasing consumer prices on top of what is already that situation. And it's the combination in my mind that's making it worse. And I think that's why we're seeing the rise of populism and the despondency we're seeing. Yes, it's about house prices, and they're bad, but they're not so much worse over the last 12 or 18 months that it causes a One Nation-style party to go from a 6 % rump to a 30 % favourite.

36:46And so it's kind of what's tipped over, I think, is general economic circumstances of which properties is a massive, massive, massive part. So I'm mostly agreeing with you. I just want to kind of add that I think the difference or the straw that broke the camel's back, I suspect right now, yes, there's been three 25 basis point rate increases. I suspect the straw is the, oh, my God, the beer's expensive, the bread's expensive, the, you know, everything's expensive and it's not coming back down and we know that. I think there's something that's kind of snapped, frankly, and I think it's probably both.

37:19I actually agree.

37:23Very strongly. But again, I would just say that those two things are linked. Prices going up is a consequence of property going up, which is a consequence of a lot of credit creation. So without getting too much into the weeds here, it's just like, you know, why is there inflation? Because there's a lot more money chasing the same amount of goods. Why is there a lot more money? Because banks are fractionally lent, ungodly, like literally trillions of dollars, almost entirely to housing. yeah it's housing and it's the economy and it's inflation but but it all it is all like you can't ever on it with economics point to one thing but if you were to point to one thing it'd just be like i mean i just looked it up then like in in uh pre-covid uh the entire m3 money supply for australia was about 2.14 uh trillion that's how much that's how many australian dollars existed Now it's$3.5 trillion.

38:23Right. Now, that's a - 50 % in six years. More than 50%, two to three and a half. 75 % increase, something like that, right? Now, the productive capacity of the economy hasn't grown by that amount. So again, my lovely little island, and now we're all on the island, we're all picking coconuts and fishing and doing all that kind of stuff. We're all using shells for money. And over the next six years, we get a little bit better at collecting the coconuts and catching the fishes, you know, maybe about 3 % each year we get better at that kind of stuff, but there's 75 % more shells in existence. Like what do you think happens to prices?

39:00Like what else happens to prices? Like it's, I think a 12-year-old can understand it, right? And again, if not, you crack out the Monopoly board and they'll learn pretty quick, right? So I think we're on the same page. I think we're on the same. The only difference would be, I won't point at you for this, but in terms of the mainstream view is that people that I talk to will acknowledge that and say, yes, but it's good that we create that money. And so it comes down to an ideological kind of point, but the mechanistic part of it, no one disagrees. Maybe there's some idiots out there who disagree with that, who are wrong, who are clearly wrong because it's undeniable.

39:41But let's not get to the ideological part of it. But it just so neatly wraps itself up, doesn't it? And yet the thing I find so amazing is that on the endless column inches and, you know, talk shows and podcasts and discussion of this and that, it is the one thing that never, ever gets raised as a contributing factor. And it's not like I would expect, you know, that actually we should only talk about that and it's nothing else. It's not immigration. It's not housing policy. It's not this, that and the other. and all these negative gearing and capital gains. Like, yeah, absolutely. It's a multifactorial thing.

40:19It all does it. I'm just surprised that it's not in the conversation. The fact that it is, in my view, probably the dominant factor. So I would assume that a lot of time is spent talking about it. It's just that it's like, no, we don't even talk about it. It's not even on the table as a point of discussion. That's what blows my mind. Yeah, I think that's right. I think it's – I don't want to go down the rabbit hole. Other than to highlight the difference in the view is very much a case of – and this has investors where it's really, really important. Thinking long-term. If you want to be a day trader or a spec guide or a momentum trader, knock yourself out.

41:02I don't think you'll make any money doing it, but you might. And so knock yourself out. But if you want to be an actual investor who cares about the long term, you have to put aside the short term for the long term. In so much of life, it's a case of the short term pain, long term gain, right? And it's cliched. I'm appreciating cliches more as I get older, mate, because why are cliches cliches? Because they're so true that they become cliches. They're not cliches because they're wrong. They're cliches because they're right. And dismissing a cliche, I'll just cliche. Yeah, but why do you reckon people have kind of - Or at least like a strong element of truth to it.

41:33Right. You know, like, yeah. Yeah, yeah. Yeah. And so think about those who would say it's good to create money, and just not to defend them at all, because I'm not going to, other than it's a time difference, right? Why do they want to create some money? Because they want to try and stimulate demand to get the economy to grow, put more people to work. Those are really, really noble aims. Nothing to do with the fact that they just wanted to have some free money. I'm not talking about the self-interest. Self-interest is a big part of it, right? Yeah, but the economists who would propose it, right?

42:04This didn't come from business wanting it or banks wanting to do more stuff. They're happy to promote it. No, no, no. That's a good beer conversation one day. All right. Well, those who would still promote it, let's assume there are people out there who think this is worth doing. There are. There absolutely are. From a short-term basis, it makes perfect sense. And it only becomes problematic when you do the and then what, and then what, and then what. And so if you said, look, what we know we could do, it's like bloody government debt continuing to grow, right? It's like, it's good because we're borrowing now.

42:36So adding to demand, and if we didn't have government borrowing, the private sector would be in deficit if we had a surplus, and that would be bad because it would cost jobs and it would cost businesses, and so we wouldn't want to do that. So if we have government in deficit, the private sector's in surplus, and that means more people, more jobs, more economic activity, more prosperity, who wouldn't want to do that? And you go, well, yeah, all of us would want to do that. That makes perfect sense. The problem is that's where those people stop. Because the and then what and then what, which you've done beautifully in the past, is the, and we just done them with the numbers, right?

43:05A bit more money being printed, oh, that feels good. A bit more after that, okay. A bit more after that. And then you look at that. We just talked about the long-term and the base effect. That's literally what you've just demonstrated lovely with those two numbers is we thought it was a good idea to do it and it was good to do it and good to do it. And all of a sudden, well, hang on, where are we now? We're now in a situation where we've had 30 % consumer price inflation over six years and it was exactly 30 % close enough for the conversation. And that's where we got to. So the and then what and then what came down to actually people or truckload poorer, you're casually worth a whole lot less.

43:35There's massive disquiet. So you were trying to do the right thing at the time, but unless you actually deal with the consequences, they snowball. And that's kind of exactly what you're doing. And this is, again, back to investing for a second. That's where you say, what's today's share price? The weak chart for BHP or do I want my company to make more money now or do I want them to invest the money now and make even more money later? And I think I hope for 99 % of our listeners, The answer is obvious. Well, of course. Spend a bit of money now. Make a bit less profit now, but make a whole lot more later.

44:05Of course you would. And you talk about the kind of idea of negatively gearing a property. We negatively gear our lives. We spend, a lot of us, at trade school or university, you're spending money, spending money, spending money. Why? No one goes to uni and spends money and goes, oh, I didn't make any money while I was at uni, therefore uni is a terrible idea. You do it because you think, well, I'm going to try and put the money away now so I can earn more over the rest of my life, that's to do something that's not great. Now, I'm eating noodles rather than caviar, and that's not great. And I'm living in a share house with three alcoholics.

44:37And, you know, this life is, you know, maybe I'm having some fun as well. But, you know, it's not necessarily what people would necessarily choose if they had the alternatives, but they willingly sacrifice now for later. That's investing, sacrificing now for later. Right, that's a good point. It's a marshmallow test. It's a marshmallow test writ large is all it is. A marshmallow test. Yeah. So on that view, which I will resist the urge to go too deep, but I think that actual view is correct. But it relies on the assumption that all of that money creation will be put to good, productive things.

45:15And that is where the maths actually lands on. I'll give credit where it's due. The maths actually does math when you say, well, we're going to create fresh money, but that money is going to be put into really good investments. they're going to have a very strong rate of return. In fact, if the rate of return is greater than the rate of debasement, we can thread the needle in such a way that we can increase the money supply and have greater purchasing power. And that's true. That is true. But advocates of that must at the very least acknowledge that if that doesn't happen, in other words, if you invest that money poorly, and this isn't like because you're greedy or you're dumb or you're evil or anything like that.

45:56It's just that investing is super, super hard and 90 % of businesses fail. Like it is the best intent, the most noble, smart, hardworking people will make investments and they don't work out. And when they don't work out, you're still left with the extra money, but you don't have any extra increased productivity as well. And it would be different if in Australia, it's like, okay, we're going to create all this money and we're going to give it to these brilliant entrepreneurs who are going to go off and create lots of jobs. It's like, okay but what if you just give it to people to buy houses which is which is what they did which is like it's exactly it's like they're not productive you know and it's sort of like people think you're being negative on housing and housing is incredible utility as a shelter that's it that's where it begins and ends that's the utility that's the that's the value proposition of it even if you're flipping it it's only because someone somewhere does want to live in a house like otherwise what are you flipping it to and for it but it it makes no sense so it's the it's the it's the thing that gets hand waved away no no it makes sense because of this and you go okay yeah but we didn't do that that's right exactly and no it's not like oh we we missed the target a little bit we were in the yellow part of the archery board here we're not in the bullseyes like no we're like we hit the judge like standing 20 meters off to the left of the target like we didn't invest anywhere near in anything sort of productive, right?

47:18So, and the only other follow-up point I'll make to that, and this is where I have found through experience, like, because you'll have these conversations and sometimes, not often, most times, almost every time, I never break through because I'm living in a bubble where a lot of the people I know have got assets. And so you go, I hear what you're saying, but that is not my lived experience. So yeah, I get it. Things are more expensive, but I've actually never been richer. And that's always the point I get to on this pod. And I'm sorry for repeating myself, is like you can shake your fist at the sky and just say, it is so wrong.

47:55It is such a silly thing to do. But if that is the world, buy the thing that can't easily be printed, you know, such as a house. And that's the insanity of the situation. But, you know, when the world has gone mad, it kind of pays to sort of go along with it for a little bit. And so there'll be two groups of people listening to us talk right now, broadly speaking. They'll be, generally speaking, younger demographic. It's just like, yeah, life is really hard and I'm quite despondent about it. And others like, what are you talking about? It's always been hard, but life's pretty good. And they're both right.

48:29They're both right depending on your context. but I would bet my left arm and yours that the difference between those two groups are the level of assets that they have got because assets are shelter for debasement. So get some assets, whatever you can do. And that's the great thing about the share market, right? I think you guys, well, I'd be interested in your view, but I know with Strongman that we're seeing a lot more younger people join. And it was always the purview of the 55 plus male investing. It just was. That was the demographics. Why? I don't know. We can get into it. But if you're a dude and you're 55, like retirement's in sight, all of a sudden you've got a burning desire to become an ASX share market investor.

49:11No one else is that interested. And that's changed radically, radically. And the reason is, is because young people aren't dumb. It's like, well, I want a house. I can't afford a house. In fact, even with very diligent work and saving, I still can't afford a house. So now I have to work hard, save and invest. And I'm not buying a term deposit because that's not going to get me there either. It's barely key up with inflation. So I'm going to become a stock market investor. And good on them, right? It's a tragedy that we're forcing you to sort of earn your money twice in a lot of ways. But I guess I would say that for those, you know, some douchebag on a podcast is you should buy some assets, you know?

49:55I get that can sound very tone deaf. But I guess what I'm in a very long roundabout way, I'm trying to make the case that if the good, one of the many good things about the market is that you can buy 500 bucks worth of shares. Yep. So when I say get assets. Oh, even less. Yeah. Absolutely. You're right, actually. Oh, God, I'm living in a bygone era. Yes. So when I say get some assets, you know, just save what you can. And for love of God, don't leave any long-term savings in the bank because that will be eaten away by fees and inflation. Buy an ETF. Buy a few shares. Don't start speculating on the latest penny dreadful mining.

50:34It's a bad idea. But it's sort of like I don't have any other advice for you because other than overturn the government and reform society from the ground up, which I'm there for, right? But other than that, get some assets is all I'll say. Nice. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

51:02Let's talk about property very quickly, mate. We kind of have been, but - I thought we were. Well, kind of living aside what's actually happening at the market at the moment, because I think we don't talk a lot about property, well, at least not as an investment idea in a meaningful way, other than you're ranting about how it's overpriced and you shouldn't invest those sort of yields. But the logical conclusion of that is actually what we're seeing now in pricing in capital cities around the country, which actually we're seeing prices fall. Melbourne's high was 2022, I think. Sydney's is now earlier this year.

51:34And look, let's not pretend either of us know where it's going to go next. And maybe it's down 10%, maybe it's up 10 % from here. Other than to say, well, we don't know what's going to happen. The falls are, frankly, unusual in recent history. In Australia. They are being predicated on things like higher interest rates, the reduced borrowing capacity because of those rates and because of increasing living costs everywhere else. We just talked about that. There have been changes, we just talked about at the time, to capital gains tax and negative gearing. They effectively are already in place now for property.

52:11You can't buy a property in eagerly gear it from today. You can, but you're only going to give it until, I think, the 30th of June next year. You're still allowed to lose money on it. You just can't claim it as a tax offset. That's right. Don't worry. You can still lose money. It's okay. Capital gains tax changes, both shares as well, by the way, from the 1st of July next year on assets you already own, regardless whether you own them before or after or during. The gains from that date are going to be taxed differently. And so there is kind of a growing sense that property may well fall. Now, again, I don't want to put too much weight on this because it's just everyone's speculation, right?

52:51Every time there was a, oh, the market may fall because of these reasons, it goes up 20 % and you go, huh, what do we know? So I'm not saying it will happen. I have no view, no forecast. I can see why it might. I can see why it might. You talked about immigration and money printing and other things that do allow those things to keep rising despite some of the downsides. So I don't know where it's going to go next. It's just notable, mate. I don't really have much to say other than we have seen some falls. It is unusual in the Australian context in recent history. You're right to point that out.

53:19I meant that implicitly, but you're right to call it out specifically. so it's kind of one of those situations where I mean no one knows what happens next but things are less positive than they've been in many many many years and if here's the other thing mate and this is where the investor psychology kind of comes into it I've just described the rational reasons why that might be true you've talked a little bit about the mechanical reasons for prices to be so high and going higher the other bit we don't we kind of imply is the psychological stuff the barbecue stopper conversation, the expectation that I will pay more because I do think there'll be a greater fool because there always has been a greater fool.

53:59And so, the greater fool theories work beautifully for 40 years in Australia, right? The best part of it because there always has been a greater fool or is someone prepared to pay more? If and when that psychological, the story we tell ourselves to kind of grab the sapiens kind of reference, if the story we tell ourselves changes, which is actually maybe that won't happen, then you're less likely to either buy the property or to pay as much for the property as you might have been when you thought the story was true. And so - The doubt is death for any market, right? Right, right. And to some degree, it doesn't even - I mean, the mechanical stuff absolutely matters implicitly and entirely, but also it doesn't matter at all if and when people go, yeah, but I just think it's going to go down.

54:38Yeah, me too. Yeah, me too. Well, let's not buy then. Okay. So - Let me give you a four-hour economic lecture and show you a spreadsheet as to why that's not true. It's like, dude, I just think it's going down and it doesn't need to be more complicated than that and it's the self-fulfilling nature of that. Which is exactly the same as on the way up. You've made the point a million times. We're paying four times now, five times income, seven times now, 12 times now, 14 times income. That's too high. The negative yields, you're not getting a return. This is a bad investment. Yeah, but I just think it's going to go up, so I'm going to buy anyway.

55:07Oh, I know that better than anyone on this planet, my friend. My face has been rubbed in that pile of poo very thoroughly. I don't mean to do it to you. I guess I'm just making the point more. No, I'll do it to myself. Just generally, the stories that we tell ourselves are almost all way. I mean, they can't bend realities. There are natural bounds to those stories. And you've talked about the elastic band. And even with those stories, at some point, it just simply is unaffordable. But within a very, very, very large range of tolerance, those stories are the only thing that matters in a large degree.

55:38We've seen shares that have had PEs of way more than their fundamentals justified because everyone just loved them. We've seen other companies. There you go. There's a recent example. But even for long periods of time, it's like CSL, right? Just PE of 40 growing at 8 % for decades. On the flip side, we're talking about Philip Morris or Altria, the cigarette company. PE was a terrible forever because people just went, oh, it's not going to be a great investment because of this, this. And the returns were extraordinarily good. So it can go for decades. But I guess I make that point for housing because two things.

56:11One is it's notable that prices are falling in capital cities. but also just to separate out the maths of the pointy heads who say, well, the property will, not wrong. A bit like, again, back to your Steve Keen point, you know, mathematically this should be the, yeah, okay, but when people's behaviour or expectations change, that will change what happens in the market. And massive distortions from people who earn a money printer helps a lot as well. So, you know, as I said before, I would be, I'd actually be very seriously considering shorting certain things if, if, if there wasn't a, an implicit backstop that was there.

56:48Uh, and unfortunately you get to the point where it's kind of like, well, we're going to have to do it. And like, yeah, you kind of do you buggers, but you've kind of, you've held a gun to a head and it's like, it's anyway, what I love about what you've said there too, and I'm going to, I'm going to, um, try and underline it a bit too. So, yes, I am – the permable page on property is, you know, I'm very overtly aware of how little my opinion matters on this front. But I think what I like what you've done there is – this is itself notable that an Australian podcast, Australian host talking to a largely Australian audience.

57:28is making the point, not that property will go down. You're making the point, it could go down. Yeah, that's right. And that's notable. And that's like, what do you mean? And that to me is sort of like that is the nub of all of this kind of stuff. And everyone who is listening to this knows that implicitly, whether you think it yourself or you've just encountered it with others. When discussing property, there is a religious faith, which is there's no other way to describe it, that it will always go up. If there is anything that's a challenge, it'll be a very short-term little wobble. In fact, not only will it go up, but it'll, the old cliche, it'll double every seven years.

58:16And it did. It did for the longest time. Now, maybe it will. And to your point, there is that, if that's what the expectation is, there's that self-fulfilling prophecy of it. So I'm not going to make a prediction either, mate. I've learned that lesson the hard way. But I would just say, and this is true regardless of what you're investing in, we all focus on the upside. Oh, someone, my mate gave me a tip on this stock. It's got all this potential and it's going to make a fortune. It's like, yeah, maybe, maybe not. And just it is incumbent upon you as a prudent custodian of your capital and your savings to consume.

58:56All we're saying is not that it's going to fall. It could fall. And you need to factor that into your considerations. You need to have that grounding, that awareness that it's a possibility. Because as soon as you start investing in a quote unquote sure thing that never goes down, that's almost the only sign you ever need of a bubble. In fact, I've actually heard that definition before. I forget who said it now, but a definition of a bubble is when everyone is convinced that things can only go up. And that's like, well, exhibit A, right there, right there with Australian property. So I've really flogged that horse to death.

59:41And again, just one more time here for anyone listening, anyone who's in property, just put that on your radar as a possibility and ask yourself, what do you do in that circumstance? I actually had lunch with a mate a couple of weeks ago and he's got a ton of property. And he's like, I couldn't give stuff. And I was like, yeah, because you get a really nice rental income out of it. He structured it in a very unusual, very sensible, but yet in the Australian context, unusual way where he makes a decent yield off the property. And it's like, isn't that a lesson? And that extends to shares as well.

1:00:21We've often made the point that when you have the share market corrections and crashes, which you just generally do every so often, when you look at the difference between what the share price does and what earnings per share or what dividends per share do, it's not that bad. Even if you go to the GFC, you go to 2008 with a market just like got cut in half, the worst financial markets correction in however long. When you look at the ASX 200 or the all-ordinaries aggregate earnings on a per share basis or aggregate dividends, I don't think they dropped more than 10 % or so. So again, for the long-term investor who's making an informed investment based on expectations of real-world things like cash flows and not just vibes and what other people might be prepared to pay you for your assets.

1:01:12When the market does what the market is inevitably going to do, I'm not saying you should celebrate. I'm not saying you're going to be happy about it. But it's just like it doesn't wipe you out. You're not a forced seller. and in fact, you're still getting a return in the interim and it puts you in a position to survive. And really, if there was one thing I could sort of say, what's the most important thing for a long-term investor? It's survivorship. Because if you can survive, even if you're doing it in a very mediocre way, the pure fact that you're still in the game is almost enough to guarantee you much more success than the people who go like, I only get in when everyone's cheering and the bulls are running.

1:01:54And then I panic and sell when things turn or I'm forced to sell because I've structured myself in such a way. And so, again, what we're saying here is just keep it as a possibility and ask yourself, what does it look like for me? If you're someone listening to this and go, oh my God, well, given the way I've structured things, a 5 % fall in house price is going to make massive negative equity and I'm not going to be able to service my portfolio with mortgages, and I'm going to be a forced seller in a depressed market when a lot of other people are doing things. You might convince yourself that you're doing low risk investing because it's bricks and mortar and bricks and mortar is very safe.

1:02:35You're actually playing with fire. You're leveraged up to the eyeballs and leverage is, as Australia has learned in first-hand experience, is wonderful when asset prices are rising. It's the best thing ever. Um, you know, uh, but it, it, it, it'll kill you. It'll kill you the moment it turns. And if you're the kind of person who's just like, I've made no allowance for that. And I don't even being that critical. It's like, there are people our age, you know, up to 50, who's like, yeah, my entire adult life, it's only gone up. So it's not that reckless, an assumption or a thing to extrapolate, at least an experiential kind of way.

1:03:14But let me tell you and let history tell you and let other nations and their examples tell you that it doesn't always go that way. Yeah, nice summary, mate. We've been promising to get to it, so let's make sure we do cover it off before we run out of time. I just set it up with, you know, you mentioned at the top, US bond yields are a 19-year high. and they've been kind of up and moving and as I said at the beginning, we've talked about it a few times off air and so on. So we've talked about it. Well, kind of it is what it is. It's hard to talk about any meaningful way generally because the changes are small incrementally.

1:03:53But again, like back to the base effect, maybe that's what this podcast is brought to you by this week. It's meaningful. And when you get to those sort of records, it's also meaningful, even in cyclical ways. They don't have to stay this high. It's not like, you know, Bond yields aren't going to be like inflation, never go back down again. But when they get to levels that haven't been seen in 19 years, it is notable. It is worth kind of talking about and being mindful of. And the quote I saw this morning, which I think sums up beautifully, was the quote was, I can't remember who it was or where it was in one of the financial papers.

1:04:22The quote was, the bond market will stop panicking when the Fed starts panicking. And that idea of bond yields really being a response, the kind of the aggregated, accumulated, financialized response, if you like, to what's actually happening when it comes to US financial, I'll say, policy. I'm talking about monetary policy, fiscal policy, the whole box in dyes. So I'll literally just throw it back to you, mate, having said it up and say, what is the big deal? What is worth talking about when it comes to the US bond yields being a 19-year high? Why does it matter? Yeah, gosh. Settle in. because I could go for six weeks nonstop here, but I won't.

1:05:08And long-term listeners can probably predict what I'm going to say. But anyway, let's just do it. I guess I'll unpack a little bit about what you said there, which is a great line. You know, the bond market will stop panicking when the Fed panics. Why is that insightful? Why is that interesting? Well, what does it mean when the Fed panics? It means that they stimulate. They aggressively start intervening. They start doing open market operations and yield curve control and quantitative easing. And there's very, very technical, sophisticated sounding things with just a very clever way of saying money printing.

1:05:40Because you can't say money printing because the populace ain't going to go for that. It's like, you can imagine the Fed chair gets up and go, hi, so things aren't looking great. We're just going to put the printer on the clock and door sketch, right? We're going to put the printer on the window, open the window and press print. That's what we're going to do. Like, what? No. So anyway, and why would that cause the bond market to stop panicking? Because they're going to use that money to buy the bonds. The bonds are going to go up because they're going to buy it. When bonds go up, yields go down.

1:06:15That's how the mechanism works, right? So it makes perfect sense that the bond market would actually see something as destabilizing and long-term negative as monetary debasement as a good thing. Because bondholders are the bag holders. You're holding the bag. You've got the trust me bro from the counterparty. And it's just like bond, you'd speak to bond market people and they love to, I think it's a fascinating area. I'm not being too critical here, but they love to make something really basic, super complex. And I, as an equities guy, would say, well, I think equities investing is much more complicated because we're dealing with business models and all kinds of different things.

1:06:57You've got an IOU, bro. That's what you've got. Government has said, give us some money and we'll pay you back in three, five, 10, 30 years, some cases 100 years, and we'll pay you this much interest along the way. That's it. That's it. That's all it is. That is all it is. And so what you find is that there's two parts to it. There is the new debt that gets issued because the entire Western world is in a structural deficit. So we're just spending more than we have. It's like, we've got to borrow more money. Borrowing more money isn't them going to the bank. Borrowing more money is them issuing more of these IOUs and the market buying it.

1:07:32And as long as the market's happy to buy it, and when you're the reserve currency and the global superpower, people are pretty keen to buy it. It feels like it's the best looking horse in the glue factory kind of thing.

1:07:47but at a point you're going to find the market for no great reason other than I don't like what you're selling and oh sorry let me let me come back here so two parts of it so one is we're issuing new debt okay great let's let's see if the market will will buy that mostly they they have been the other part of it is the rolling over of the debt that matures don't forget the us has got what do we i don't forget what we're up to now we're almost 40 trillion in debt like the numbers it's it's it's austin powers like parrot like you know four billion good jillion it doesn't even make any sense at a trillion dollars that's a million million like it's just your human brain can't wrap its right wrap its head around that that those kinds of numbers and and when those when those bonds come due in other words hey it's time to pay me back my money they don't go, yeah, no worries.

1:08:40I've got some over here. They go, we don't know. It's Chopper. It's the Chopper Reed movie. Chopper, no money. No money here. There is no money here. And so they have to, what they call, it's much more sophisticated terms. They've got to roll over the debt, which just means we've got to issue. It's like saying, crap, my credit card's due. I don't have any money. It's all right. I'll pay my Westpac credit card with a new credit card from the CBA that I got. Literally, almost literally, I can't be careful with my words, but literally what's sort of happening that's there. And all of that is fine too.

1:09:17That's not a problem too. As long as you've got a willing buyer who will say, yeah, I'll give you some money. Now, at a point, so it's a long run up, mate, but at a point, and when I say bondholders, It's actually all of us. It's all the mums and dads and the teachers and the nerds, all the sort of cliché kind of thing. It's just that it's actually mediated through these very, very large institutions. Think sovereign wealth funds, think endowment funds, think insurance companies, think these very, very, very big entities. And they love bonds because bonds tend to be very reliable, you know, in a more or less stable world.

1:10:00Don't buy Argentinian bonds. That's a whole other thing. But the reason you wouldn't buy it is because the reason that you might not be so enthusiastic about buying US bonds. And that is that when it gets to the point where the debt is so massive, that it's like there is no way you can pay this back other than printing money, then, okay, I'll still take the deal. Don't get me wrong. I'll still take the deal. but I need enough of a interest rate, a coupon rate, a return that's going to compensate me for the debasement for the inflation. So it's still even in a bizarre way, rational to buy a 30 year bond, even knowing that there's going to be a lot of money printing, even knowing that that's going to cause a bunch of inflation.

1:10:42Because if you think, well, inflation is going to run very hot for a long time, that's my base case. You know, let's call it four or 5 % for an extended period of time, it's like, well, it still makes sense if I can get 8%, 9 % yield on my bond, right? Now, things could go pear-shaped very quickly and all bets are off. But in most circumstances, that's not terrible. But that's why the bond market is, we're seeing yields go up to 19-year highs because very rationally, for purely self-interested reasons, they're going, I like the bonds. I like the idea of them, but I don't like all of this inflation that is going to come as a consequence of how you have to, they're not idiots, these people, right?

1:11:23And so this is why you've got to remember the Fed, the Reserve Bank, you know, they overstate their importance and we overstate their importance. It's the emperor's new clothes. You talked before about the power of psychology. It's like, oh, Michelle Bullock said this. Oh, Walsh said that. It's like, you can't, I mean, you can say whatever you like. You can do the most impressive tap dance in the world. But at the end of the day, if no one's buying what you're selling, what do you do? Right, right. There is precisely and exactly one thing that you do, which is you go, well, if no one else is buying, I guess I'll buy it.

1:12:02It's like, well, wait a second. Let's look at the RBA. You don't have your negative equity. You've got more liabilities than you've got assets. Just let that hang there for a moment if that's news to you. That's been the case for years now. it's special it's special because you don't have to earn money you don't you just you can print it and they literally well i feel like it's sort of like it's so mad when you spell it out in plain english that any rational human being listens to this kind of rant and goes you're a nutbag tin hat wearing conspiracy nut there is no way that that can be true i can't my brain cannot allow me to understand that as true because the world doesn't make sense if that's true.

1:12:46And yet, all I'll say is do your own. I was going to say, take my word for it. Don't take my word for it. Do the opposite of take my word for it and go validate that for yourself. It's the biggest open secret that there is. So this is, and I will put a bow on it right now. This is why the bond market is a big deal.

1:13:07The RBA, it's the tail that wagged the dog, right? At a point, when they're not going to pony up the cash, there is nothing left to do other than massive monetary debasement. I mean, it won't be called that. It'll be called something else. Actually, sorry, there's another political lever, which is very well played, very well crafted and very well honed over the centuries, which is just all kinds of – it's more – again, it's got a scary name and it should be scary. It's called financial repression, but it's just fancy. It's like capital controls. China does it, for example. You can't take your money out of the country.

1:13:44They're already talking about it with super. And this is the thing I've been saying forever. And it's happening, right? They will dip into one of the biggest sovereign pools of, not sovereign, one of the biggest national pools of savings on the planet for a government that's well over its skis fiscally. That's going to be touched. And it'll be touched in a way where it'll be like, we're going to increase the tax on it. We're going to require that every self-managed super fund holds 10 % in bonds. We're going to require that all of the industry super funds have a mandate for 20%. It's all very innocuously sounding, but what the bottom line of it is, it's just like, we will engineer forced buying because we need someone to be the bag holder here.

1:14:31I've probably run out of puff at this point. I have for a long time tried to understand this and then articulate it, but it's hard. On one hand, it's super simple. On the other hand, I know it's much harder than that because I usually get very lot of blank stares. And like, so I don't know, mate, maybe you can flesh that out a bit or push, maybe even better, maybe you can push back on some of that. But I don't feel it's actually when you look at the mechanics underneath And this isn't like, oh, I heard Joe Rogan talk about this on a podcast. This is the RBA's own material, right? This is the government's own material.

1:15:13And when you look at it, that's what you see. So I don't know. Talk me off that ledge. This is why I will just say inflation is going to run hot. That doesn't mean Venezuelan hyperinflation, but 2 % inflation. Get real. No way. No chance that that is going to happen. barring some kind of incredible AGI, AI-led productivity boom, which maybe that'll happen. Let's hope it does, right? But even then when that happens, we're going to see a massive increase in the wealth divide. So I don't know. I'm tying myself up in knots in rage here, mate. I'm going to shut up at this point exactly. So I don't have much to object to or disagree with.

1:15:56I think there is – it's worth pointing out that Australia is in a much, much less severe position than the US. Now, directionally, if we don't change, we'll get there. So, I don't want to do any Australian exceptionalism or we're okay or don't worry. Like, take that as an example. And they're one of our major trading partners and our major LRA and the linchpin of the Western world. Right, right. But I'd rather be us than them, all of that considered because they are all those things and they only have themselves. So we have the advantage of not being in the US. Yes, we'll be buffeted by any ramifications.

1:16:29The ripples come out from the stone in the pond will wash over us. But I'd rather be in the third or fourth level of ripple on the absolute epicenter if the US does, if things do come to pass. It'll suck. And there's always the – I make the point just to separate out the what could they do or will they do differences. and you're very pragmatic in like, well, some things they could do, they're not going to do, so let's not even bother talking about it. You're not even wrong. But in a version of the world, they can simply have higher interest rates and pay higher bond yields, and that will, like it does here, eventually start to depress borrowing.

1:17:08That depresses money creation. That depresses consumer inflation. And so the Yanks could get back to 2 % inflation should they choose. The challenge they've got is the size of the interest bill as that rate increases and the way they meet those repayments. And that's just to kind of take it full circle. The traditional way of managing, why would the inflation run hot? And you wouldn't in any other sense other than if you didn't want to raise rates or couldn't because of the burden of that interest repayment cost. And that's where, and again, tell me if you think I'm missing the story here, mate.

1:17:40But that's where the best option until it can't be done. I want to say best again, let's think about long term versus short term. If you're the US, what do you do? Well, if you care most about the well-being of the society, the country, the population, you say, all right, here's the thing. We have to pay higher interest costs for a little bit because it's like consumer inflation here at home. We'll pay higher interest in our debt for a while to get the inflation rate down. And again, let's remember inflation. We're talking a lot about consumer inflation. It's true. Higher rates also suppress borrowing because they make the reinvestment hurdle higher.

1:18:17And so, okay, I might have borrowed. the bloody one-hour grocery companies. When money was free, there were a million of them. As soon as rates went up a little bit, they went, oh, we can't fund that. We're out. And the venture capital guys went, well, we're not getting a decent return. We're out. So higher rates do suppress borrowing, both residential and commercial. And so what would you do? You'd say, well, high inflation is bad. Let's get inflation down. How do we do that? We're going to increase rates for a while. That's going to suck. Stop printing money. Stop printing money. Anything but that.

1:18:46Anything but that. Sorry. And that's it. But that's important. So those things are possible. The risk you've got is, to your point, mate, at some point you can't stop printing money because your debt is so high that when the rate goes up to whatever amount, you can no longer fund it other than raising taxes, and that has its own short-term political and economic impacts. And so this is where - Cut services on top of that as well. So, yeah, cut services or raise taxes. Sorry, you're right. Sorry, thank you. Yes, yes, yes. Run a budget circle. A little preview of the future for you, dear listener.

1:19:15Well, this is the thing, right? And so this is where you're right. And we can't affect the US. We can't really affect Australia. You and I are just two blokes banging on a podcast. But the opportunity for Australia is to go, huh, I see what they did. And I see why they might have even thought it was a good idea to do it. But I've now seen what runaway money supply looks like. I now see what runaway inflation can do. And I see there's a tipping point where raising rates isn't feasible anymore. or if it is, it's stupidly painful because I'm going to have to, as you say, raise taxes or cut services to pay for it.

1:19:51And so that is the... I'm a massive optimist, as everyone knows, but that is the opportunity we've got. This is the... Here's what I prepared earlier on the TV cooking show. You look at it and go, huh, so that's what it looks like if we go on this path. Yeah, it does. We probably shouldn't do that then. No, we probably shouldn't. And again, to your point, we can't escape any global blowback or flow on effects from a globalized world. We'll do well if the Yanks do well, we'll do less well if the Yanks do badly. But we have the choice to mitigate as much as possible that impact and frankly, stop it in its tracks here in Australia if we look at it and go, so why don't we actually do a couple of things that make a difference?

1:20:28And that's the key. The difference we've got, the benefit we've got. We won't because it's too political. Because you're right. You're 100 % right, except that what are you literally saying? You're literally saying we're going to increase taxes and we're going to cut services because that's how you fix it, right? And who's getting elected with that problem? And it's not that they don't know it. It's just that we'll deal with it later. Not now. I've got to get elected. I know it and I can't. Well, yeah, that's right. If I say I'll deal with it now, someone will say I'll deal with it later and they'll get elected instead.

1:21:00Absolutely. That's why it won't happen. Yeah. You're right to be optimistic. I'm even less, what's the word, fatalistic about it than you are. But put it this way. Literally, find me one example, one out of the 200 different eight nations on Earth and the thousands of years of human history where someone has done that. So you can be optimistic, but then there's this blind optimism, right? And it's sort of like, and maybe it's pessimistic the other way, but I would just say it's realistic to at the very least say there are solutions. They're very painful. And at the very least, they're very statistically unlikely.

1:21:38I think that's about as close as you could drag me towards it. That's fair. Well, the other thing is timeframes, right? So the pace at which you get there. Again, if you're eventually going to go off a cliff, the end result is still the same, right? But there's going to be doing it tomorrow and doing it in 100 years' time. And I don't know. I have no objective thought as to how likely or how quickly it's likely to happen, other than if it's going to happen and it's going to be everywhere, Listero is going to be behind that one. So I will say to you, I think my hope, and maybe again too optimistically, is that if the Yanks do get themselves into more trouble, because I was in trouble, they're already in trouble, and we see that happen, we have the chance to go, ooh, not us then.

1:22:20I hope so. So there is some – the Yanks are – if it's inevitable overall or almost inevitable, it's like it happened to America first. And even when that happens, hopefully, and again, maybe too optimistically, there's one thing to say, oh, I don't have Apple just keep doing it until it happens. When you kind of go, ooh, see what happened over there? They drove at 140Ks in a 40 zone. They crashed into the wall. Maybe let's slow down a little bit. I don't know if it would make a difference, but that's my other optimism is their pain could be our lesson if we're smart enough to learn it. And again, maybe we don't.

1:22:52But that's what's dumb about that. Not what you're saying, but that standpoint is that you don't need to watch in real time what's happening to the US to draw this conclusion. Like, I hear what you're saying, but it's like, why are we waiting to see what's going to happen here when in literally 99.9999 % of every other example, it's not worked out well. It's like, yeah, but I got a good feeling. If a US can thread this needle, then we're okay. It's like, no, we don't. We know how this story ends. I've seen this movie a thousand times before. So it's kind of like, you're right. You're right. Hopefully something bad and scary enough would be the splash of cold water that we need.

1:23:31But it's kind of like, how else did you think it was going to go, bro? Like that was always the path that it was on, you know? Yep. And here's the thing too. You mentioned the US, right? Get my mate Google to help me out here. So Japan is just, we could do a whole show on Japan. Japan's 236 % debt to GDP, right? Italy, 135. The US, 125. France, 118. Canada, 110. China, 88. The UK, 96%. India, 81%. Like the list goes on and on. So, you know, Australia at 50 odd percent? Yeah. Yeah, actually, we are really, really, really, really in a fortunate position. But these are much bigger, more powerful, more economically larger entities than us.

1:24:24And it's just, it's going to suck if, even if we sort of, even if we sort of pull our head in a little bit, because, you know, no man's an island, no country's an island, even Australia, which is an island, is not an island in the context of the earth. And, you know, it's, I guess the point that I would, to be less doomerish, is to double down on your point of the timeframe. And I think that's the other thing that I think a lot of the perma bears miss here is that these car crashes occur very slowly. I've been deep diving on the Byzantine Empire and all kinds of history podcasts. And he's like, you know, the writing was on the wall 200 years before the thing collapsed, right?

1:25:13But who's investing over a 200-year timeframe, right? And that is actually the lesson of all great empire declines is that these take a long time. So I think that's what makes it as a challenge for investors is that rationally, logically, this doesn't end in a good way. And to your point, the best way it ends is by us deliberately taking some very bitter medicine, which is not fun either, right? That's going to have an impact on house prices, on your wealth, on your income. Long term. Yeah, exactly. All of that kind of stuff. But, you know, this is, it's this weird thing where it's like the most sane thing to do in an insane world is sometimes the insane thing.

1:25:59And it just, you know, and it's just like, I think the wrong move, as bearish as I have been and as negative as I have been, is to go, oh, crap, I'm going to gold and I'm just pulling back on everything. I think that's the wrong move. And I think it's the wrong move because as dire as things are, they could get a lot more dire and it could probably play out over 10, 20, 30 years. And so what are they going to do? They're going to stimulate. Why? Because they have to. What does stimulate mean? It means higher inflation. Great. But it also means higher inflation with asset prices. I'm back to it.

1:26:34I'm back to the TLDR kids to skip over all the nerdy stuff is take as much modest serviceable debt as you can, buy good quality assets, and you will be far more protected than anyone else. And one final point I'll make on, I'm not going to say final, I can't back up that promise. One other point that I'll make with all of this kind of stuff is that even when humanity has faced very, very dire situations, and we read about them in the history books, What's also interesting is that within those societies, there are plenty of people who do just fine. You know, after the bubonic plague, there was an incredible period of prosperity because there was a lot of cheap land.

1:27:24You know, and also like I find Argentina, I've mentioned that a few times, such a great case study. But again, I come back to the early part of the 20th century when it was the richest nation on earth. You see it when you walk around the capital. It's just sort of like these incredible sandstone buildings. It's just the capital that was sort of built up there is that these, as things obviously turned for the worst, really for the worst, over a very long protracted period, there's a lot of people who lived through all of that who did just fine. And it feels selfish. And I want to sort of say, oh, rub your hands together and we should celebrate as Rome burns and make a little bit of money on the side.

1:28:08That sounds really shallow and selfish. But I guess what I'm saying is that these macro forces that we're talking about, even if they come to pass sooner, it's not going to be like everyone's in a bread line here. And, you know, you can advocate for change, you can talk for change, but I just keep coming back to the so what for you is do what you can to shield yourself as best you can because it probably won't be that bad. Like if you're smart enough about it, right? It's going to be incredibly bad for the dude who's decided to borrow a fortune, put it all in some crypto nonsense or, you know, some stupidly massively overvalued negatively geared property or choose your stupid asset of choice.

1:28:54And they're going to get their four sellers. They're going to be wiped out. They're going to have a very, very, very, very bad time. The trouble is they'll have a much, much better time than you until that point. and so you know uh there's a hair in the tortoise element to maybe all of this but i guess i'm trying to be positive in the sense that as bad and as negative as things are you know it's like the pain the pain well actually we're seeing it you don't have to predict the future we're seeing it right now we made the point earlier in the pod there's this there's there's this k-shaped economy where you know a very significant part of australia is doing it as tough as they have for generations and there's another part that living the life of riley it's like well which is true.

1:29:32Both is true. And I'm just saying if things were to continue to sort of deteriorate, at least try and be in one camp if you can. No, I like it. And again, there's the kind of kind of the same thing, right? Which is if you own things that create value or increase in value, not price, but value. Yes. Again, back to your coconuts in the island. Assets that have value and will increase in value because of some particular component of what it is or what it does, that's where your opportunity is. And I will reluctantly mention even things like gold and Bitcoin. The scarcity value is that that accrues value to it in the denominated currency because that's its attribute.

1:30:20The number will go up a lot, but the purchasing power dimension of that won't be as significant. Look at Weimar Germany and the price of gold there. when J curve's to the moon. But that's more a function of the denominator than it is the numerator. But you better have that than have the cash, which is both the numerator and the numerator. So I guess that's what I'm saying relative to the - That's the point. You might see a number go up on a screen. In reality, you might just be preserving your wealth, but that's not a bad thing. Like preserving your wealth is better than having your wealth eroded, right?

1:30:53Sorry, mate. No, no, no, that's the point. So, if it is property that is in demand and valuable and earning some sort of return, that's useful. If it is a business, shares or a private business that is growing in value, doing something for someone, is earning its keep, then those things have value. And that's kind of the point. And you made the point earlier, Matt. I will double click and we'll finish up. But, you know, some people are going, well, hang on, you're saying buy assets. Have you seen how I'm struggling with a mortgage and paying the bills and everything else? And again, it's not – we're not – I never want us to be – and I think most of our listeners know this, but if you're new to the pod, we're not saying, oh, good, the capital will still be fine, all the rich barsters will become richer barsters and everyone's happy.

1:31:34I mean, that is what will happen probably. That's what will happen though. Right. The world's not fair. We're not saying therefore, you know, just be a rich barster. We're kind of just making the point that we can't solve everyone's circumstances. but to the extent you are able to in whatever small or large way, and if it's not a large way now, a small way regularly will get you to a large outcome at some point if you can. So to the extent that you can is really what we're saying. Do these things to put yourself in the best possible position. And if you can't, I guess all we're saying is understand the circumstances that we're in and we wish we could make it better for you but we kind of can't.

1:32:11So if that's cold comfort, then apologies. But if it's not saying you should do it, we're saying the only way to be able to do it, if that circumstance does eventuate, is to own those things that actually have – that accrue or accumulate or produce value over time. That is how you play the game. Yeah, wealth is relative, right? The numbers are distracting. Even if all you can do is just hold your position as others fall, I mean, it sounds so dog-eat-dog, doesn't it? I've got to come up with a better way of sort of saying this. Yeah, but as I said before, you know, if you can save, I say to my boy all the time, going on 17, you know, I was like, dude, if you can save 20 bucks a week, that's going to make a difference.

1:32:58It's 1 ,000 bucks at the end of the year, right? You know, or 1 ,100 if you get a little bit compounding. That's it, right, and then the next year, the next year, yeah, exactly. Yeah, would it be better if it was$100 ,000? Yeah, of course. I'm like, yes, yes. Yes, I would rather a power yacht than a tinny. Thank you, Captain Obvious. But what I'm saying is it's better than just weeing it up against the wall on something that is like, you know. And you will wake up one day, I was like, God, where did this$40 ,000 come from? It's like, well, maybe the last five years of saving and investing. Maybe that's where it came from.

1:33:29And it's like, if it's not enough, it's like, well, maybe do$40 away,$50, whatever you can. Well, you're probably going to say, even if the world was looking really bright and prosperous, do it anyway, because it's still the way to get ahead. That's the beauty. That's the beauty of sort of leading a reasonably, frugal's not the right word, but just here's financial planning in a nutshell. Try and create as much value for the world as you can through whatever endeavor is most aligned with your skillset and interests. You've got a job, start a business, whatever it be handy, you'll be fine, right?

1:34:03You'll make some money. Spend less than you earn. That's another good sign, right? And take that savings and invest it in high quality assets. That's it. Go home. Don't tell your financial planner to take a walk. That's it. That's the end of, you know, okay, yes, we can get into the weeds in terms of, well, what's a good investment and all the rest of it, but that's it. And the point is the world's looking crappy and the future that looks a bit bleak, you should do what we're saying. The world's looking great. The future's never been brighter. Yeah, you should probably do that anyway. That's the beauty of all of this kind of stuff is it's Just like, ah, so you're telling me just be sensible and save and invest.

1:34:40Yeah, that's what we're saying. The only thing I was going to make, mate, is you said, you know, 40 grand, if it's not enough. I was like, well, if it's not enough, it's better than the 40 grand you wouldn't have had had you not done anything. Right. So it's still like better than would have otherwise. The counterfactual is a horrible term, but the concept is beautiful. It simply is what would happen unless you'd taken the action. And so is 40 grand enough? I don't know. Maybe it is for you. Maybe it's not for you. If it isn't enough, that's kind of - It's better than$400. Better than zero, right?

1:35:11So directionally, push as far down there as you can. Now, at some point, when you've got more than enough, you can stop doing it. But until that point, whatever you can do, again, we're back to short-term pain, long-term gain. Defer consumption now, more consumption later. And by the way, not just consumption, which sounds very materialistic, and it can be, and it is. more comfort, more security, more freedom, less worry, less stress, less relationship drama. Like it just, you can want, again, back to the thing we said before at the very beginning, you want the world to be whatever you want it to be, AI-wise.

1:35:42Same with finances. You can want to believe in a world where these things aren't necessary and whatever. That's cool. And if you can find a way to make that for yourself in some sort of Zen yoga Buddhist, you know, knock yourself out. For the rest of us, it's like, well, okay, I'm not a greedy bastard. I want to be able to say, I will be okay. If these things happen, my kids will be okay because I can afford to give them some support. That's what I'm aiming to do because it makes my life more comfortable and less stressful. Again, to your point, mate. There's so much value in insecurity. Psychologically, it's the Maslow's hierarchy of needs thing.

1:36:17100%. That's exactly what. And you know what's great about that, actually, that point? The basis of them, food, shelter, warmth. Guess what? How are you going to pay for that? Again, if you're a commune, you're in a different life. If you've got a trust fund, good on you. For the rest of us, well, you get those things, then secure, maintain those things by having the means to do that. And it's a worthwhile aim. You mentioned the yacht, the tinny. If a tinny is enough, cool, that's good too. But you want the watercraft. Do as much as you can to make yourself as bulletproof as you can. Again, not bulletproof as in I'm eating caviar and drinking French champagne every night.

1:36:54Just bulletproof as in I will be able to have a comfortable, safe, secure, stress-free, low-stress life as possible. Get to that point. After that, my studies show you don't get that much happier with more and more and more money on top of that. You don't. But trying to that level at least, you can go, I'm okay. You talk about winning at life. That's it. You've arrived. You've won. You're done. You can do more. It's a trophy. Right? And it's not a gold trophy. It's a, you know, I don't have to ever race again trophy. Better than a gold trophy. It's the best trophy you can possibly have. Right.

1:37:28Security, peace of mind for you and your loved ones. I mean, are we not all here for that? I mean, there'll be people who are here for the Lambo, but take it from me. Don't take it from me. I keep saying this like I've got a Lambo. For a man who has a billion-dollar business, I said that. Four-inch supercars and a couple of power boats. But study after study after study shows that the dopamine hit you get from a new toy is very fleeting. I said on the pod before you went away, we bought, we bought a new car. So man, that was great. That was a great week. Like that was the best thing ever. Well, that was so much fun.

1:38:06That's a car. You know, like it's just, it just is, we get used to things so, so quickly, but the things that really matter, like they will never change and they will be eternal. And, and yeah, I don't know. Did we say at the start, we weren't going to flog the horse. We're float horses. There's a pile of bones and flesh and mush on the ground and I'm still kicking it, so I should probably shut up. Did you really expect anything different? Of course you didn't, but we are at least happy to be back and happy to be chatting. Thanks for spending a bit of time with us. Hey, enjoy the first half of your weekend.

1:38:39We'll see you on Sunday morning with a Motley Fool mailbag, which we've been looking forward to getting into for ages. I'm actually tuned into that. Until then, have a great half of the weekend and full 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.