The value of ‘value’. February 21, 2025

24:36Like that's how I've got savings. Rather than barter it for something else, a real thing in the economy, I've taken an IOU, which is just cash. I've got purchasing power aside for later. I've contributed my effort and time and brainpower and resources to the economy. I've produced something, presumably, with all that effort, and then I've just taken an IOU. So I'm a net benefit to the economy. So firstly, that's the other point. But then I'm just, like all of us, I'm just going about my life, going, making my own personal subjective decisions. hey, I've got a bit of cash. Jeez, I feel like a strawberry ice cream right now.

25:09And for some central bureaucrat to sort of say, no, you're buying too many ice creams at the moment. Please stop. And that's why prices are going up. So we're going to punish you for that. Oh, by the way, you're not buying enough strawberry ice creams and we're going to make it more easier for you to buy ice creams. And again, it's well-intentioned. I made the point yesterday. I very rarely tweet, but I had to tweet yesterday. I made that point. They're good people operating as best they can under a flawed orthodoxy is my view. But it's just, I think when you spell it out, when you, well, I think, hopefully, when you sort of really, if you were to take a year nine economics class, they've never really thought about this stuff before.

25:54and you would have a really open and frank conversation, really just try and talk about what's going on here without having the crux of big jargony words to hide your ignorance, which is what almost all experts do. Oh, it's the Nauru. The what? Oh, the not accelerating inflation rate of law. What? What does that mean? You know, and to explain it, it was just sort of like, I think it's ludicrous in principle. Sorry, I went back to it. You did. You couldn't help yourself. That's okay. I couldn't, but I guess I was raving and raving to my wife and she's like, why does it work you up so much? Don't you have a podcast to do this on Andrew?

26:32Catch you on your first day. Don't worry. I said to you, you have nothing. I can go a lot deeper on this. But I guess partly it's the frustration with it all, but I think the other part of it is it's just sort of like, what's weird to me is that this perspective is the fringe tinfoil hat perspective. Yeah. It'd be different if it was sort of like, oh, you know, some people like blue and some people like red. And this is, you know, just there's a mix of views out there. Different schools of thought, yeah. I can understand that. Yeah. Why is this perspective the 1 % of the crazy? And it's just like, oh, they're crazies.

27:08That's what I don't get. That's why I get so fired up. It's like, hello. The emperor's got no clothes here. You know, there's a few people out there going, dude's naked. I can see he's junk, right? Like, he's out there. And they're like, oh, you're crazy. That's the frustrating part for me. Fair, fair. And all people do it. So, like, you know, you have these conversations and it always ends with, oh, well. Anyway, what do you think the RBA is going to do next? Like, ah!

27:39I'm in some simulation that's designed to torture me. I think that's the problem though, right? Like, I think there are always those two tracks. And we talk about this with politics and policy all the time. is like there is the what would you do given the choice and what's actually going to happen. And I think that's the hard part is we kind of have to live in both those worlds. You know, there's things I don't tend to have as violent a view as yours in terms of the way I would change some things, but I'm not planning to burn anything to the ground anytime soon. But the same kind of idea is like, you know, so this is the problem.

28:13We're doing this, but this is the problem. And it's exactly the same in reverse. It's so crazy, right? We will be fine. I just want to, I do want to go back to politics just for a second on the need and deserve thing. Only because I think there is a real, really significant, I don't want to be the old man. I don't want to be the back in my day guy or any of that sort of stuff, but it's not. However, nevertheless, back in my day. Get off my lawn. Right. Since the first time I noticed it, and I don't want to make this the blame on the central point. And it's going to be a political figure because it has to be the first time you notice that someone's in power, someone's in opposition.

28:48But the first time I really noticed it was Tony Abbott in opposition against, it must have been Roderick Gillard, or I don't remember what it looks like it was. And it was when it came about, which was the, I feel your pain, you are doing it tough, I will fix it for you. Yep. And that was the first time maybe - Not the cry of the populists. It's a massively potent message. Right. And, mate, I don't know if it started overseas and came here, whether Abbott came up with it, where it was already happening, obviously I'd noticed it before. Again, I'm not saying it's his fault or he started it in any kind of meaningful way, But it was the first time I noticed it ever since then.

29:18Everyone's done the, you're doing it tough. I feel bad for you. It's the grievance politics of, you know, yes, you poor bastard. You're being harsh, hardly done by. I will fix it for you. And the government's done this for the last three years with that Michelle Bullock. She's a naughty, naughty lady. I wouldn't do that to you, but she's doing it to you. I'm really sorry. And if I could fix it, I would, you know? And it's that rubbish of, and again, I know you don't agree and accept the RBA's role. So I do want you to suspend that just for half a second. Sure, sure. But I only to say that idea of the politics of this, where all the parties go, oh, everyone deserves a rate cut.

29:52So, well. Do we? Well, but it doesn't just go one way, right? So, by the way, what's deserve? Deserve is I have done a thing and therefore I have been rewarded with the thing I have earned by doing that thing. What did we actually do to deserve a rate cut? Did we rescue a kitten from a tree? Did we, you know, did we go and do, you know. No, we over-leveraged and aped into an eighth investment property. Right. Borrowed up to the eyeballs and now we deserve some relief for that very sensible course of action. Right? And so I just, and it's not about even about housing necessarily, even about rates.

30:25It's actually not about that. My broader point, I suppose, is just that, speaking of shouting at the sky, just the absolute garbage of the grievance politics, of I will pretend you have a problem. I never say pretend. People are struggling with high rates. Like, I get it. It doesn't mean you deserve something. I don't deserve a pay rise unless I've actually gone and done a thing and earned some money. If I've earned some money for the boss, We deserve it in the same way that we all deserve a Harborside mansion. Right, exactly. Yes, yes. I mean, we made the point recently. It's like we are really wrestling here with the reality of scarce resources.

31:01There is more demand than there is stuff to go around. That fact. Fact. Now we can debate how we carve it up. That's a legitimate debate. But that's the starting point. So just to run with your point here, What these kind of comments suggest is that everyone deserves everything no matter what. And it's just like, it's very appealing and there's a political power to it, right? So I get it. But it's just, and if you say anything else, it feels like, are you a real mean? That's what I got. Oh, so it only should be the rich that do that? No. No, I'm saying that people who do dumb things and take excessive risks should not be bailed out at the expense of everyone else.

31:39You know, and I'm not talking about explicit bailouts here, but that's what happens when a system gets over leveraged and the centrally controlled, you know, body lowers the cost of capital. This is sort of like, oh, you did all this really dumb things in aggregate. So we're just going to make it a bit easier because if you don't, if we don't, it'll get really bad. It's like, it's already bad. It's bad because we have misallocated resources. That's why it's bad. Right. And in a normal system, again, you can't have heaven without hell. Right. Yeah. I want all the, I'm going to take all these risks.

32:07I'm going to start a business and it goes well. I'm going to make squillions. Yeah, great. If it doesn't go well, can I have a little bit of assistance? You're going to bar me out, right? Capitalism on the way up, socialism on the way down. Exactly. And that's the thing that sticks in my core. And one more thing on the political thing. Yeah, go on. So you're right about, you know, oh, that mean lady. Need and deserve, yeah. The other thing that the pollies did was the banks. And they said, so the banks are not passing this on for a month or something, I think, on average? Some by the 20th of Feb, some.

32:37It depends on the bank. but yeah okay now look let's there may be some reasons for that or whatever i don't know there's not that's okay there's not um i'm trying to trying to be balanced yeah fair no why am i trying to be balanced i'm never balanced nice sorry i lost a lot of sense of myself there for a second we'll do the downsides of bitcoin in a minute hang on what are you in that mood um and so and so everybody's out there going oh they should do that oh i'm very i'd be very annoyed if they don't like just just stop it like like like you you say that isn't it the easiest thing in the world to point at someone else and go oh they should oh they are they're mean they're mean it's like oh my god they're a profit oriented entity yeah they'll do whatever they can and you know and again you're the government by the way you're your job to regulate them if they do the wrong thing you could make you know you could do something if you're so if it's so egregious to you.

33:33I'm not even suggesting that you should. There's regulations of double-sided sword. But it's just sort of like... If you were concerned and you wanted to do something, you could do something. Yeah, absolutely. I'm going to double down on that one, actually, because this is just too much fun not to. Jim Chalmers came out on Wednesday and said, I hope every landlord takes that rate cut and passes it on to their tenants. I saw you tweet. I liked it. But here's the thing. And again, that's the same grievance politics of that bad man should help you out. And by the way, because we do everything we can to address the cost of living.

34:09And my tweet was like, didn't you just bring a million, 1.2 million people to the country in three years? Like, I'm not anti-immigrant. I am absolutely concerned about the size of our population, but it's not about the immigrants themselves. So let me be really, really clear. If you're doing everything to address the cost of living, you don't bring 1.2 million people in and say, have at it, guys. Knock yourselves out. That's just one thing. I know. You don't give people extra supports and grants and tax breaks and this and that. We're doing everything we can. Everything you can do. If this is you helping, can you stop helping, dude?

34:44Stop helping. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

34:55Let's move on. Let's have a breath. Oh, no, actually. I said I'm going to move on. And then my next item in my agenda here is NAB and Bendigo bank sink like stones. So, Renan's going to have to have a deep breath. Maybe go have a quick swig of drink and then get on with it. So, actually, because the bank segues are really nice when you dropped in before because I'm clumsy, I didn't take it. I decided to stop and start again. But you mentioned the banks before. And I think, you know what's really fascinating? We have an issue, speaking of bloody stupid politicians, The Greens have this big number, bad, tax big number policy, which is just absolute stupidity.

35:32Try harder. I think their heart's in the right place. A lot of sympathy for the Greens, but just, A, learn some basic economic literacy. That's the issue. And try harder. If you want to be a single issue party, be a single issue party. If you want to be a genuine party of government, get some people there who actually know what's going on. Anyway, which wasn't my point. I'll kind of just go very quickly before we get the letters in. I don't think the other major parties have any economic literacy whatsoever either. So I'm just, you know, my disdain is across the political spectrum. Well, to be fair, though, the Greens have outdone themselves.

36:02They've got a special kind of misconception. In trying to find some non-Orthodox views that are even worse than the Orthodox views, which are average in themselves. So if I'm going to rank them on pure economic policy, oh, I don't know. You know what's really annoying? Who's the socialist alliance? You really want to go up to that end of the spectrum? I think about the majors. I'm thinking the majors actually have better policies. and know better. And then I think, but they're not showing any of it. So it's kind of like, do you know better? Some people say, oh, is Jim Chalmers really stupid? You know, do you really think landlords are going to pass it on?

36:31It's like, what's worse that he actually doesn't realise or he realises pretending because it's politics? Like, they're your two options. Right? That's what I mean. So you kind of go, the Greens probably don't know any better. The Majors do know better and don't care. It's like, who do you vote for? What's worse? Anyway, so NAB shares down 8%. Bendigo shares down 16%, both this week when they released their earnings. Excuse me. And, man, I thought it was interesting. I think – so you mentioned banks and bank profitability. And this is – speaking of political – we won't tend to bash politicians the whole podcast.

37:01We may not. We'll hope to stop at some point. Well, we're going to talk about WALER and AMAZEW. It's going to be a theme. But on the banks, you know, I'm not a bank shareholder. You hate the banks. I don't love the banks. That's because you're not an idiot, sir. Thank you, I think. um so but but so for for all of that um it's also true over the last five years so the orthodoxy if you don't ask us in 2019 i'm pretty sure andrew you said what i would have said which is the general consensus is the general view is when interest rates go up bank margins expand because they don't have to pay more for their depositors but they get to collect more for their mortgages and those wide that widening gap as rates go up there's simply more room under that rate to make profit right margin profit margins supposed to increase and generally speaking historically, that's been true, at least in recent history.

37:48This time around, it's been exactly the opposite. And I don't love the banks, right? But they are not profiteering. For all the political garbage about the supermarkets, the banks profiteering, there is zero evidence. In fact, there's ample evidence they are not profiteering. So bank margins, not only are profits down, but bank margins are down in a time when interest rates have been going up for not exactly four straight years, but have been sequentially higher every time there's been a rate change for four years, and bank margins have fallen, not risen. I'm not saying we should feel sorry for the banks in the slightest, but these are sub-2 % net interest margins.

38:23This is smelly, oily, rag stuff. This is the cents available at the end of the dollars. It's a very, very tough business to try and find growth in. And so NAB and Bendigo this week, both had profit declines. CBA, I think, was flat. Westpac was down, I think I want to say. ANZ, I don't think it's reported. I think I'm right, roughly summarising it that way. I think I'm not just making you feel sorry for the banks here, mate, but it is tough in banking land to try and find profit growth. And we've talked before a lot about the valuation of some of these banks and that they presume, or again, speak of value as we started with, in any rational assessment of value, you have to believe either these banks have massive growth in front of them or the people are always going to pay a fortune for these banks, relative to those earnings.

39:10This week, we've seen what happens when that changes. Now, for all I know, next week the shares are back up and they're fine. Not making predictions. We're not doing victory laps or dancing on graves here because one day, one week is one day in one week. But interestingly, mate, just the challenge facing banks, when a sector stops growing and you've got an ologop. Ologop is normally great, right, because you get to maximise the profit and take everything out of it. Except when there's not much left, you're left kind of fighting over a shrinking pie, or at least a pie that's not particularly growing.

39:38Yeah, I mean, it's a mathematical certainty in terms of the end game. The only debate is when. Does the party come to an end? And that may be 10 years away or it might be tomorrow. So you've got to be careful. I've learned this the hard way. You'd be too bearish on things and you can look like an idiot for a long time. And maybe deservedly so. But I think you can still make various objective arguments here. And it's like banks serve ostensibly a whole range of different roles in the economy. But let's face it, they're really just mortgage houses. And it's all in residential property. It's all what they call nonproductive assets.

40:19So they're not capital goods that you can use to crank out other things and create economic value. It's got utility in the sense that it provides shelter for sort of people. but we've just financialized the bugger out of this kind of thing. Everyone's leveraged up. Everyone who can get a lick of equity, they just roll that into something else. And they have played that game beautifully for several decades now. But it's sort of like at what point, affordability constraints at some point kick in. Correct. At some point kick in. And again, Again, is it when the yield is 1 % on your average property?

40:58Is it when it's flat? Is it when it's negative 10 %? I don't know. But at some point, it just can't go up. So for you to – Ponzi is kind of not the right word, but not far off. But you need more money to come in to the system for everything to continue to go up, right? Population growth, anybody? Again, they know what they're doing, right? Exactly. You do need – and normally that would happen in a non-Ponzie-ish kind of way because there's just always people who want to start a family and live and people downsize and retire. This is a natural cycle. The housing stock rotates amongst us according to our needs and desires, and that's perfectly normal, functioning kind of thing.

41:38There's nothing Ponzie-ish about it. It's worth more to me than it's worth to you at different stages of my life. It's worth more to you than me at other stages of your life, and that's how we trade assets. Absolutely. Perfectly normal, and you would even reasonably expect that to generally rise over time, probably more or less in line with general productivity growth, as most things in the economy should sort of do without any monetary financial distortion. And so you have this scenario here where it's sort of like the growth has been engineered. Absolutely. There's no silver bullet here. There's no one thing that you can point to.

42:06But a big factor that you can point to is the incredible tidal wave of capital that has been thrown at this thing by the banks who have done this. And that's great. I've made a lot of money out of it you know again i haven't grown yeah yeah but but but it but it's sort of like at some point you you need some so you bought your house for a million dollars you you feel as though you deserve you deserve to sort of sell that at 1.2 in in a few years so well someone i don't want to point out the obvious here someone's got to come up with that 1.2 you know well that's okay people can do it it's always been hard to get okay great and and then a few years later well someone needs to do it at 1.4 and then 1.7 and then you etc etc etc how how tight do you want to pull their rubber band before it snaps.

42:48And I feel as though we're getting to just a long run up here, mate, but you've got this oligopoly. They're all on the same asset class. They're all desperately fighting over market share and they're just coming up against the, like, again, maybe it goes on for several more years or five or 10 weeks. I don't know, but they are, it is getting harder and harder and harder to do that because at each new step of the ladder, the property ladder, you know it's it's it's it's requiring a bigger and bigger promise of your time and energy in the future yeah to do that and so now you've got people leaving university or school entering into the workforce who probably can't get a deposit until they're 35 and certainly have no chance of paying it off until they're well into their 70s you know that's good because again i've conversations like this there yeah and you're what's your point that's perfectly normal like Okay.

43:38Okay, but then - That's the weird part, mate. The normalization of that stuff. This is the insidious thing. It's the creeping normalization of - I mean, when you and I grew up, mate, our parents had 25-year mortgages. They weren't - On one income. On one income. And we've extended the term already. We've extended the serviceability. We've extended the number of income. And I don't even mind - We precipitously dropped the cost of borrowing. Right. And you kind of think - Not officially. And I don't mind the - it's not good or bad necessarily, right? It is the market being the market. But at some point, you look at that and go, we've just kind of accepted, because it was a creeping change.

44:14If you go back to 1973 and said, so, guess what's going on in the next 50 years? You'd be like, what? No, we wouldn't let that happen. That's madness. That's stupid. Who would possibly think that was worth doing? Because it's so small and incremental, right? Like any Ponzi, it benefits the early players. Yes, yes. That's who it benefits. And because it's being so creeping, no one's noticed it happening. Shout out to the Venus. How are you going? oh god help us all um but that's well you know yes anyway no no i think that's the challenge qualify that i mean i would have played that you play the cards you dealt right yeah i don't i don't fault the boomers at all but they were johnny on the spot for this for this phenomenon to sort of occur i told you i did the numbers a while ago and the house price this was it's probably no longer true but it must have been three or four years ago i did i literally did did an article on the Motley Fool website.

45:00It was basically just saying, how would you justify today's house price? And if you go back to where prices were and you look at wages growth, the second income, the higher serviceability, and what was the other thing? Lower rates, to your point. It's not actually high. I'll say justify. I don't mean justify in a moral sense. I mean justify in a financial sense. You can get to there from here without trying, right? Because if you change those things, this is where you get to. But your point is the rubber band point, which is those tailwinds have to continue to blow in increasing ways. Think about tailwinds.

45:35The wind blows and blows just keeps blowing. As long as it keeps blowing, you stay at the same speed. Yeah. Right? But if those tailwinds are one-off factors, you know, big gusts go in, you go really fast. Two-income households is a classic example. Right? It goes from one to two. So all of a sudden, your wind speed goes from 30 to 60 knots, right? Yep. But then it stays at 60 knots. So where's the increase come from? It increases prices. Send the kids down the salt mine, as we often joke. That's it, right? So, it's not hard to mathematically justify or prove or whatever the right word is. Again, justify has got a moral connotation.

46:04I don't mean that in the slightest. The current prices. Yeah. Now, whether that's good or bad is a different question. But then to your point, at some point you go, well, okay, where's the third income from? We can't find it. Do rates go negative? Probably not. Okay. Can we borrow more than 100 % of the property? Well, probably not. Maybe get 105. Careful what you say, mate. Careful what you say. I think I've told you I took out 105 % loan way back in the day for my first unit. because they offered them at the point at that time. I was like, why wouldn't I? So those things that got us here won't keep blowing in the same way.

46:37And remember, the existence of the second income maintains the price. People say, well, there's still two incomes, therefore price keeps growing at the same rate. It's like, no, no, no. It rose at the same rate because of the added income. It was the one to two that made it happen, not the two continuing. And so those things don't keep going. And to your point, that's the – Rubband snapping is just a collapse. I don't know there's going to be a collapse. But if you think about how much further can you push the accelerator pedal down, it's already on the floor. You can't push it down any further because you can't add a third income.

47:05You can't. Well, again, you can change borrowings or whatever. But, well, one of those things is going to try and do 50-year loans. That's the stage we're at. We are talking about relaxation of buffers, accessing super, increasing the term of loan. We are doing that because there is running out of rabbits to pull out of hats here. And so maybe, you know, but yeah, without that, like, where does it come from? So that's, that's, what's really tricky about this. And the real shame of it all is, is that it's a fake wealth creation. You know, as a country, are we wealthier? Like, well, all of a sudden everyone's working.

47:43Like no one can stay at home anymore and look after the kid. And this is an agender thing. Like mom or dad, I don't give the stuff. I don't believe they stay at home, dad. Don't worry about that. Oh man. Like, you know, so I just want to make that point. But that ship has sailed. You don't have the – unless you've got – you come from money, that option is just not on the table for you now. So it's sort of like – and not only that, just to have somewhere to live, you will be spending a very significant portion of your earnings power on servicing the loan. For three decades. Most of the money you pay will be interest.

48:12You know, it's sort of like that's how insane it is. In a really robust functioning economy where everyone's getting richer and richer, and I mean real rich – like wealth here, we would have invested in things that have increased our productive capacity so that we can eat cheaper, we can go on holidays cheaper, we can do that. Life gets better is the basic definition of wealth. We have this nominal wealth where it's like, oh, Australians average wealth and we're on the top of the leaderboards here. But not in any way that a normal person would understand that wealth. My analogy has always been with the Easter Island statues here.

48:50We have as a country. We could have developed industry. We could have fought the brain drain. We could have really stimulated a bunch of stuff. No, we just put it all into these non-productive assets and we flipped it amongst each other. And we're all working harder than we ever have. And prices in real terms have just been as high as they ever have. And it's just sort of like, it's a nonsense. It's fake. It's a nonsense. And one more thing. One more thing. We're going to move on the banks. Very quickly, NAB, when I interviewed Alan Kohler, as I said earlier, put that in, I'm quite chuffed about it.

49:17But I asked him a few questions and I was talking about CBA and he goes, it's a bubble. Direct quote. It's a bubble. He said with CBA, I was like, ah, I like you. I like you a lot. Confirmation bias for the win. Confirmation bias for the win. I'll just point out on NAB though. I will make the point. The share price now is exactly the same as it was 10 years ago. Their dividends per share was$1.98 in, what have I got here, 2016. It's$1.69 as of 2024. 4. Earnings per share is down. Cashflow per share is down. Top line revenue is down. Like, it's like, that's over. And here's the interesting thing, right?

49:54So we can talk about bank valuations and the rest of it. Whatever may or may not happen with the property market, because it's just entirely a bet with the banks on the property market. Whatever may or may not happen, we can say with perfect objective truth that over the last 10 years, even with COVID, it's been a great It's been a great time to be in property. And yet, and yet, most of the major banks have not been able to make hay while the sun is shining. And despite all of that massive tailwind, it's a wash, you know, and in real terms, particularly so. So, it's sort of like, and now, and you're still going to be paying these multiples?

50:32Oh, but it's about the dividend. It was like, dude, you can get a better yield in a term deposit. And there's no downside risk. Like, it's just, the world's gone mad. Has gone mad. Yes, I hadn't realised until just then, Commonwealth Bank's yields 3%. 3 %? Give me a reason to get out of bed. Right? Now, that's perfectly normal if you think that the dividend's going to grow at a very strong rate. Spoiler. Maybe it will. I don't know. Now, I'm going to finish off just by going back to the market structure. We give banks a whole lot of grief, and we don't really give the banks grief well. Sometimes they deserve grief because they charge dead people and they're just immoral bastards.

51:08But most of the time, it's actually about the bank's share price, right? If this was, as you've said a million times, Commonwealth Bank's 30 bucks, all of a sudden you're buying shares, right? Oh, hell yeah. Yeah, so we're not bagging the banks necessarily in this context. What I think is really worth noting, though, this is just an economic observation to combat the rubbish that goes on in the media and particularly from our politicians. You just made the point. For everything that's been happening, they should be making out like bandits. Why haven't they? Because competition's actually working in the banking sector.

51:34Like that, margins are falling in the banking sector while rates were rising. That doesn't happen, right? And so, yes, we've got an oligopoly. Yes, people like to think, oh, the banks are all in cahoots. They all raise rates together. They all drop rates together. That's true. You do as little or as much as you can to compete. But every other day, they are working harder to steal each other's business. And we as consumers are winning from that. Not winning as in, you know, rolling in gold or whatever, but margins are low. In other words - Burdened with debt and obligation. Yeah, correct. But we are getting more value from our banks.

52:06Speaking of efficiency and productivity, we're getting more value from our banks. Banking is costing us less per dollar of assets than, I don't know, it ever has, but than it has in 20 years. I mean, that's a win for capital. It's a win for the rest of us. So, you know, again, I'm not standing up for the banks in the slightest, but I am standing up. But people, I said this on Twitter, right? People are like, oh, why are you defending the banks? All these better things out there to do. Can't you? You know, this isn't the biggest problem we've got. It's like, well, I don't have a limited amount of time.

52:30I send three tweets. And God knows if you follow me on Twitter, you know I don't send three tweets a day. But it's like, it's a thing, right? And if I have some expertise and I can point out something to, frankly, improve a conversation, I'm arrogant enough to think that at least three people will pay attention. And why would you not? It's just stupid not to. Speaking of which, by the way, on the need and deserve, I was accused of being Ayn Rand because I would say people didn't deserve a rate cut. It's like... Well, that's a leap. Right? It's like, well, you'll say, oh, the capitals are winning and everyone's getting rich and the poor borrowers deserve a rate cut.

53:03You bastard. it it's like no i just i just said the word deserve was a problem it's just funny people come with their own prize right that's that's why that's why i really think i i there there's a lot of words in terms that are past their use by date i i think you you throw out certain words yes and they don't they they they lack power because we don't have a shared understanding when i say dog everyone knows that i mean some furry four-legged animal with a tail and you know likes to chase cars we we all know what that is when i say capitalism yes or socialism yes or you know things like this people that's got a whole bunch of different connotations and different people so it's like we need new words we need to redefine them we do um yes i'll move on hey um let's i was gonna mash the road hole but going to why ala steelworks uh big news came when's that gone We're just going to get more and more fired up here.

53:57Welcome to the ranty podcast. Clown world. I thought it said Benny Hill music. Oh, yeah, that perfectly fits. I'll do both. Whaler Steelworks, owned by some UK company, doesn't really matter. Lots of debt, can't meet its debts, owes tens of millions of dollars to people. The SA government, one of the major creditors, the SA government won't say how much they owe to everybody else, apparently for commercial and confidence reasons, so we can assume it's a large amount of money. So they basically passed, rushed through emergency legislation in Parliament on Wednesday and got it signed up by the SA governor and basically took over, put the business into administration.

54:33So the process is if a creditor is not getting paid back, they can demand repayment. If the company can't meet the repayment request or requirements, then they simply get to force this company into administration. So they appointed Court of Mentha as the administrators. Reminds me, Andrew, speaking of just random tangents, Court of Mentha. were the blokes who were running, I can't remember which company they used to work for, they put ANSET into administration. And they came to public prominence as administrators through that, working on behalf of, it might have been KPMG or PwC, but I could be entirely wrong.

55:03And they started their own business as a result of the profile of that. And so X decades later, they're still going. Anyway, Corte Mentha are now the administrators of the way all the steel works. There is some thought, hope, possibility that Blue Scope may want to be part of this one. There's a New Zealand mob called Vulcan that apparently may want part of, this all reported stuff, may want part of the rest of of Wayala. The SA government is talking about tipping money in and of course, speaking of need and deserve both the SA Premier and the Prime Minister turn up Wayala and say, hey, I'm here guys for reasons that are unknown other than the photo opportunity of Hyvis and Asana Harden on the news tonight.

55:43Where do you start? Right, so there is 12 things that we can just like poo all over right now. Well, let me run out the kind of ideas and we'll go from there. So the first thing is national security is being, you know, do we need a steelworks in Australia? The second, of course, is economically, Waila as a town is effectively a steel town and without a steelworks. It's close to half the economic activity is that one. Right. The town shuts out at that point, right? It's like taking the car manufacturers out of Elizabeth in South Australia. To be a poor USA, there have been a couple of these recently.

56:14It's like taking the antique shop market out of the Blue Mountains. I can tell you as a local. There'll be nothing left. What's the local economy? Antique shops. Art and antique. There is the downstream impacts, potentially, suppliers and customers. And then there is, frankly, just the politics, which is a big company go broke. Lots of people lose jobs. People vote against the incumbents because somehow they didn't save the business. So these things are all happening at the same time. They didn't save a private business? Okay. Is that what the government's role is now? Okay, that's cool. I want to give him a call because I wouldn't mind a bit of a leg up.

56:54Mate, what you should do - Oh, wait a second. It only goes to some people that are politically close? That can't be right. What you got to do, so you can't do it on internet business, mate, because internet businesses aren't real businesses. They're only real businesses if they make stuff that we used to make 50 years ago. So firstly, go into the industry that we used to do stuff. So common code coaches, maybe bring that back. And then we should do that. Put some stereotypical Aussie larrikin on the front there. There you go. know, dry as a bone and then the Cooper hat. Then take out a billion dollars in loans.

57:24Okay. While you do that, obviously, so the benefit of having Cobb and Co, mate, is not only is it old, but you're going to employ a truckload of people because it's really inefficient, right? So, employ a hip people. Preferably base yourself in a regional electorate, preferably a marginal regional electorate. That would be useful as well if you wouldn't mind. I'm taking notes, by the way. Yes. Yeah, no, no. In the good years, by the way, you'll have some good years because tourism will be up. Take lots of money out of the business at that point and assume that the business will always be that good.

57:51Can I keep that no matter what? Yeah, I take that out. Okay, cool. Yeah, it's cool. And then when you're kind of teetering over the edge because you've done stupid things, you call the newspapers and say, look, I saw this cop and coach business in Lithgow in New South Wales and it turns out it's now half the town's economic activity. We're about to go broke. Do you want to just get the Premier on the line for me? Because I'd like you to take this thing over. That's how... Do you not care about hardworking Aussie families? Who you heartless bugger? Like, how dare you? How very dare you? Not only that, this is important.

58:25It's vital to our national security, mate. If we don't have coach drivers, who's going to drive the horse and buggies into war? You've got to have a backup for the tanks and the internal combustion engines. You've got to have something. What's your plan B? Correct. National security. We're not a serious country, if we don't have a Cobb & Co coach company. Serious countries have these things, so you should do them. By the way, we've annoyed about three-quarters of our listeners at this point, which is fine. Good. Now, the only saving grace here, and this is the one thing I do want to correct the record on.

58:55A lot of people are seeing this as a bailout of the company. Now, it's not, right? Because the owner gets zero. It's bailout for the creditors. Well, it depends who gets paid. We don't yet know who's going to get paid and how it's going to work. They may not take a haircut on the debt they're owed. Just to draw that out there, someone of their own volition and desire. lent this company money. This company didn't do well. Yes. And they can't repay their debts. But they'll still be made whole at the expense of ordinary hardworking Australians with nothing to do with... We don't know what they'll get back.

59:30They may get it all back. They may get nothing back. They may get something back on the way through. And the government may not even pay the creditors out. We don't yet know what the Australian government will do. It seems almost certain they will run the steelworks, possibly fund the steelworks operations, how much of that, if anything, goes back to the creditors, we still don't know. State-owned enterprise. Hello, China. Thanks for the inspiration. That's great. Right. So I threw out at the very beginning the kind of the criteria or the different range of reasons this is a big deal. And I've got to say, mate, I've said this before, Australian made on Twitter is the one area where I get, you know, people turn to follow people I agree with, and I try and be reasonably balanced, and I've got a really good group of followers.

1:00:07But if I get disagreement from people on Twitter in general, it's usually about the Australian made thing. There was just some, I'll say fetish, I don't mean it unkindly. There is some fetish we have to make stuff here. And that stuff we used to do or have done for a while is better. And that somehow - I mean, I and most Australians aren't going to buy it, but I still think that for some reason. And I also get the, if you don't make steel, we'll just be a nation of baristas then, hairdressers. Again, as if that job's not worth doing. Well, right. You've got two choices, barista or steel worker.

1:00:38We didn't manufacture it, but it's very manufacturing-based. All we do is have baristas and hairdressers. And I find that really fascinating because it's absolutely about psychology of it, right? And there's just something fun. And I actually do get it at one level. I think humans, we evolve doing things with our hands. The making stuff is just so inherent. By the way, it's not mild disconnect from clearing land, right? We clear land. Why? Because we can. Because then we've achieved something. We've built something. We've created something. There is something really, really, really deeply biologically kind of evolutionary about this stuff.

1:01:10But I have to say, I see absolutely zero reason for the government to run a clapped out, subscale, inefficient, uncompetitive steelworks. Because they'll do it better. They've got a long, long history of hyper-efficiency and service delivery at the highest of standards and profitability. I mean, it makes perfect sense. I think it's worse than that, mate. I don't think they'll do it much worse than the current company. Yeah, that's true. The problem is what they're basically doing is saying, we will supply an endless stream of taxpayer subsidy for steelworks. I don't think the government has any intention of saying, if we run it, we will make it profitable.

1:01:50They're effectively saying, we will run it and we will subsidize it because... And there is because workers, because economy, because town, because national interest. And speaking of being heartless bastards, That's exactly what we sound like right now, right? Don't you care about the people I like? Yes, I really do. Don't you care about having steelworks in the country? Well, if I'm competitive, I would. Don't you care that town's going to do X? Yes, I do. Should, though, the government therefore step in every time an employer of a significant size is going to go broke? Should a government step in when 1 ,500 businesses employed two people go broke?

1:02:26You know, where do you draw that line? Now, I will say very clearly for everybody listening, we should do everything we can to support those workers who are going to be out of work. If we need to, some short-term support even for the town of Waiala so it can find a way to get itself through this would be reasonable. Why? Because we're caring people. Do they deserve it in quotes? No. But should we be decent, reasonable people and help them? Yes. Why? Because we can. And because no one likes to see misery and at scale, the feedback loops are serious. If you have a thousand people lose their jobs in a thousand different towns, i.e.

1:02:53one person per town, nothing much happens to the town. It's okay. You still will help that person. If you have a thousand people lose their jobs in one town, That is atrocious, that town, and there'll be massive adjustments needed. And I think we can be reasonable people and say, or anyway, you might disagree. I think we can be reasonable people and say, we'll help you out. What we shouldn't be doing is saying, here's an endless supply of taxpayer money for a business that failed, couldn't pay its debts. You know, it makes absolutely zero sense for the taxpayer. Now, the national security one is one that people have, I'll let you get in a second.

1:03:25National security is one that people have brought up, say, well, we need to make steel. Now, on first blush, first order impact, I get it, right? If we had to go to war, we would like to be able to make tanks and we want to steal for those tanks. Having some steel in the country would be useful, right? I get that. Because that's how you fight wars in the 21st century with tanks, apparently. Well, here's the thing, right? So I heard people on Twitter say this. And like I get it at a first impact, is steel a component of our national security, sovereignty, you know, response? Yes, absolutely it is.

1:03:52It's a component, yes. However, if you don't have the rest of it, of what use is steel? I made a tank. Where's the electronics? Oh, that's in the US. Yeah. Oh, okay. Where do you get the tracks from? Oh, that comes from Vietnam. Right. I mean, the national security thing is only useful if you are going to do everything that's needed for that national security. And full supply chain. Right? And across the board, planes and ships. We're really good at computer chips. We make tons of computer chips in Australia. You know, all the other componentry, absolutely. We've got that in hand. So we would go from making currently 13 % of our national security needs to 10 % without making steel.

1:04:34Yep. So what do we actually – and, again, I get the first-order impact of it seems like it would be important for national security. I get it. Yeah. So if we can do the national security dance, that's cool. Let's have the conversation. Right, to do that, we're going to need to create a computer ship industry. We're going to need to start making fighter jets. We're going to need to start making naval submarines, including nuclear power because that's what they're going to be powered by. And everything, we're going to have to do it all here. Where are all these resources coming from, by the way?

1:04:59They're presumably just sitting in a pile. No one's using them. Or are they being used elsewhere productively in an economy directed by what people have been demanding and choosing to buy? Now, I have no issue with people saying we should be able to control our entire national security infrastructure. But then have the conversation and say, and that will cost$184 billion next year. And that means your tax is going to go up and service delivery and or service delivery is going to go down. So you're not going to get as much benefits. you're going to pay a lot more and it's going to go all into this kind of stuff that we may or probably won't need and our standard of living will be permanently lower as a result because we don't do it once sign me up sign me up but here's the thing i'm not even saying i'm not saying people can't reasonably have that view if you if you genuinely think that war is a risk and you know world war ii right it happened like you know let's not pretend war can't happen but if you have that view you have to have that you have to see it all the way through there's no point saying steel is important for national security unless you're going to do the rest So either say, I am absolutely signing up for, not saying I am, you say you are signing up for the entire national security buffet, the whole lot, right, the smorgasbord.

1:06:01And admit to the cost and accept them. You can have that view. I honestly don't have a problem with it, and I don't agree with it. But that's a perfectly fine view to have. What you can't have is a view that says, we should waste taxpayer money propping up steel, even though it'll make no difference in time of war because we can't do the other stuff ourselves. That is where it would be madness. Yeah. So, Wyala is, the Steelworks employs a thousand people. Yep. Target, which is part of a bigger conglomerate, employs 10 ,000 people. Yeah. Ten times as much. Just to put in a thousand people, okay, you know, it's not nothing, but it's kind of nothing at a national level.

1:06:39Yep. I'm with you. Let's help people out. I wouldn't do this, but just for the sake of argument, let's give every single worker there$200 ,000 tax-free. Yeah. And let's let the South Australian government pay for it. That is 0.07 % of what they spent last year. Right. Now, am I happy that everyone, I mean, there's a whole other, I shouldn't say the word happy, but I mean, there's a debate. Well, wait, wait a second. I lost my job. The government didn't even give me 200 grand. Correct. But my point is, it's like, if you're going to waste money, and I've got to choose my words more carefully. But if you're going to spend money under the guise of helping out the poor locals.

1:07:15Yep. And by the way, they didn't make bad investments. They didn't enter into bad loan agreements. The workers are there. It's just very disingenuous to point to these hardworking people and then use that as an example for everything else. And if you do want to do that, give them all a bunch of cash and let the business collapse. The business collapsed because it wasn't run well. It wasn't competitive. That's why it collapsed. It's only that it wasn't run well. It's subscale at the back end of the world. Wailer is miles from anywhere in Australia, let alone the... Apparently, I saw this on Twitter.

1:07:49I may not be sure. Someone said it's the most remote steelworks in the world. Oh, I believe it. And at subscale, because it supports a country of 27 million people, even if it was run really, really well. I don't know how you... I don't know. How do you do steel well on that? Now, BlueScope does a good job of flat steel. Yeah. But it's just uncompetitive. You can't run Wailer steelworks well, I don't think. this is i can't get more fundamental here but this is how we allocate resources you know yeah it's just like i want steel why because i make stuff with steel and i really want it oh you do too you like steel it's like scarce resources with alternate assets is the way thomas sell puts it and and it's like okay cool so well who gets to have it well whoever's prepared to pay the most for who can pay the most for the person who's able to sell the most stuff why am i able to sell the most stuff because most people more people like my stuff than they like the other stuff.

1:08:42Who directed this and decided that no one did. No one did. It was an emergent property. It was revealed through our own sort of choices. So the reason that it's going out of business was it just like in the world stage of all of the things that people demanded, no one wanted your stuff, at least not as much as they did other people's stuff and certainly not the price that you're doing. And that's - The other costs you've got, exactly correct. The other costs that you've got. Now, small business as an employer in aggregate is far bigger than the big end of town that we all focus on far far far far bigger you know but if you want to go down this sort of path of sort of suggesting that well we need to control for this and we know what resources should be spent where and how and at what price it's just it's a very slippery i don't want to keep coming back to communism but it is and again these low terms are loaded but that's the direction that people i think going here with with the best of intentions but without a full grasp of what it means.

1:09:42And what it means is impoverishment for all of us and some unfair benefits to small select interest groups. And it's just, I don't think anyone could view that as fair. Now, again, why is this happening? Resources have already been wasted. It's already happened. This is, we're not talking about what will happen in the future, but it's happened. People spent money and they didn't get a return on the markets. You said, I reckon I could do this. And I reckon people were really, I can create value for the world. And the world went, nah, not interested. Okay. And that's sad. It is definitely sad. So, but that's the reality of the situation.

1:10:19So there's two things. It's like, here's a thing that definitionally isn't in demand at the price and quality that you're able to provide it at, but we're going to do it anyway. And by doing that, we're going to strip resources away from places that are demonstrably demanded at the quality and price level that has been created. Yeah. It's how you get to breadline. It's so maddening. And I think that's what I would do as a politician. I would just diffuse all of that well-meaning concern over the workers and just say, yep, here you go. We're going to spend 1 % of our budget. We're going to bail them out.

1:10:55Too bad to the big corporate, you know, creditors. Welcome to investing. I don't know how we have to keep saying this. It's not your outsized return is not a government guaranteed right. And if it is, well, can I get guaranteed returns? Like it just, like it's not fair. It's just, it's just not fair. And it's not fair to the people who have no input or no, um, uh, weren't part of creating the problem in the first place. 99.99999 % of people listening to this and in Australia had zero to do with this, you And yet we all potentially could be on the hook for it. And it's like, it's just not fair.

1:11:37It's not a capitalism thing. Ah, screw you. This is how it is. And only the fit survive. And that's always the way it's spun. And it's like, no. And you know me if you've been listening for a while. I walk this fine line between bleeding heart lefty hippie and ardent hardcore laissez-faire economist. I don't know how I do it. Somehow I managed to keep those two thoughts in my head at the same time. Ayn Rand in a Bob Marley too cozy. Right, right. And it's like if you've got any sense of fairness and what is wrong, I just think how else do you have it any other way? I think people with the best of intentions, really well-meaning, and I get it with especially some in-laws of mine, you know, it's just sort of like the government should dot, dot, dot, dot.

1:12:17Not going like that is us, that is our money, and there is an opportunity cost which comes from somewhere else. So I don't want people to suffer, but people who do dumb things, i.e. foreign billionaires in their investment is not my concern. And I don't care about Mr. Gupta. I'm sorry, Mr. Gupta, if you're listening. I think you're going to be fine. I think you're going to have a standard of living that is beyond the wildest imaginings of anyone who's thinking of this. You are 100 % fine. I'm so sorry that your massive flight of fancy into this particular industry didn't work out. Boo-hoo. It's not my problem.

1:12:54It's not my problem. And yet, somehow, potentially, it is. Yes. Again, I just want to be really clear. He's probably going to get nothing out of this. So it's not the case of Gupta doing well. It's about the mess he leaves behind. But some of the solutions that are being advocated for would result in that. So this is what, if you're going to argue for these things, that ultimately is what you are arguing for, is the socialized losses of a foreign billionaire. Yeah. And I think that's, you know, this is where, what I want people to think about, and that's why I use the Common Co-Coach example, is we really need to stop thinking that we have to maintain the status quo.

1:13:34Creative destruction is part of capitalism that you talk about, mate. Dynamic change. just right and and here's the thing it's very very very in fact it's almost impossible i would suggest over anything more than 30 or 40 years everyone working today is getting paid more than anyone working 30 or 40 years ago right and and that's partly progress and partly inflation it's partly the fact that we've found ways to create higher value jobs so we can afford to import stuff from overseas that they do better and cheaper and we still have four percent unemployment. I mean, that's the miracle here. Be careful what you wish for.

1:14:07We couldn't create that many more jobs without, frankly, you pitched an eye earlier. We couldn't create that many more jobs without creating more wage inflation. So there's kind of this limit of like, well, what do you want? Do we want to make people go back? We can take machines and we can go back to the Industrial Revolution. We can all be selling by hand still because the spinning journey cost them so was their jobs. When farm machinery came out, a whole lot of agricultural labour's lost their jobs. Do we want to go back there? Because we can go back there if we want. Do we Do we want to have a whole lot of green-shaded clerks adding up rather than using Microsoft Excel because that hurts them jobs?

1:14:38All those things have happened, and we've still got 4 % unemployment. Living standards are as good as they've ever been, with an asterisk around housing debt, which I won't get you started on again. But you kind of think, where in the economic past should we have stopped and said, we will support this, we won't let any more change happen? I absolutely get the sympathy and the bleeding heart for the people of Wayala and the steel workers. I get the instinctive national security kind of vibe. I really do, and I understand people thinking about it. I hope we've at least been able to kind of peel some of those layers back or go a couple of levels down and say, yeah, but.

1:15:14Because, you know. There's no free lunch here, people. There's no free lunch. Someone's going to suffer, right? It's just a question of who. Yes. On that happy note, shall we finish the podcast and come back on Sunday with hopefully a little less rantiness and some questions answered? There's no chance it's going to be less, well, maybe. Oh, there's got to be less rantiness. Shades of grey, I suppose. But there'll be rants, don't you worry. The average volume of this podcast is louder than I think any podcast we've ever done. So I think I can almost guarantee Sunday will be less ranty than this one.

1:15:44If you're stuck with us this long, thank you for spending some time on this. We hope you've enjoyed it. Andrew feels better. I feel better. Hopefully you listen to this, you feel a little bit enraged and a little bit better. Change is up to us. How's that for a way to finish off? Nice. They will do – the gamers will do what we ask them to do, and hopefully what we're trying to do is kind of get that second-order thinking. If that's – if there's any kind of theme running through this podcast, I think it's that second-order thinking. It's the so what. It's the opportunity cost. It's the I know that sounds good, but – and if we've done anything, hopefully, whether it's investing, whether it's finance, whether it's policy, listening to governments, you know, my favourite is – I'm a massive West Wing fan, And there's a scene in that where Jed Bartlett, who's the president running for re-election, the opposing governor, Governor Ritchie, I think it is, who's standing for president.

1:16:33He says something. And Bartlett goes, there it is. There's the 10 words my staff have been looking for. I'll tell you what, Governor Ritchie, you give me the next 10 words and I'll drop out of this race right now. Give me the 10 words after that. Give me the 10 words after that. The idea is the slogan is nice. Yeah. Now what? Give me the next 10. Then what happens? And we need to hold our officials accountable to that. If we've helped in any way, hopefully we've done a good thing today. Yeah, I think that's true. I mean, really, being a parent has been such a learning experience as well because as your kids get over, and anyone who's been on this path, I'm sure you'll recognise it, that, you know, you don't want anything bad for your kids.

1:17:13You want them, I mean, what kind of monster are you? Of course you want to protect them. Of course you want the best for them. but look at the parents who shelter their kids from every misfortune. They are not well-functioning adults. And in fact, what you do is you create an illusion, which is a very comfortable fantasy. But when they face the real world and the real world isn't as you've built it, it's kind of like, have you helped? Or have you just crafted something that is going to end in disappointment and disillusionment? And this makes me sound like I'm just like, you know, I give the kids a sharp pointy stick and put them out.

1:17:54All right, fend for yourself. It's not that. Don't have a stick at Andrew's house. But our politicians, that's right, you should bare hands like I had to. Make your own stick. You know? But this is what our politicians do. They treat us like little kids, I think, and they give us the easy answers and it's just sort of like sometimes you've just got to recognise just the hard choices of reality and they're not palatable. I think when you advocate against some of this stuff, people think that you're advocating for the pain. And it's like, no, I'm not. There is pain regardless. And now we just have to decide how we're going to share in that pain.

1:18:28And some ways are a lot more unfair than others. On that other happy note, we will finish up this particular podcast. Thanks for spending some time with us. If you have any questions, email us info at fool.com.au and we'll try and answer them in our mailbag podcasts. Until then, enjoy your weekend or your Tuesday evening and Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener.

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