The very worst way to 'fix' housing affordability. March 15, 2024

24:45I will anyway for fun. This is one of the reasons why I think if central banking was at all useful to cap the growth in inflation during that period of time, I don't know how much worse it would have been, how you would make it better and how you would avoid that kind of spiralling other than waiting for things to blow up and then starting again with the debris. But in any case, that's why that inflation you talk about, it was so important that it didn't happen in the first place rather than getting to the point of how do you fix it because you can't make people whole in any responsible way without prolonging the pain.

25:19How long do you have high inflation for if you try desperately to just incrementally get people's purchasing power back for five years, seven years, ten years, which must put wages up by definition, which must push inflation up? You'd spend a decade and a half getting out of this if you tried to do it, I imagine, in any methodical way, surely. Yeah. I mean, you can't – you have to let it naturally – my viewpoint would be you have to let it naturally evolve out of the system. Let the market determine where the capital needs to be employed. When I say that, it sounds very cold and calculating. It's not.

25:49It's just saying let people buy what people want to buy. You want to go buy a jet ski? Fill your boots. You know, you want to save it all under the mattress in gold? Knock yourself out. I don't care. And that's, you know, do what you like, right? But whatever demand arises from the populace, there'll be someone who'll satisfy that kind of stuff. And then if someone is making a lot of profit, but others will notice that and they'll come in and they'll compete and they'll drive prices down and drive services and quality high. I mean, that's how a properly functioning market should sort of operate.

26:19So I feel as though we get too concerned with stability of prices, not recognizing that price changes are radically important. It signals everything. Anyone who's run a business, anyone is just running their own personal budget, right? Like it, everything I do as an economic agent is, is conducted through and measured by money. We've just got a ton more shekels out there, right? And we have to wait. So we have to wait for the economy and our productive capacity to catch up to where that was for those shekels to ever have the same purchasing power again. That'll take ages. That'll take such a long period of time.

26:55Well, and the adjustment is brutally unfair too because let's think about this. We're talking about all these inflation problems. What's the NASDAQ doing? What's Bitcoin doing? Yeah, that's right. What's housing doing? Like what anyone, and again, it's not a generational, I don't want to make it a generational thing, but there is a certain cohort that on average, I shouldn't make it an age thing. When I say cohort, I mean there is a sizable proportion of people in society, probably close to 25 % plus, who have never had it better. And what's the difference between them and the fiery working overtime trying to make ends meet?

27:37It's like, well, they owned a bunch of assets. And when, again, you want, is there value in a nice three-bedroom brick home? Yeah, absolutely there is. Will the market supply respond to meet that very high demand? Yeah, but very slowly. In other words, when measuring that asset against the asset of the Australian dollar or US dollar, whatever measurement you want to use, it's going to go up. It's going to go up. And so this is what's so difficult about it because anyone in that situation is like, I will happily take 7%, 8 % inflation per year if my net asset value is growing at 12%. Now, does it screw over a whole bottom half of society?

28:17Yeah, it does. But that's the reality of it. And that's why I think it's so brutally unfair and difficult with all of these kinds of – and my point being, I guess my broader point being, we should really move on after this. but is that this, what we are living through now and have been for the last few years has been a consequence of the response to COVID. In other words, and I'm not saying the response was, you know, let's not get into that, but that's what it was, right? If COVID didn't happen, I reckon our inflation problems wouldn't be anywhere near where they are now. And I would argue the response to the response was the issue.

28:56Yes. Regardless of how much you think should or shouldn't have been done during COVID. I'm someone who, I have been very critical of Scott Morrison on more than one thing over the past. I think, I've said before, responses to economic shock should be big, fast and ugly, which is exactly what they did. Job keeper, job seeker, was like, just throw a truck a lot of money out there now just so we can keep this thing from imploding and then work out what to do next. The problem was they then didn't do the, so what should we do next? They went, let's keep going, we'll do this stuff. Good enough. And then let's keep going, keep going.

29:25And then when they finish, they're like, right, we're done. But you just did all this stuff. It's like letting the kid throw the toys around the room and saying, all right, well, you had fun throwing the toys around the room. I'm kind of going to clean it up now. And it was never cleaned up. And they just literally walked out of the room and said, well, I'm done here. That's exactly the problem. And again, without getting into that, but the end result, right or wrong, wrong, was a bunch of extra money in the system. Correct. I mean, even people who, look, should have we helped people? Yeah, don't get me wrong.

29:51Absolutely. But someone who wasn't hurting at all, all of a sudden I get to work from home and now the state government's paying for my kids' shoes on top of all of this, you know, and I can tap this and I can do this and it's just sort of like this is fantastic. I know a lot of people in that scenario who's like for them it's sort of like especially the introverts I know in my life, not only socially but financially like COVID was a godsend and for others it destroyed lives, you know, and it's sort of anyway, let's not get into that but my point being is we in 2024 having these issues because of what happened then.

30:25And why that matters is because, A, we can't – yes, we can't go back in time. But what we do now, right, is going to like percolate 12, 18, 24 months down the track here. 100%. And what we should have been doing two years ago is what we're paying for now. Yep. And what problems we will or won't have in 2026 will be a consequence of what we do or don't do now. Correct. Exactly. The stakes are high. The stakes are high because it impacts all of us in one way or another and in a brutally unfair way. That was a spectacular large arc, but we made it back. Let's move on, mate. I haven't watched about this one, but I'm sure you've seen it in the papers.

30:58We had a couple of interesting comments made this week by a couple of heavy hitters. The chair and CEO of JPMorgan Chase, one of the biggest investment and retail banks in the world, Jamie Dimon, has said he thinks there is a 65 % chance of a global recession this year. 65 is a lot. One in three, that's the usual, you throw that out with a fish chip wrapper stuff. Hedge your bets. That is a big, that's not only just likely, but two-thirds chance, right? Twice as likely as not effectively of a recession, which I thought was huge. Phil Lowe, less controversially and probably just kind of toeing the line a little bit at the central bank, but was effectively saying, just remember, rates could still go either way.

31:43And, you know, he said, he basically said - And everyone went, wait a second, fool me once. We heard your forecast before, pal. Well, he was saying it could go either way. That was the point. To be fair, again, this was mainly just kind of looking after his successor because he basically said, look, just remember when Michelle Bullock said it could go either way, it could go either way, guys. So I was more repeating that. That was less stark, although interesting because it was his first kind of foray into public commentary since leaving the job last year. What's that? Leaving, being booted by Treasurer Chalmers.

32:13Jamie Dimon's call, though. Big one, mate. I mean, you and I are famously dismissive of people making forecasts because it's the old thing of get you a headline or whatever. That being said, Jamie Dimon, I don't know how much he's worth, but he's worth hundreds of millions of dollars. The bloke doesn't need the book sales, right? He doesn't need his name in lights. He's perfectly fine. He's not doing this to try and sell another book. What do you make of all that? Do you have a sense? uh is this the guy that was like you know um right in the thick of it during the gfc uh and his company is this the company that's been fined hundreds of millions of dollars for like uh you know laundering money for cartels you know jp morgan i'm gonna say it because most won't but i i don't think they're exactly an institution that cover themselves in glory he's made some woefully bad calls in the past all that being said i you know i'm probably with him you know I kind of think it's more likely than not.

33:11I don't know if I'd go 65%, but I'd say it's more than a coin toss. Yeah. We'll see. We'll see. Do you know what's funny about recessions, mate, is I tweeted about this during the week. If you have an economy that grows at 5 % year one and declines at 0.1 % for two straight quarters, you've got a recession, right? So the economy's growing at 4.8 % over two years, but it's in recession. Another economy that grows at 0.1 % for two straight years is not in recession. It's a dumb – I want to get away from it. I hate that definition. The more I've pondered it, the more I hate it. Go on. It's what everyone does though.

33:52It's what everyone does. Correct. Because everything is human biology. We need labels because the heuristic of at least I can label it, I know what it is. Once I know what it is, then I can deal with it rather than just living in the grey of let's try and make things better. Whether they're great or terrible, let's try and make things a bit better. Let's try and set us up for long-term success. We kind of go, well, what is it? Where are we? What's happened? What's coming next? And the R word gets thrown around because it helps us categorize things. And it's completely normal, completely natural.

34:19We're just not evolutionary. I was talking about this. My wife's in education. We are just not – we were talking about this the other day. We're just not evolutionary set up to be investors or to deal with the financial world. Our society has advanced faster than humans have evolved. We are literally falling further and further behind. And you wonder why this is happening. This is how it happens. so I raise that for two points one is that I would still everyone would still rather slow and steady rather than whipsaw right because whipsaw cost jobs and we've just talked a whole lot about that so we won't redo that ground but it's also true that again it's a bit like inflation you know year on year if inflation falls to 2 % ah success victory and to your point your graph well hang on we're still 10-15 % behind yeah but there's no inflation anymore it's like yeah so it's both at the same time yeah it's a valid point right but it's both at the same time you know 0.1 % a year for two years is anemic and terrible and not enough and the population is probably going faster.

35:10I'm not suggesting one is perfect, the other is terrible or one is worth thinking about, the other we should ignore. I would rather have two years of two and a half than one year of five, one year of minus one or two years of plus 0.1. But it's just worth remembering that if we do go into a recession after a really, really great year, there will be dislocation because of exactly what we talked about. The excess demand being shed is going to cost businesses and jobs. It just will. and we would have been better off had it not happened. Whether we should stop it or not comes down to, again, that view about central banks and governments.

35:40But independent of that, it's just worth saying if we do end up with a recession, is it a terrible thing? Well, if the economy goes backwards, it's going to cost jobs and businesses, so yeah, that's bad. But overall, are we still in a better place net-net than if we'd not had that boom in the first place? Again, very, very open question. Now, I say that all a little bit hypothetically because I'm not sure the boom we've had and we've just talked about exactly that. So, again, we're kind of covering similar-ish ground. The boom we had is largely driven by a whole lot of shortages of money printing.

36:09It's not exactly a typical economic growth boom. It was very much a – engineered is the wrong word because it wasn't deliberately caused, but it's an artificially created one for those reasons. So it's an interesting one. Will we have a recession? I don't know. I don't really have a good grasp on the world demand and what would have to happen. China's still growing at 5%. Maybe that becomes 4%. They're going to be a net contributor as the second largest economy in the world. The Eurozone has been an absolute mess effectively since the GFC. The Yanks have been stronger than most people expected.

36:40Maybe that comes off and maybe that's where the recession happens. But there's a lot of moving parts, a lot of bits and pieces that could potentially change the way we think about some of this stuff. Yeah. I mean, yeah, the reason I hate the definition is because it misses all of that subtlety that you just outlined. and I think this is okay to say on the pod but people will be familiar with it. Cut this out otherwise. Yeah, children, cover your ears. Everyone's leaned into the speaker. Do you remember there was one of the Supreme Court justices in the US? Can we say adult entertainment? Can we use that phrase?

37:18Say what? Can we use adult entertainment as the phrase? Yes, you know where I'm going. I do. Let's do that. You're going. When asked to define what adult entertainment was, he said, well, I know it when I see it. Yeah. And I think it's been quoted a lot and it's a very good quote because I think it's the same. It's hard to define but you know it when you see it. You know it when you see it, right? You know, it's like some things just self-evident is probably the best way to sort of say it. And if you want to like formally define, if you're trying to train an AI on, well, this is and this isn't and here's the exact line.

37:50You cross this line and it goes from not adult entertainment to adult, you know. And it's the same with recessions is my point. and I think we navigated that pretty well. Kids are on camera ears, yeah. Yeah, that's right. I know we've got school kids that listen, so I've got to be careful. But I would say we're actually, for a lot of people that are in recession. I actually don't want to be too pedantic with this stuff. But again, talking about inflation, inflation is an entirely personal thing. You and I have a different basket of goods. You know, we're not the same person. Correct. So our inflation is definitionally different.

38:30Andrew has a lot more caviar than I have, just for the regular people. Just exactly. You're not feeling the caviar pain like I'm feeling right now, is all I'm saying. And so when you sort of say, well, what defines a recession? It's a general economic hardship that's suffered. I've made the point many, many, many times on the pod is that we, I think we have a real bifurcation or an increasing wealth gap in society. in society. And again, we, we see, we talk about the economy and is it in recession? And is it this two consecutive quarters of that? But again, as I made the point before, I don't even think it's a controversial fact.

39:05I think, again, it's self-evident. Some people, uh, you know, loaded up on, on assets with a high paying job and never, never, never had it better regardless. And there are others, like I read the other day that the number of people sleeping rough is at all time record highs. I'm going to forget the percentage level, but it is spiked massively. Food bank demand is through the roof. And again, if it's not in your suburb, it's not in your suburb, it's invisible, but it's happening, right? And so I often think that, you know, you and I are just pining in our armchairs here. There'll be some people out there going, what are these guys talking about?

39:39This is great. Others like, you have no idea how, you are so out of touch. And they're both right. They're both right because it is a personal thing. And so to bring it back to something more practical, I think recession is something when you would see unemployment go well above what a reasonable person might consider full employment. Anyone who really wanted a job could get a job if they wanted one. If we go with that kind of definition. If you think about it, yeah, there's a normal cycle that oscillates around a certain number. When it gets meaningfully outside that normal range, then you're right.

40:11When you get to a situation where no matter how aspiring and hardworking and motivated you are, you're back against the wall, That's a different scenario. And I don't know what threshold, you know, what percentage of the population needs to be there before we go, okay, it's a recession. But just back to sort of, you know, J.P. Morgan's, Jamie Dimon's, sorry, his comments, you know, it's like, well, I think he's right when they, I don't know if you've been tracking what's happening in San Francisco, but you don't want to walk out on the streets there at night. Like this is one of the top tier US cities and just the 10 cities that have popped up.

40:45It is, I feel as though when I cast my gaze around, it's sort of like, well, I don't know, let's, whatever, if you want to call it a recession or not call it a recession, but things are not moving in a good direction, I would say at a society level. Put yourself out of the equation for a second. I just don't feel as though, I'm not saying they're awful or, you know, things are clearly a lot better than they were in the distant past, but I think directionally things are headed in that direction. and what's difficult about it is it's not something that, oh, this is happening because of this that will soon resolve itself.

41:18It seems structural at this point and very, yeah, tenacious. I don't know. Is that too doom and gloom? I mean very doom and gloom as usual. You argue a bit doom. So, look, I would say I would just throw the definition of recession out. It's like bear markets and corrections. Yes, exactly. Perfect comparison. It's just stupid, right? And I don't mean stupid as in I don't blame people for wanting to know because the thing about recession is you can go in and then you can come out. So there is also some psychic benefit coming out of recession, the sense of we're now in clear water, right? You're sailing into the storm clouds and then it's storming and you kind of know there's a storm and you exit the storm and you kind of feel better about it.

41:54You think, well, it's blue sky and that's great. Those things are kind of – they are kind of for many, many people who – I'm no better than anybody else other than you and I have been spending a lot of time thinking about human behaviour and psychology and investing, right? But people, until they have had the opportunity to learn differently and approach things differently, need those markers. They need those signposts. Everyone wants to know, you know, if you're going through hell keep going type stuff. That's kind of, you know, people need that light at the end of the tunnel. And so I don't blame anyone for thinking that way about it.

42:27It's not very useful. I would stop using it altogether. But I get why people want it. And we frankly conditioned people because we reported about it for 20 or 30 years, like GDP. 40 years ago, no one could have told you what GDP was. But we've financialised the whole economy, not just housing, to the point where GDP kind of is the front page news where it used to be, page 48 in the business section. One metric out of a million that we could use to measure things. Exactly. And it's the old line about not everything that can be counted counts, not everything that counts can be counted. So that's important.

42:55Firstly, I would get rid of the definition of recession. It's stupid. Second thing I think, mate, is, and we've kind of already done the GDP thing, is the changes there are fascinating because does GDP even matter? In the context of it's a total number, who shares? Even if per capita GDP, which is you mentioned recession, we've been in a recession for a year. At a personal level, at a household level, at a per-personal level, we have been going backwards as an economy because the population has been growing faster than the economy. Now, that is unquestionably bad. That being said, even within that, the average person doesn't get the average share of GDP.

43:31And so even if it was true, the number of people, the degree to which people are going backwards matters as much if not more than the average numbers and the total numbers for the economy. Now, it's also fair to say if the economy is growing at 5%, there's a much, much, much better chance everyone's doing a bit better because rising tide does lift all boats. So at the extremes, it does matter. It is useful and it's indicative and it's positive and generally speaking, with exceptions, it's good. There are environmental damage that gets done that doesn't get counted and it doesn't count human happiness and overtime and overwork and family relationships and stuff.

44:03So it's dramatically imperfect. But to the extent that we want to talk about economic wellbeing, larger numbers in either direction tell us more instinctively and instructively what the average person is likely going through. When it's a modest number, roughly somewhere around zero, to your point about the inflation basket, same with the GDP basket, GDP goes up but I don't get a pay rise. It doesn't matter to me. I get a pay rise, GDP goes down, it still doesn't matter to me. But it does tell the, you know, at a national level, those things are important because at the end of the day, how else do you, you know, the average person's numbers are the average person's numbers.

44:36You have to have some way of benchmarking as part of a suite of data points to your point. That's the key. What you would use. Yeah. I agree. We talk about this a lot when we talk about analysing a company. Don't just look at the PE or the yield and go, I'm buying, the PE's full. Like, whoa, there is a thousand things that you can look at and probably should look at before you make an informed decision. Or even the market. The market is on a PE of 15. So do you buy nothing? No, well, there's something out there that's less than 15, something that's smaller than 15. Absolutely. You don't buy or not buy individual companies based on the market average PE.

45:09And yet it's just as silly to go, GDP is this, unemployment is this, and therefore everything good or bad. Like it's like, what? No. Well, maybe, but maybe not. Like you can't infer it from just those two data points. So in so many things, you want that holistic view. And, again, it's not to be negative for the sake of being negative, but I think it feels to me and I don't have any hard data. I haven't put a presentation or a TED Talk together, you know, with some lovely slides and animations and the rest of it. But it does feel as though directionally two things are true at the same time where some people are getting much better off and others doing it as hard as they ever have.

45:45And I think proportionally it feels as though the people in the second camp are growing. Yeah. It's interesting too that this is relativity matters, right? Both in terms of perceived wellbeing. Everyone in Australia is phenomenally better off than people in some parts of Asia and Africa. Does that matter? One level, yeah, absolutely, because they're probably in better health, probably at longer life expectancy. On the other hand, as a society, to your point about money, everything's measured that way, right? We could all buy a loaf of bread priced in, insert country currency here in Africa or Asia.

46:19But if we can't all buy the loaf of bread in Australia because the price is what it is because of the society we live in, that's what matters far more than, you know, a transaction you'd never otherwise make, and that's important. Yeah. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

46:40Mate, do I have permission to rant? Please. You have the floor, sir. God love politicians, mate. This week we have heard that the LNP opposition, if they are elected, are planning to let people take$50 ,000 of their superannuation and use it to buy a house. Called it. I called it. Now, I – Yes, you did. I am – thankfully, thankfully, the government thus far is refusing to play along with that and it may come to an election and people have to decide how they want to vote at that point. People, when asked to vote about would you like access to this pot of money that you can't touch presently, A lot of people are going to go, yeah.

47:24And frankly, you can understand why. But go on. And here's why. But yes, yes, and here's why I'm ranting about it. I want to make sure every one of our listeners knows how completely stupid this idea is, right? Not because I have an ideological preference for or against the party proposing it. Not because I have even an ideological view about housing in and of itself. Here's the thing that happens. If you take$50 ,000 of your super and put it towards housing, and if I do the same and everyone else does the same, we've talked for the last 40 minutes about supply and demand and what happens when you have more demand chasing the very same supply.

48:07This is supposed to help. First-time owners grant kind of thing. Over and over again. It didn't work the first 20 times, but I've got a good feeling about this time. They are going to throw more money. I love – you said this last week, mate. It's been in my ears all week. It's like trying to put out a fire by pouring more petrol on it. And I never ever heard – I've probably been in a cave somewhere. I never heard of it. It's just such a perfect way to describe it, right? They've said, okay, housing isn't affordable enough. What we should do is give people, everyone, or all first homeowners in a way, more money to bid against each other to make housing more affordable.

48:40It's worse. It's worse. Hang on. Who's getting the money? You say give them more money. No, no. The vendor's getting the money. I'll get to the super bit in a minute. Yeah. Yeah. Yeah, please go on. I make that point because when you follow the money, right, like what is the end result of that? Prices get bid up. Who benefits from the higher prices? The sellers. Not the buyers are disadvantaged. I mean, for the buyers it's a wash because everyone, except now I've got 50 grand less than my super. Well, so, yeah, right. So here's the thing. So, yes, everyone uses the 50 grand. It doesn't make housing any more affordable.

49:08This is why this is such a cynical political attempt. I don't believe the people proposing this, and I don't care about their party affiliation. I don't believe they're stupid enough to believe this is actually helping affordability, right? There's a chance. There's a chance. No, there's not. Blind Freddy can tell you. Year 8 economics can tell you. My 11-year-old can tell you. If you throw more money at the same amount of things, the price goes up, right? We were just talking about that before with inflation. That's my point. That is literally 101. So if you say, I'm going to make housing more affordable by getting people to use their super to throw at it, it's clearly not the case.

49:44Here's the worst part, mate, if there is a worst part. Actually, there's a couple, but here's the next one. Once you open that floodgate, every other poor bastard has to do the same thing because what you've just done is push the price of housing up. And so people who didn't want to use their super now have no choice but to use their super because everybody else is using their super. So once you push up that price by using superannuation, once two people do it, then a third's got to do it if they want to compete because they couldn't afford to buy before. Now the price has gone up. you can only afford to buy by using your super because everyone else has got 50 grand to spend.

50:15You can't do it with nothing. So what do you do? You have literally no choice but to use your super. They have locked in a requirement for every single first home buyer to effectively empty their superannuation to buy a house. It is absolutely disgraceful. Now, here's the next guy. You know, the worst part of it is they're talking about this now after I've bought a house.

50:40You're not a first home buyer. If it came through and I could get that through the door before that bigger effect came into play, that would just be mwah. That's the first mover advantage, yeah. Your first mover advantage. So here's the other thing, right? So they're going to say allegedly - Which, by the way, is part of the game theory, right? That's what drives it. That's why he's kind of like, you're playing this game. I ought to be there first. Because someone's going to do it, yeah. So then there's the super bit. Now, we saw during COVID, 750 ,000 people emptied their super, literally scraped the bottom of the barrel, went back to zero so they could, in very few cases, pay the mortgage and the rest of the cases buy a jet ski or a television or whatever else they wanted to waste their money on.

51:21750 ,000 Australians, which is going to cost the Fed, this is the last one, this isn't this one, which is going to cost the federal budget$85 billion in total in future because of the increased pension requirements for that group of people. Can I quickly interject? I want to underscore the size of that number because your go-to there is, well, there's what, 25 million people in Australia, 700 million. So actually that's a big percentage, but I'd posit that it's much bigger because take away kids, take away people who are already retired without super. You know, there's - I just took the money out and didn't empty it.

51:54Yes. So that's 750 ,000 people out of the people who have a super balance, you know, which maybe that's only like 15 million or something. Yeah, exactly. So, okay, and that's 20 grand during COVID. This time around it's$50 ,000. Now, the opposition say, no, no, what's going to happen? You're going to use it for housing, but if you sell a house, you've got to put it back in super. Now, let's assume for the fun of it that's actually what happens. Let's just assume that's true. The chances that over the next 40 years, housing goes up at anything like the rate of the average super fund is incredibly small.

52:31Not impossible because I can't say that's impossible. What I will say is we've talked about house prices before. I don't want to get back into that necessarily. Suffice it to say, look at the story of episodes and I am absolutely of the view that it can't go up as fast as housing. Not only that, if you do, who's going to sell that house, have 50 grand less to put in, buy the next house? So the whole thing is just completely, completely, completely screwy. Here's the thing, mate. I want people to use their fingers for a second. Let's say it's 50 grand. Let's say 50 grand was left in soup at a compound.

53:02Let's say you could get 9 % a year, which is the average growth of the Australian share market. Between, I'm going to make those numbers, Mike, because they're easy for me, 27. Let's say you're 27-year-olds, like 50 grand out. By 20, 67, that's 40 years. Now, very simple math says the rule of 72 is if you want to find out how long it takes something to double, you divide the return, as I said, 9 % into 72, and you get eight, eight years. So in 40 years, your money could double five times. Do it with me at home, people. The first double is 100 grand, then 200, then 400, then 800, then$1.6 million.

53:40Between 27 and 67, if you earned the historical share market average rate. Now, you'll have other super by 67. So you wouldn't have touched this particular pot of money until much later. So keep going. Let's take another eight years till you needed that money. $3.2 million. Let's say another eight years after that,$6.4 million based on the fact that some politician wants you to spend 50 grand of your super in your 20s to buy a house because they reckon it's going to improve affordability. Yeah, and they don't actually give you the choice. It's not a choice. It's a false choice. Correct. Because once it starts, I've got no – look, do you want a house or not?

54:22Well, yeah, I do. I've got 50 grand. I'm going to bid against you, Andrew. Can you do it with that 50 grand? It has a fundamental desire and will always be, he's never, ever going away, no matter what happens in the future. And it's just sort of like, well, that's your choice. Continue to live in a tent or drain your super. So you don't have a choice. Let me finish this one. The line from the politicians, which is incredibly seductive, is, but surely having a home is better than having superannuation. And I say, yes, it absolutely is. Except that Australia is one of the top half dozen wealthiest nations in the world.

54:57If we are telling our young people, I've got a home, I've got super. Andrew's got a home, he's got super. If you're telling our young people that they have to, in Australia, in 2024, choose between a house and super and you don't think there's something fundamentally broken about housing affordability, if that is the only choice you can make to have a home, then the whole thing is completely, completely screwed up. And I would use a stronger word if it was after hours, but it's not. It is an absolute mess. You should not, and everyone on Twitter says to me, largely people who are either in favour of the policy on ideological or political grounds, well, at least they've got a home.

55:32It's better than having a super. Yeah, it is better than having a super. Home is better than a super, absolutely. You know what's better? Both. And when we say, particularly older people like us, frankly, people older than us, other people our age, say, sorry, kids, we've got both. You have to choose. That is a fundamental betrayal of the younger generation. How do you look at it any other way? There are some things that get debated, and I just kind of think if this was a debate, like in a debating contest and I was put on the other side and you have to argue, I was like, where do I start? Like beyond just throwing out some tropes, like I don't know.

56:08I'm 100 % with you. It is madness. I called it and I'll call it again. Whether this particular, the specifics of this idea get up or not, I would say over the coming decades they will, it is the biggest of honeypots that's out there. Our pension superannuation system is the envy of a lot of the world and it's worth how many trillions? When push comes to shove, governments will do this because it's there. Because when stuff's getting real and you look around and go, we need to fix this problem, gosh, we're already in massive deficit, our debt is already climbing. It will happen in one way, shape or form.

56:50And so what we've done is we had this incredible scheme that was designed to take all this pressure off the public purse and ensure that we all had a higher quality of living in our retirement. And then we turned it into, under how, we turned it into a tax haven for the wealthy and now we're just turning it into a honeypot for housing speculation. And it's such a tragedy. It's such a tragedy. With the exception that you say we are turning into, we have the choice not to turn into a honeypot if we choose otherwise. But we will. Anyone. We will. No, I'm not prepared to accept that. I think when it comes down to it, and it's going to sound like I'm saying, oh, all people are dumb, so of course it will.

57:27It's not. But having recently gone through this and knowing a lot of people that do, I mean, of all the things, these wondrous age that we live in of abundance and technology, I mean, the fundamental desire for a home and stability and security just trumps everything. And I think that's as it should. as it should. And when you, and when, if, again, I take the sort of more Austrian view of economics as more of a ground up organic kind of thing. And I don't think anyone's sort of looking at broad macro implications and what it means nationally. I think people are thinking, I want a bloody house.

58:00And the government's saying that if I vote for them or I approve this policy, I'm going to be able to do that, whether that's right or wrong. And again, it's not to be unfair to people because this is what they're being told from their leaders, you know, and it just, it feels like, well, If I had that, then I could. I'm looking at the house that I want to buy. I can't afford it now. It was super. I could afford it. It will happen. It will happen. And I know that's cynical, but I'm sure it does. I'm sure it does. And the patron's done with lost causes, mate. Maybe it does happen. I will. Too seductive.

58:33No one is scared of me and no one is scared of what I think or what I care about. I will bang this drum every single day until election day from here. Every single day. Continually until election day on this one. and whether it makes a difference or not, I don't know. Maybe you're right, mate. Maybe the glass is absolutely half full, maybe half empty, sorry. Maybe I should be paying more attention to that but I'm not prepared to give that one up just yet. What I would ask our listeners to do is be informed on this stuff, have a view, talk to your family and friends. I'm not telling you how to vote.

59:01I'm not saying vote against this particular policy specifically. If you are inclined to support the LNP, then go and talk to them about what a stupid policy this is. If you are inclined to vote for Labor, then vote against it if that's what you want to do. I don't care how you vote. I mean, you know, my point is there are other issues as well and I'm not suggesting this one policy should be the vote decider. What I am saying is it is an absolute disgrace and it should be overturned forthwith. I hope the LNP are smart enough to stop it because that makes the whole life easier. If not, I am going to continue to bang this drum for many, many months to come, mate, because it is an absolute disgrace.

59:32Yeah, I'm on your side. I mean, I'm just more cynical. You are more cynical. That's okay. Mate, we haven't got much time left over, But I did notice this week, let's go with some good news, shall we? Look, I'm a Treasury wine shareholder, so it's good news for me personally. That's okay. But I kind of, there's something in a podcast and a week and a year of, you know, good news being hard to come by. China has apparently issued a draft determination. Now, it could change before the final one is issued, but a draft determination to take tariffs off Australian wines. This is the last major commodity to have those tariffs removed after China and Australia got into a spat, was it four years ago now, somewhere like that, maybe three?

1:00:15It was a ScoMo special, wasn't it? The previous Prime Minister shooting megaphone diplomacy might work. Surprisingly enough, it doesn't work with the Chinese. Who the thunk? Exactly. He's not the master tactician we all had him pegged for. There you go. Go on. Have you seen Nemesis? It is, anyway, not much to say other than very, very good news for winemakers obviously good news for wine company shareholders including me but i we haven't had much good news and the australian export of wine to china in particular has been an export bright spot for quite a while the last lot of data we had i think i probably shared in this podcast sales are up 40 year on year and i think it was literally the year before the tariffs were imposed which just goes to show what our own goal this was um 20 of that was volume 20 was price which is also impressive the the chinese economy wallets again we've talked a lot about averages and totals and also individuals.

1:01:07The fact that the average Australian bottle of wine was up 20 % price only shows the Chinese demand for, taste for wine, and the fact that those in China with money were spending it and spending it up big on Australian wine. So hopefully for everyone's sake, one of the great things, we're talking about GDP. You know what saved us GDP-wise was exports. The balance of trade, I believe, I'm telling you. It always saves us. Well, it was larger than the contribution to GDP of net exports was larger than the actual GDP growth itself. In other words, had that not been the case, GDP would have been negative.

1:01:42And for an economy that we're relatively small in the world stage, that's kind of great on one level because it means the rest of the world is so big we have plenty of export opportunities. And we are, as you say, often normally a net exporter. But what it means is the economy can grow and be at whatever rate. we are making more stuff than we need to consume, which means our income is growing faster than our consumption, which is just exactly what you would want if you were designing an economy, particularly a small one like Australia's. So I'm hopeful that that does auger well for broader exports, for broader, frankly, geopolitics from a personal perspective, but certainly from a trade perspective.

1:02:18I'm hopeful that it means more cohesive trade with China and the rest of the world. Maybe a lot of companies have realised that they shouldn't pin all their hopes on China. I think that's probably fair as well. But it should be good news economically, mate, if we can kind of partly weather the storm that's coming by growing our exports overseas. It'd be a lovely little bit of, you know, extra cream on top that we otherwise would have to make for ourselves that we get just by being able to sell our stuff overseas to countries like China who want stuff from brand Australia. Yeah. I mean, trade is almost always mutually beneficial, you know.

1:02:49Isn't it? The Chinese are better because they get to have great Australian wine. We're better because we've got a new export market. Exactly. Win-win. Again, yeah, I mean, you put yourself in those shoes. Don't tell me you can find a negative out of here. No, no, not at all. But it is, China is a trade partner that is complicated, I guess I would say. I would describe it. It is a vast market. Like it's hard to, there are cities in China that have more people than Australia has. Like your brain can't, my brain, no, you can't get your head around the size of that market. Right. It is so ginormous.

1:03:33And if you're someone who's got something to export there, you're going to do it. Right. And we did. Made a fortune. And, but then it got taken away. And at the time, you'll remember this, it was like, we're going to diversify our export markets. And it always made me cringe, right? Because it's like, oh, you're telling me that there were all these other countries that were just as much in demand. Yeah, that's right. We're only going to sell to China. We didn't bother. Yeah, correct. China's our BFF. We don't want to sell to Europe. Nah, you know, apparently, you know, North America. Nah, I don't interest.

1:04:06Of course. I mean, and it sort of feels like we often are critical of businesses when things sort of go wrong. I said, well, why didn't you plan for, in the good times, plan for the bad times kind of thing? And I feel as though, I'm not trying to put a storm cloud over. It's great news, but the reality is, and I think the way that the market has reacted shows that you can't just diversify away from that massive market. You just can't replace that overnight. And it's just something I think it's got to be in the back of your head because, you know, things are getting frostier, if anything, between the West and China.

1:04:44And when we as investors, I'm not trying to tell people what to think or what's coming because I don't know. But as an investor, our job is to kind of think, well, what's the downside? What's the risk? What could go wrong? And that would be one of the things in my bingo card for any company that's got a big market in China, A2 Milk and those kinds of things. It's just like, yeah, it's great. Sell it. I mean, I would do the same. Go crazy. If there's a willing buyer and they're going to pay top dollar, you absolutely, it's your duty to do that. But prepare, I hope you've got, I hope there's a safe in the head office somewhere that someone cracks open and breaks open the instructions for when things like that go wrong because you've got to plan for it.

1:05:21Even if it's an edge case possibility and I don't know, so I guess I am being negative but I would just sort of say, you know, great, great but let's hope we don't see someone else put their foot in their mouth and then they just shut off everything again. I think that's right. I think that's one of the, if there has been a, I want to be careful here, progress is important And we, you know, I'm, I won't say I'm half you, I think you're probably the same, but I'm a conservative investor and I would run my listed company more conservative than most to run. And that may actually not be the best thing for the economy overall because maybe, you know, 100 companies running at capacity when two fail, the other 98 % doing great and 100 running sub-capacity and none fail, you actually may have worse outcomes overall economically or even at a stock market level.

1:06:09So it's worth being a little bit careful and a portfolio level, frankly, if you've got 10 of them, what do you want them each to do? Blackmoors, I used to own Blackmoors, I used to work there years ago, had massive sales growth in China. And they made exactly that problem. Was they rather looking at this and saying, this is great, but just the old Roman general, just remember you're mortal. This could go away at some point. Don't bet it. Just like, oh, I've had a win. Oh, all in. And it wasn't even so much all in in terms of sales. It was all in terms of costs. Companies always, always, always grow their costs to fill the available space, right?

1:06:40We're getting this money. Oh, let's use some of it for X, Y, Z. Which again is not unreasonable if the market is sustainable and consistent. But as you say about China, you know, if your entire business is China, you better have some cash in the bank. If your business is not all about China but it's big in China, you'd want to have a cost base that just allows for the fact that you treat these as less than certain markets. And if it goes away, I don't expect people to have the same profitability afterwards. Of course you won't. And they should chase it. Blackwater was absolutely right to go hell for leather.

1:07:09Remember the Daigou trade? the suitcase trader people. They should have made those sales. They're mad not to. They made a lot of money doing it. The mistake was the conceit of this will be forever and so therefore we should build a business accordingly. That is the fundamental problem. And I said, if you either, you want, you're about to say, if you want cash in that safe as well as the instructions and you want a business that says, let's make sure we don't over capitalise here. Let's not over hire. Let's not spend money we don't have. Let's use it forever as, and look, you know, in 15 years time, okay, this is stable, this is safe.

1:07:40Chinese consumers love it. We like the Chinese government. They like us. Good, we're good. Okay, we've done well. But to pretend, believe, can fool yourself into thinking this is forever and permanent, that's exactly where all of those companies came a cropper. And again, was Treasury wrong to sell wine in Asia? Of course not. Was Blackboard wrong to sell wine? Of course not. But at some point, you've got to say, actually, you know, if and when this goes away, and as investors, by the way, this is the investment angle, invest accordingly. Think about the price you pay on exactly that basis. What if this goes away?

1:08:11Will I have overpaid? Investors who bought 150 Blackmore shares or$800 treasury shares or, you know, again, I don't know. That was the other problem. Everyone extrapolates. So you had that market open up out of – it didn't exist, then it existed over a period of years, but, you know, relatively short space of time. It just opened up. And then we see these exponential sort of J-curves and we just – the market extrapolates. And it's like, no, it asymptotes at a point. Like there is a natural ceiling within all of that. So it's even when you take away the risk of overinvestment, maybe they're making appropriate investments for what they need to supply to that market.

1:08:47But investors in the share market are going, oh, wow, they're going to grow revenue at 30 % for the next 20 years. Like, well, are they? I don't know. So lots of lessons from all of that. Crazy. Speaking of lessons, mate, we might come back on Sunday with some lessons from, I promised this last week, and our poor listener who thought he was going to have his question answered, we didn't quite get to. I felt very guilty. And I got a tweet during the week, a direct message saying, hi, you made me wait and you didn't do it. Our first cab off the rank because I just obviously have, I don't know, I've run over a cat or something, black cats crossed my path, broken about 85 ,000 mirrors.

1:09:25We're going to talk about Bitcoin on Sunday is our first question. And hopefully we can talk about something actually that makes more sense. We'll keep it short. That's officially a lie, but we will do our best. Until then, enjoy your Friday afternoon and your Saturday or maybe your Tuesday morning if that's what you're listening. But until Sunday, Fool on. Cheers.

1:10:05one.