Tobacco excise jumps the shark. August 29, 2025

26:13Let's unpack that. What does that mean? Where's this money come from? So the government's not stumping up the 5 % deposit. The vendor still is, or the buyer still is, sorry. The government is covering the mortgage insurance. Oh, okay, right. So the 5 % still comes from the individual rather than a 20 % they would have otherwise had to save. So, and again, on an individual level, if I were to buy a house and I had the 5 % and couldn't save the 20%, I would be better off if no one else got the same benefit. So I get why, because some people still listening to this are like, but surely that's better.

26:41If you've got only a 5 % deposit, it's going to take another 10 years to save the rest of it. If you buy a house now instead, that must be better, right? And it would be if there was no impact on prices. And that's what this is problematic. No one's complaining about, well, we can argue about whether there's enough deposit for house price movements. We may or may not get to that. But it seems very reasonable. If prices didn't move and I could repay the loan, letting me get in with a 5 % deposit would be a really good thing, except we don't work in that world where nothing else changes. But my point still stands, which is like, what does it mean to go guarantor?

27:13Yes. Yeah. Like it means that, well, if they fall short, I'll stuff up the money. Exactly. So our federal government is now in the - In the mortgage insurance business. Mortgage insurance business. And where does the money come from? Plus the first time buyers go on top of that. like i'm choking on my own rage here like we're already spending well beyond our means so like we're in a structural deficit we have been forever right and so it's just like we're borrowing we're pulling it forward from the future and when the market finally which it does every now and again which fairly recently goes i just don't want any more of your rubbish paper then we just we just get the reserve bank to buy it out of funny money.

27:58And that's where it comes from. And then we'll look around and go, gosh, everything's really expensive, isn't it? Yeah, it is. Yeah. Turns out when you like throw money out of a helicopter and don't actually make anything more in terms of production that things get more expensive. So let's be really clear. The way you make housing more affordable is to close the gap between incomes and prices. That is whatever anyone else tells you about the, if they use the word affordability ask them do you mean prices will come down as a multiple of income and if the answer is no or i don't know or they won't answer the question then that's not an affordability thing that is a vote buying thing and by the way don't believe to your tweet mate don't believe for a second the police don't know this of course they know this like it'd be reasonable for someone who's listening to this right now right that's what i'm saying if you're listening to this right now you're like oh my god i didn't realize that that's cool no no no no blame on you if you're the treasurer or the housing minister you have got a million people in your ear saying but but minister this will happen they they have they know they know that they know that they know this this is not a surprise and so this is not the being some people on and got a lot of the party politicals oh elbows needy doesn't know oh charmers is too stupid no no no they can't it is worse you're right but but you know that idea of kind of like you know it must be oh they're all idiots no they're really not they are really really smart people who know this is in their self-interest no one else's but their self-interest to make housing seem more affordable for buyers and to get higher prices for sellers.

29:21I mean, that's a good trick, right? If you can pull that trick, you're going to get voted for. Guess what? That's why it's a Morrison program expanded by Albanese. In what other realm does a party on one side go, huh, that idea that the other party had five years ago was so good, we're going to make it even bigger. When's the last time you saw that? It doesn't happen, right? Unless it's in their mutual self-interest. Yep. It's just so depressing. And the thing is, okay, so this, all right, whatever. it's done. We're doing it. Okay. We're going to do it again. We're doing it again. Let's fast. Let's, let's, let's wind the tape forward.

29:52Right. Yes. And, and then we're going to be talking, you and I, and everyone is going to be talking about this for years and we're going to get up against the affordability limits. It's just, it is the gravity of the whole situation. You know, it's just like, we, we, it's, it's what's stopped. There's that threshold of escape velocity, escape velocity. Right. It's just like, we're going to, we're just like, yeah, I'd love to buy a house. I just can't afford it. So I'm going to have to either hope prices come down or hope I get a raise or something like that that's going to happen. And I mean, in isolation, I mean, at a structural level, right?

30:28It's just the only, we paint ourselves into a corner. I'm all over the place here. Let me start again. We paint ourselves into a corner where the only way is to continue to stimulate, continue to distort. Like it's either that or we let the market do what the market does. I was going to say, we don't have to do these things. And it doesn't even have to collapse without it. But we get ourselves into a cycle where we feel like we want to and need to for economic or political or social reasons that aren't necessarily fundamentally required. We just tell ourselves we want to for our own selfish needs in whatever form or fashion that comes.

31:04I will mention, my timeline, right? I will mention this on Sunday. Toronto Toronto and Auckland have seen 20 % declines in their residential housing markets. And I'm not saying that as a forecast to what happens here. I'm just as a friendly reminder, incredibly culturally similar, economically similar economies. This stuff happens, right? And it's good. It's a good thing, right? Because what the market is just telling you, it's like, that's, again, it's the inner play between people who have a house and want to sell it and those that have some money and want to buy it. The things are just going to work themselves out by everyone just pursuing their own interest.

31:46And what they should have done if they wanted to prevent that was do what we're doing, right? And you go, well, maybe they should have done that, except that look at the situation there. Every first home buyer in Toronto or Auckland is now going, brilliant. I have no problems with this. I have zero absolute problems with this. Again, I always make the point for those in owner-occupied housing, it's like, well, what do you care? Like, honestly, what do you care? I know. Because if you go, well, if I sell my house, I'm going to get money. Well, unless you're going to sell your house to live on the streets, you're going to sell your house and then buy it somewhere else.

32:20Like, so everything's equivalent. If the whole market rises, the whole market falls, you know better or worse off. It's equivalent. And then you go, okay, but what about the investors? And I always go, what about the bloody investors? It's not to have a go at property investors. I say the same thing about the share market. It is not the government's responsibility. Scott goes, decides to buy some stupid penny stock and it drops 50%. And you turn around and go, oh, woe is me. The government needs to support me. I'm like, no, no, it doesn't. Well, welcome to the world of investing. You expose your capital to risk in the hope that you get a bit of an upside.

32:51And if you're any good at it, that kind of works, right? But it's not - If you pay too much, you're in trouble. And there'll be volatility in the short term. So even if it may or may not go back up. So that's just life. Yep, exactly. You don't get to say, yay, capitalism. I'm going to invest in this thing and I'm going to get all these gains and it's going to be wonderful. I'm also going to leverage myself to the eyeballs to do it. Oh, but if it goes down, it's really a social issue and I need to be bailed out and everyone else, and it wasn't my fault. No, you can't have heaven without hell. They are two sides of the same coin.

33:22And if you want to say that you should be protected from all downside by the government, which is just another way of saying by everyone else, by the taxpayer and future generations, given all the money that's being printed and borrowed. Well, then should we socialize the gains as well? Well, no, that's unfair. Yes, exactly. That's entirely unfair. So again, I'm not having a go at property investors. And there would be a whole bunch of property investors out there that are smart, like in the share market. The share market is this big thing, right? And in the share market, you've got the idiot, you know, moon boys that are buying all kinds of stupid pump and dump things, and they're going to get burnt.

33:57And then you've got really sensible people like yourself who just buying good quality companies and sitting on them for a while and doing well out of it and there will be property investors like i didn't overleverage i bought a good quality house i've managed my cash flow yeah i'm not excited about property going down but i'm a long-term investor i still expected to go blah blah blah blah blah blah and i was just like and and those by those people will be fine i paid a sensible price i can afford the repayments i'll write out the volatility yeah it turns out that the prices are volatile Yes, they are.

34:24Welcome to investing. And so everyone else, it feels really, where I do have sympathy is that it's, there is so much incentive around you from your bank to the mortgage broker, to the real estate agent, to your friends, to your family. The accountant. The accountant. Probably I should have mentioned them first, right? Because you get to save some tax, right? And so, you know, it's like, anyway, it's like chopping off your leg to lose weight. I was like, what? and and and it's like they're they're in the cultural element of it again because like it is just seen as the only it is seen as a surefire and be the only viable path to wealth creation so is it any surprise than a 29 year old that's yeah who's just trying to get ahead does this well it turned out it worked really well for every single person i know when i look back to when i was born this has always worked out really well so yeah i bought a house and yeah i overextended myself, but I was told by the bank, by my accountant, by the mortgage broker, by the real estate agent, by mom and dad.

35:28I was told by everyone that this was the smart thing to do. So it is a little unfair for me to go, you idiot sucked in, you made a bad investment. I agree completely. So I do acknowledge that. But at the same time, it's just like you can't wish away the reality of what investing is. And the investors are really the least important thing in all of this. It's, it's, it's, it's, it's, housing is a human right. I would, I would suggest, you know, and it's sort of like, and if you want to play in that money. That shouldn't be controversial, by the way. It's not controversial, right? It's not like, I'm all for anyone making an investment in property.

36:02Fill your boots, do whatever you like here. But it's just like the main North Star here is that, that, you know, people can afford somewhere reasonable to live if they save and work hard. That is not a controversial statement. And to make life more, make that aspiration nigh on impossible to cater to the needs of a minority of highly leveraged speculators just seems putting the cart before the horse. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

36:38Let's go all the way back to earnings season. It feels like we're actually at the end of it. Let's tell me, listen to this. Earnings season will be officially over. I say official. There's no such thing as official earnings season. But if you have a June 30 balance date as a company, you must submit your accounts by August 31, or your shares may not trade. Let me spit that out. On the ASX. So if they haven't lodged their accounts by literally the time you're listening to this, maybe another hour or so, you won't be able to buy solar shares on Monday until they sort that out. And if you don't, it's because there was something you couldn't get past the auditor.

37:09Right, generally speaking. Right? Yeah. which is a massive red flag if anyone's ever late it's never because we just had such good news that we but we forgot that we had this obligation as a listed company but it's really good the printers had a breakdown so we have to wait to print the annual reports it's going to be a couple days late we'll listen Coles out this week and fast so much so I just want to start by saying those two see there with price gouges that we have continually absolutely was absolutely proven out again this week So, you know, do your thing. Do a bit more price gouging, Woolies.

37:44Pull your socks up. Yeah, they'll do a very good job. Look what happens when you don't. So, you know what's interesting? Coles' sales are up 4.3 % and their profits jumped, I think, about 11%, some give or take. Woolies' sales are up 3.1%, I think it was. Their profits were down 17%, which I thought was fascinating because, I mean, there's so much to unpack there. And there's more issues for Woolies. Big W is a basket case. There's a couple of other bits. We're still going to try and turn it around, though. Well, oh, well, so they've actually, they've separated out their technology systems, apparently they've announced, which is a precursor for a sale.

38:14Oh, okay. So it's - They won't confirm the sale because, you know, we're just so, oh, no, we're going to be doing a different technology platform. It's like, you're not going to double up your technology spend unless you actually have a reason to do so, which is, again, a precursor for a sale. I assume. Good. We're all assuming. Good. It's great. But wait for the sales job, right? It allows us to be more dynamic. And now as a focused entity, and we can just, you know, by the way, you're going to get some shares in this new entity too, but it's going to be brilliant. It's so brilliant that we don't want it out.

38:44We definitely don't want it. But trust it, it's really, really good and you're going to love it. Speaking of which, massive tangent, Endeavour Group, which has actually spun off from Woolies, which is BWS, Dan Murphy's in the pubs. It is having an absolutely terrible time. The shares are not miles away from about half of what they'll floated. Well, that is so strange to the point I just made, isn't it? why wouldn't Woolies keep such an incredible well the other thing I tweeted on this literally is the quote tweet show I if I was they won't do it for reputational reasons because they can't help themselves once you say you don't want something you can't buy it back without feeling like you look silly and whatever I'm not sure Woolies shouldn't buy back Endeavour at this price partly because it's cheap and why not you get it back if it was worth even as close to what you sold it for you get to buy it back for half the price and there you're making money unless the business actually genuinely does suck in which you got a spectacularly great price when you floated a few years ago alcohol going out of fashion well they use the same systems they're co-located their stock comes in the same back dock and then goes through into the stores separately they did it because some stupid investment banker on their own account said you could create value you could unlock value by spitting this thing off so what is it it's the same as co-located yeah there was some poker machines and there was some reputational dramas and deal with what i just financially if they were really if the words was really really smart and they weren't we all we all have egos and we all don't like to have to say we were wrong or go back we said we sell it now we're going to buy it again by the way invest is great if you can sell it and then buy back when it's cheaper exactly what you should do but if you're a business you said oh we spun this off should we really buy it back i don't know again sorry massive tangent but if i was woolies and I had a genuinely clear mind and was able to not carry into that baggage, they should be looking really hard at this thing because reintegrating it would actually save the money because speaking of technology, you've got two CEOs, two boards, two lots of finance and accounting departments.

40:46Lots of synergy. Right? Well, I mean, we say that's a dirty word often because companies find synergies everywhere, but literally they're already co-located. They've already got the same backdoor. They've already got the same systems. You just fire the support staff. I'm sure it'll happen, mate. Well, I know if it will. It should. I'm always sweet. It really should, what I'm saying. We've talked about it ages ago on the pod. So it's whatever the fashion is. At this point in time, it's like, no, more focused organizations, more leaner, that's the thing. And it makes perfect sense. Yeah, I'm not along.

41:13Yep, okay. And then you get the other eye. It's like, well, synergies, and we can unlock this, and it's another avenue for growth, and we're paying a good price. It'll happen. I mean, if not that specifically, that broadening of putting more businesses in the tent. It happens all the time. Remember when Tabcorp bought Tattersalls? Yes, I do. A couple of years ago, they spun off the lottery business. So it's now Tabcorp and the lottery corporation. Yes. Yep. How much value was unlocked, do you reckon? How many investment bankers were put through, you know, kids were put through school and European holidays were paid for?

41:46Because I bet you that one group did better than the other group. Those elite sandstone private schools ain't cheap, mate. I tell you that much. You can't build castles in without private banker fees. You're right. G'day to all investment bankers listening. They're not listening. So back to Woolies and Coles though. Really fascinating. So costs are the issue. And we're seeing it with the banks. We saw it with Woolies. A little bit of growth. Speaking of inflation, a little bit of growth isn't enough. They managed to grow sales at 3%. In a very flat inflationary environment, you'd be okay with that.

42:19You'd probably hold profits, do whatever. And again, BW was a mess. You put that aside. And it's not the only difference between Coles and Woolies, but Coles being able to grow a little bit faster, when you think about the margins they're on, that difference is huge because if you've got your costs going up, I mean, take Woolies for example, right? Let's say costs go up 4 % because it makes my maths easier. Woolies grew sales up 3%. Well, if you're getting 3 % more sales but your costs are up 4%, even if that was all price and it's not because some of its volume, you're in trouble, right? Coles managed to grow sales faster than costs so their profits went up and that's kind of business 101 but if you're a low margin business where you're banking 2 or 3 cents in the dollar, I think Coles margins were 2.9 % or something.

42:57If you're banking, call it four cents for the fun of it, in the dollar. And your sale, you can't keep up with costs. Those margins erode so incredibly stupidly quickly. By the way, when they grow, it's great. If you can grow sales at 6%, you're going to profit through the roof. But that's how tight these things are. That's how finely tuned the operating model is because of that operating leverage. When you're a low margin business, you better keep growing and you better grow faster than Coles. Otherwise, you're in a world of hurt. And it's too simple to say that's all that was happening. well isn't Coles but it's a pretty bloody big part of exactly the difference between those two retailers this week and isn't it interesting too from a broader historical lens because you and I have been in this game for longer than we probably care to end and do you remember when Coles was the basket case and was the wonder kid yeah absolutely and then it swings around and that this is this is the challenge of uh fighting tooth and nail in a very mature market dominated by these two It's just like, you know, and what happens is it's sort of like management gets lazy.

43:55They take their eye off the ball. Operationally, things slip. It gets a bit disastrous. They come in. They make the necessary investments. It's a long road. They get, you know, hard times make hard people kind of thing. Soft times make soft people. And it swings around. And then Woolies goes, oh, we're cock of the walk. We're, you know, man about town. Look at us. Look at, we're great. We don't need to do it. We're crushing those guys. And you get lazy. And you don't do it. And you fast forward. These things are a slow motion, very, very slow kind of phenomena. And so it's like, oh, now it's Woolies' turn.

44:25And so I would say this. I will start by acknowledging Woolies is fine. They're fine. You know, like the 15 % share price fall that they had, I think they, a company like Woolworth, Consumer Staples, bluest of the blue chips, I'd legitimately say one of the best businesses on the ASX. It has only fallen that much three times in its life. Maybe a few, like it is a very, very unusual kind of fall. And yeah, the profit drop was not great. And it was a bit shocking. But no one here for a second thinks that Woolies is going to cease to exist and will not be around and much bigger. Oh, so you're saying - Because you make a loss, you just made a little bit less money.

45:06It wasn't like it was a temporary loss, which has happened in the past. This is just, we made a little bit less money than we thought we would, or than the market thought we would, more importantly. Absolutely. And so, but don't interpret my words as, oh, so you're saying this is a good time to buy. You know, this is the classic point where you put an inappropriate Buffett quote. You know, I need to be greedy when others are fearful. Everyone's fearful, so I need to be greedy. It's like, whoa, cool your jets there, sunshine, because maybe. And I'm going to do a little victory lap, right? Because you and I have forever been making this exact point.

45:38Woolies is a great business. It's ridiculously priced. I made the point on Twitter earlier on. It's a great business, excessively priced. It's the correction we had to have. We had to have it. I mean, I'm not going to pretend that I knew the timing and the date and the extent. I didn't. All I knew was, is this like, yeah, I'd love to own this business, 20 bucks. I'm selling everything and I'm backing up the truck. Yes, exactly. But I'm paying for, again, a highly mature business. That when you take out the back and forth over the very long arc of time, you know assuming they don't get into something completely different with a lot of blue sky growth potential they're they're at best gonna grow four five maybe six i doubt it like that's all it's very hard to grow beyond the gdp of the very country and market in which you operate that's what they're gonna grow at right and so for a business like that to trade up in the high 20s of its of its pe makes no sense and so what do you do you just you don't bloody buy the damn thing is what you don't do.

46:38And you can look, this is where the market will humble you because you can look silly for a long time. But again, you could have bought this five years ago at$34, five years, right? And people go, oh, but what about you? Yeah, I get it. If it makes you feel better, throw in the dividend. You want to add in the franking credits? And you should, I'm not even being negative. Dividends are real, franking credits are real. Absolutely add it in. But for an incredibly high quality business, That is a terrible, that is an awful return. And James Hardy, CSL. I mean, the list goes on. No one's talking about, these aren't facing existential risks.

47:22These are quote unquote good businesses. But I just make the point for the 40 hundredth millionth time, you must pay a sensible price. You might get away with it for a time if you're lucky. but sooner or later chickens are going to come home to roost here. And that's exactly what's happened with Woolies. And I'll shut up in a minute. But my final point is all of this, all of this drama, and I look at Woolworths today and it's still on a PE of 24. Yeah, that was the thing that got me. Right? And I go, oh, yeah, but again, dividends. I was like, yeah, okay, 3 % yield. Dude, buy a term deposit. If that, you know, like that's insane.

47:55It makes no sense to me. I apologize to shareholders, but I hope it keeps falling, right? Because it's overvalued still. And yeah, but if it gets to – look, if a company like this who's long, long-term PE multiple and should – when I say should, just informed by the historical context, probably 16 to 18, would you say? Something like that. We get in that ballpark and I'd pay up for quality. So maybe at the upper end of that. You might justify, yeah, exactly. Yeah, I can rationalize, particularly if they really lean into the dividend payments and there's a good income return that I can reinvest and all that kind of stuff.

48:33Yeah, absolutely. But we're so far away from that. So, you know, I'm not surprised at all. So the big 15 % fall this week takes it back all the way to March of this year. Yeah, right. Which kind of also puts it in context. It's not falling to five-year lows, right? And again, not saying it's good or bad. Well, that was a very, very short dip. Before that, you've got to go back to 2018. Yeah. My point is, though, it's not like it's one of those situations where this has fallen to a all-time low. Oh, yeah. To your point, it wasn't reasonably priced and fell out of bed. It's like, well, and over the last six months when it went up, that amount that's come back down, it's 20 % of the original price, it went like that.

49:15For what reason? Other than if it's got carried away, it's like, we should pay more for this. Yeah. Why? What was the numbers? Speaking of PEs, what do you reckon, Coles, PEs at the moment? It's about the same. 28.2%. Yeah, yeah, yeah. Sorry. Before the fall, it was about the same. Exactly. That's right. Exactly. And that's insane. That is insane. That is insane. You know, and I do, I always do the, when trying to try to justify these standpoints, I think you don't have to do a valuation based on what you think will happen, but flip it around. What needs to happen? And so you can, I made this point before, but I'll make it again.

49:52So you go, okay, let me, let me do this in real time. This will be, this will be a bit of fun. Um, what's the code? COL. So we are now looking at calls. Oh, they haven't, Comsec hasn't updated its figures. So anyway, let's, let's go with 2024 earnings figures, uh, earnings per share, 81 cents. So what are they? Must've been 83, 84 cents a share. This year? You reckon? Yeah. Not sure. I'll, I'll still find it. Let's round it up. Let's round it up. 85 cents. And let's say that they grow at 5 % per year. And let's say that they do that for five more years. It's possible because there's a little bit of room to run.

50:28One, two, three. So that means in the year 2030, FY30, they're trading with an earnings per share figure. Let's round it up. $1.10. I'm being really generous here, right? And let's say at that point, they are trading at a PE of 17. which, again, I'm not trying to forecast what the market's mood will be at that time. I'm just like, that's a reasonable and average. That means that in five years' time, the share price is about$18.70. And now it's... It's$23.60. It doesn't sound like a good thing. Again, throw in dividends if it makes you feel better. And you go, okay, well, you're being too bearish.

51:10It's like, well, maybe, but... What do you have to assume? You must, if you're going to say it's value, there's two things that must be true. Either I've been too conservative in my earnings growth and you think, no, they'll grow at much greater than 5 % per year. It's like, okay, but the Australian economy is growing at 2%. So I don't know where that's going to, but okay. Or you think, no, no, the market's going to be trading at a much higher PE by then. It's like, okay, but is that, okay, all right, I'll do the mass. Let's say it's 22 times. That is a hell of a lot of difference. I've done the mass.

51:46$1.10 times 22 is$24.20. That means in five years, I'm going to buy shares or continue to hold shares. Let me add that in for anyone who goes, well, it doesn't matter to me because I only paid$3 for it. Whatever it is today is what it is today. $23.60, you're holding it or having the option to hold it at that price. And you will wait five long years and you'll end a business who's grown well above its long-term average sustainably. sustainably and who's trading well above it. And you're basically awash in terms of your share price. You've made, you know, what, a 5 % gain. So to not lose money, it has to grow quickly, and the market has to pay up for it.

52:24We can actually do it backwards. I know it's hard in audio format. It's 23.59 as I look at my screen now. Let's say I want a 10 % return. I'm going to ignore dividends to make it easier. One, two, three, four, five on my calculator. later. That means if I want a 10 % return, I need the share price to be 30, almost on the button, $38 in the FY30. Now let's go with my assumption again, and I've rounded up here, I've rounded up. Earnings per share is$1.10, right? $38 divided by 1.1 equals 34 point something. So what am I saying? I'm sorry if I've lost you. It's not easy to do in audio format. What it's saying is for you to get that 10 % return excluding dividends just on a capital gain.

53:10You need earnings to grow at 5 % consistently or on average over that five-year period. And you need the PE to be at 34. 34. I can't even, if you're not shocked by that. And PEs are a little bit unintuitive. So let's flip it around, right? Just do the inverse of the PE, which is what's called the earnings yield, which basically says for every dollar of stock that I buy, what earnings is that generating? Not what I will get because I only get the dividend, but as an owner of the business, what am I getting? You're basically saying that at some point in the future, people will be happy to hold this thing for a 3 % annualized return.

53:55Yeah. And they can, but if that's all you're looking for, A, being cash because it's government guarantee and you'll probably get more than that, B, find almost any other investment, not any other investment, plenty of other investments or the index itself, far more likely. Because by the way, if the index doesn't do 3%, Coles can get to 3%. Right, right. I mean, look, put a pin in this. Someone set a reminder. I'll stand by this one. Let's come back in five years' time. If you have gotten anywhere near a double-digit return, I mean, I won't make any promises because I'll, who knows what crazy stuff might happen.

54:27I would be highly surprised. And even if you are right, I would still throw shade at you and say, well, you got lucky. This wasn't prudent investment calculus. That's almost the key word, right? Because if everything has to go that well for you to be right, you are right on the edge here. You're taking risks that simply are not prudent because it's not the most likely outcome. Maybe it happens. In some universe, it does happen, right? Because there's a million universes or unlimited universes, and it does happen. It doesn't mean you're right. In some universe, I've got hair and I'm the best-looking bloke in the world, but it doesn't make sense to bet on me doing that in the next five years.

55:03You know, there's, yeah, likelihoods are really, really, really important in investing. If your thesis is always, if everything goes really, really well, I'll be okay. Yeah. And if it doesn't, the other side, to finish that sentence, if everything goes perfectly, I will go, and the key word there is okay. Right? No one's saying a 10 % annualized return is like buying a Lambo next week. Like it is just the long-term average of the money. It's like, it's decent. It's respectable. It's okay. It's not, wow. whoa you're telling me i got 10 % kaget over that that's incredible no it's okay but if you're wrong if you're wrong in any of those things it only goes at four percent the p is only at 18 you're gonna do not do you die but you're gonna have a really you're gonna have a loss i was gonna say a mediocre return that's that even that's sugarcoating it right i just i think i've i think i've made the point here but this is this is also why i think um oh actually when i make this point to friends and family.

56:03It's so funny that people go, yeah, I hear what you're saying, but it's a very good quality business. I was like, did you not hear me just acknowledge that? That's not the point. No one's arguing it's a good quality. Yeah, but people always need to eat. Yes, they do. But if that's, I mean, okay, then pay$50 a share for Coles. Oh, well, that's silly. Well, then we're really, we're not arguing in terms of concept here. We're only arguing in point of where that line in the sand lies. And it's, it's, it is beside the point. So don't, and the easiest person, who was this Benjamin Graham? I can't remember one, one famous, maybe Buffett, who said, you know, the easiest person to fool is yourself.

56:40Right. And, and, and that is, that is 100 times true when you already own shares. And when you're looking at that and you're going, Hmm, you want to believe, right? You want to, and then the other, the other dumb thing that people potentially will do here is they'll go, yeah, but I did buy it, you know, back in 38 BC and my capital gain is massive if I sell I have to pay a pile of tax pay the tax yeah exactly pay the tax pay the tax right now pay the tax and it'll still in in after tax dollars at the end of all said and particularly just put it in somewhere more sensible you'll be far better off like maintaining a poor investment just to avoid paying a bit of tax I don't like paying tax either.

57:22I get it, but it's just you're shooting yourself in the foot. Rant over for now. Well, suspended. Delayed. Two things related. Speaking of Coles earnings per share, I thought, oh, I'll find out what you're talking. So I looked at their ASX results announcement, the press release. Oh, I know what you're going to say. Yes. So I went to their presentation for analysts. I thought, well, it'll be the analyst presentation. No, not there. I had to download the annual report to find the information. Turns out, quote, oh, actually, I've said quote. Basic earnings per share, EPS, from continuing operations was 80.8, a decrease of 4.5 % from the prior year.

58:05Well, but profit went up. Yeah. So, wait a sec. For those paying attention at home, this is probably got, there's an angle in here back to inflation, but which we won't explore. But, right? Right? It's like, well, the obvious explanation is, yeah, there's more shares on issue. Right? Is that it? Is that it? I'm waiting for mine to download while - Oh, sorry, mate. I haven't - It was more - My point was broadly two things. One is you were very generous in your assumptions. But secondly - Yeah, it has to be. But secondly, it's also that they chose not to tell us because they didn't want us to know because they wanted us to focus on other things.

58:42That was kind of my key. Thank God for statutory reporting obligations. Yeah. And even then, like EPS, even if you – really bad for Coles. Like really, really bad guys. Like bad, bad, bad people. If you leave out the sales for the Northern Territory Division or – there are some numbers – you can be accused of – well, you shouldn't do it. You should present it factually, right, and talk straight. But if you left out something that was kind of esoteric, underlying EBITDA was left off the press release. Well, that's fair enough, right? When you have earnings per share, the most basic bottom line number, more important than net profit because it's per investor per share held, that's really bad.

59:23So, Coles, bad people. Do better, Coles. Seriously, I'm not even being funny. Just do better. Really, really ordinary. The point is we touched on this a little while ago. We were talking about chart crimes where people love to play funny buggers with the Y-axis. So, I was like, whoa, look at that bar. It's a much bigger bar than the other bar that's next to us. It's like, yeah, because you've got a really odd and stupid scale. The point I made then, and I think applies now, is why do it? I could get the incentive to do it if you had some kind of chance of tricking people. But no one gets fooled by this.

59:57And I love to throw a bunch of shade at it. I disagree, mate. You think so? Yeah, because I think the average investor is not going to the annual report to find EPS. Yeah, but all the analysts, sell-side analysts, all the brokers, all the fundies, like the big money, they're not. I mean, if they are. But that's the idea, right? So it doesn't, it doesn't care who buys the shares. So what are you saying now? You're effectively saying, well, the people who spend their time doing this don't get tricked by it. The people who don't know anybody get tricked by it. That's even worse, right? That's even worse because people who know better are fine.

1:00:24People who don't know better are the ones getting screwed by this. Actually. Go on. Yeah, no, good point. Sorry. I just realized what's going on here. Okay. Another obfuscation potentially. Okay. Last year, FY24, was a 53-week year. Yes, that's also true. They've adjusted most of those numbers, yeah. So when we say profit has gone up, they have normalized the results. Now, this is an unreasonable, particularly if that last week is in the Christmas period where a lot of people tend to buy a lot more stuff. So actually, it wasn't that earned profit went up. Profit, statutory net profit, not on a per share basis, actually went down 3.5%.

1:01:03But EPS went down 4.5%. So it's still, there's still what we're talking about is still true. And so again, it's just sort of like, right, it pays to go always to the source material here because profit actually went down compared to FY24. It's just that there was, and you go, well, wait a second, it's one extra week. Does that make much of a difference? Actually, yeah, it does make much of a difference. So I've got zero problem with companies normalizing things to enable me as an owner of the business to better understand what is really going on. As long as A, they're consistent and B, they're upfront about it.

1:01:43And I will say, I will say, actually, I'm being a little bit unfair. I think Coles probably did do that, making the point that it was adjusting for the extra week last year. But even then, mate, it was on page 15 of their annual report. Yeah. Right? after you got through all of the graphs and bars where they ask you to focus on all the other stuff. So on the annual report, you know, page one's always a shiny picture and, you know, everything's wonderful. So then you've got to go through all of their commentary. None of that has their EPS in it. You go through all the store network. You go through the vision and strategy.

1:02:16You go through a picture of a family in a field because that's apparently important. You've got the sales, revenue, group, EBIT, news, stores, e-commerce, sales. Scroll through that. Now a number of customers, team members, suppliers. Well, it's interesting, I guess. Hundreds of products lowered in price. Fine. We have a highest ever team member engagement score. Okay, fine. Message from the chairman and CEO. Surely it's in there then. No, no, it's not in there. Executive leadership team. Pictures, that's important. Some more people on a farm. Delivering our strategy. I thought of a truck and a dinner, maybe stir fried beef or something.

1:02:48Still going. Some graphic talking about their business model winning together. Some blueberries. Then the group performance. So now we're finally page 14. Great. So we're getting all the good information. Sales revenue EBIT. Cash realisation, dividends. Oh, good. They're so far, so good. That's page, what page is that? That's page 14. Okay, good. Well, we're almost there. Award covered, salaried, team member review, ACCC proceedings. And then finally, we get to earnings per share and dividends. Fair dinkum. just kill me now. Why would you leave it? You don't put it in the press release. You don't put it in the presentation.

1:03:20You don't put it in the first 14 pages, including all the big numbers with the graphs and everything. We're exciting. Why? Because you don't want people to look at it. You'll have to look at everything else. Yeah. Fortunately, we've got a really good financial press. Right? That will help report on this. So what gets reported? End patent revenues. Yeah, yeah, yeah, yeah. Exactly as Coles would like it. Yes, yeah. We really do deserve what we get, don't we? We do a little bit. You can't blame them for doing it because it works. Well, no, I know what you mean. It works, right? Yes, but you can blame them for not actually being decent people.

1:03:54Yes, you can also just sort of be a little bit depressed that we are so easily fooled. You understand that they do it because then they're interested to do it because they know we're not going to pick it up. Yeah. So I still blame them for doing it. I know I'm being a pedantic. I still blame them for doing it because be better. But if you're not going to be held to a higher standard and you want it to be, you know, if you want to spin as hard as you could and you get away with it, you can't be surprised they do it. Speaking of PR BS, I really, you know, all these pictures of wholesome families on farms, you know, it's like you ask the average – I came from the country.

1:04:28You ask the average farmer what they think of the big supermarkets and they are not going to tell you nice things, you know, and they love to put them front and centre. And, like, I can tell you, you go to a high-density feedlot, It looks nothing like what the pictures you're seeing in the Coles thing, right? Like it is like depressing, awful, like, oh, I can't even begin to tell you how disgusting it is. But it's sort of like, I think we all love to think that, you know, we're supporting Aussie farmers. Like you're absolutely extracting those poor buggers, you know, with an inch of their lives and they are on their knees.

1:05:07and then you have the gall to turn around and sort of go, oh, look at this, and we all feel great, and we're doing a bugger off. Anyway. Can we finish, speaking of buggering off, can we finish with something a bit off the wall, but really important? And partly important because of what it's talking about, partly important because it kind of matters in terms of policy formation. And by the way, we're pretty deep in the podcast here, so I'm not sure we can keep this. I've still got to remind you about tobacco tax. No, that's what I'm going to go to. That's what I'm going to talk about. Is that all right?

1:05:31Yeah, please. We'll go about this stuff later. so Chris Richardson great economist big fan economists give themselves a bad rap because they're trying to forecast stuff which is just dumb when you strip all that back and actually say tell me about what's going on they are really good Chris Richardson is one of those ones who doesn't do forecasts as far as I know he may do some and probably does because he probably can't do it myself either love you Chris had him on the good oil by the way really good but he put on LinkedIn of all things I don't know how I can't remember how I found it it's probably scrolling I'm not asleep talked about the reduction in tobacco sales on the, it might've been the ABS inflation data or something.

1:06:08And it was down massively. And at first place you go, oh, we're smoking less, that's a win. And then he says, well, is that really likely to be the case? We're really smoking that much less. I don't remember what his numbers were. Fast forward to this week, Coles and Woolies, I'll go to Chris's point. He says, okay, well, I don't think that's real. And by the way, if it's not real, it's costing the federal government budget a squillion dollars because people are not paying the excise that otherwise would be due. Fast forward this week, Coles and Woolies both, apparently I haven't looked at the individual presentation on Woolies, Coles said tobacco sales down 30 % year on year.

1:06:47Woolies apparently was the same number I read in the newspaper report. I haven't sourced it, so don't quote me on that one. And you think, well, are there a third, it's probably a third less than we were 12 months ago? Possible. That's a big drop for a highly addictive substance. Or, turns out, the chop-chop and the illegally imported stuff is being sold through every convenience store in the country. And to such a degree that we are absolutely getting... So, what's happening? Firstly, smoking rates aren't declining. In fact, if they're cheaper, they're probably increasing, frankly. Let's not assume they're not declining.

1:07:20So, no benefit there. Secondly, we're collecting a truckload less tax exercise and probably something like a third less if these numbers are even close to replicated elsewhere. So the federal government budget's got a massive hole in it now. Thirdly, who's doing all the illegal importation? Organised crime. So we now have a system, and I'll get to what I think about this and what I think we should do, and by the way, I want to be careful. We've got a system where smoke rates are not declining, government revenue is declining, organised crime is on the up. And Chris Richards, I don't think, made the point about crime at the time, best I can remember.

1:07:52I don't want to put words in his mouth. But he made the point that there's a massive tax-take problem. so we've now got a real issue and this is one of those policy areas where i mentioned before about woolies probably not wanting to go back to the well and buying back endeavor because they sold it so it's behaviorally that's like oh no can't do that because we said we're getting rid of it now we're gonna say we're going back again and do we make a mistake and let's just not let's just ignore the problem i can go away if you're a federal politician you're going to ask yourself haven't you increased taxes to a point now i'm not a no tax guy i'm not a low everyone knows i'm a libertarian like you know you know me from now the government's got to look at this and go So we're going to collect a whole lot of tobacco excise this year.

1:08:30Haven't we possibly pushed tobacco excise up too high? And that's a real – now, they will have public health experts saying, you couldn't possibly reduce it. By the way, public health experts, if people are smoking the cheap imports, they're not smoking any less just because the excise is going down. By the way, how many people out there are going, hey, a pack of cigarettes has just come down. You know what? Yeah, bugger it. Or I'm going to take up smoking. Well, some will, by the way. But that's why it's a problem. So at the moment, you've got the cheap stuff selling for a fraction of the price, not 10 % less.

1:09:02I'm talking – do you know what? I'm so sheltered. I've never ever seen or heard of an illegal pack of smokes, but apparently they're everywhere. I posted on Twitter and so many people said, oh, yeah, oh, my mates smoke them, oh, I smoke them. I wouldn't know where to get them. I'm so square. Do you know what a pack of cigarettes costs? Well, so this is the thing, right? People are saying it's like$40 for a pack of smokes. You can get the illegally imported stuff for as little as$10 apparently. So we've got a massive issue. and by the way some people will take up smoking at 10 bucks because they used to we put the price up they smoke less so we know that to your point someone will some people will smoke less because it's cheap smoke let's be really honest so public health experts get well if you put it down more people will smoke well they're gonna buy the other stuff anyway um the the simple reality and i'm i'm not someone saying let's have less tax all over the place i think syntaxes are okay i think they're great you know i've talked before about grog taxes about you know there's you can't you can't do your own spirits and it's like 40 bucks a bottle of spirits for tobacco alcohol excise like it's just dumb anyway and so but separate to my ideology my thoughts on any of that stuff the simple reality is we've pushed tobacco excise up to a point where per packets higher than it's ever been and we're going to collect less money because we've created an incentive and the incentive is large enough for the black market to absolutely flourish and by the way the tobacco fire bombings all over the joint and the organized crime stuff is really if we've seen it the papers now yes yes by the way um we should be actually following the law and you know make sure we are finding those people shutting them down so it's not just excise but we've created a market if you listen to this podcast for any length of time price and price and sorry demand and supply matter it's a thing called elasticity and so what you've done is you've incentivized substitute goods i'm not saying for a second by the way we need to cut the price back to the same price the imported stuff because when the price of legal smokes was 25 % lower, there was no black market.

1:10:54Why? It's not like people wouldn't have paid 10 bucks if they could have. Risk reward wasn't as good. And so this is the other point I want to make. I've had people on Twitter say, well, the illegal stuff's cheap. If you halve the price of the illegal stuff, I still buy the illegal ones. I'm sure you would. But if you're an importer, if you're a criminal, are you going to go to the time, effort, hassle, risk of importing it if the margin's not there? Organized crime's a business. Like the business principles still apply, right? Am I going to make... They're meeting a market demand. Exactly. So bottom line, I don't think there's...

1:11:26Well, people will argue. I don't think there should be any argument. We have pushed tobacco excises too high, not for any other reason. Yes, it's also regressive because the poor people tend to smoke more and they can afford less to do it. But even putting that aside, putting aside the public health concerns because I'm not convinced it'll make a difference anyway, just purely from an economic perspective, I don't even mean... I mean, government tax is important, but economics is the study of human behavior expressed through prices and trade, right? What have we done? We've shown a substitution effect because the price got too high.

1:11:56The criminals are doing Jeff Bezos' line, your margin is my opportunity. They've literally gone, beauty, hang on, we can make some money here. Can I make the point too, they're not going out the front of a school and shoving it down kids' throats or whatever a current affair would like to present to you. How is that still a thing? Anyway, they're meeting a market demand, right? And this is why prohibition just generally doesn't work. We won't go into this as a conversation, but I'm one of those people who think we should decriminalize a lot of low-grade drugs. People are like, oh, so you support drugs?

1:12:30No, I don't. I just like people are doing it anyway, dude. Like we can have it in the shadows and we can support, you know, black markets or we could just, you know, face reality and do it. And I'll point to Portugal there with the incredible success they've had in reducing. I've heard that. I haven't looked at it. That's interesting. Yeah, it's actually really old. They did it ages ago. I actually need to check up on it and how it's gone. But in terms of what's the North Star here? The North Star is not to whack people with the stick. The North Star is like we would prefer less harm emanating from drug use.

1:13:01Yeah, okay. So it's like, well, let's do this, this, this, this, and this. And rather than like putting people in jail who are probably, you know, people whose lives are going great don't just take up ice. Generally speaking, there's exceptions, you know, there's more deep seated things. And so they took all the money that they were spending on enforcement and all that kind of stuff. And they just put it towards help programs. And lo and behold, the rate of drug use plummeted. Did it get rid of it? Yeah. Yeah. Oh, it's a whole thing. I mean, it's one of the arguments for injection rooms and stuff, which everyone hates.

1:13:37Oh, so you're going to encourage people to do heroin. There's a roof where I'll take up heroin. They're doing it already. right so the point i wanted to make also is that is that have you heard of the laffer curve yes that's what i was going to wrap me right so for those that haven't uh laffer is an a he was a i forget his first name he's a u.s economist and he basically came up with this um uh concept arthur arthur laffer l-a-f-f-e-r i believe yeah correct and and he sort of said that obviously from government's perspective, you want to maximize the tax rate. And so you might go, okay, great.

1:14:15Well, let's just go with income tax, make it easier. It's like, well, we're charging, what is it? 45 % for the top tier. Let's make it 60%. Why not? More tax, right? And he made the point is like, well, there's a natural limit to that because beyond a certain point, people will just go, I'm moving to Dubai. I'm going to go live in Singapore. I'm going to go to the Cook Islands. and it's not like one of these arbitrary things that people like, you know, your cranky old uncle at Christmas always threatens to do. Everyone's going to leave the country. People do it. And it's really noticed. You know, a really good test tube here is the different state taxes in the US.

1:14:51There's 50 odd states or whatever that are there. And they will absolutely compete in terms of tax jurisdictions because the Laffer curve is a real thing. So, all I'm saying is, it's just like you You can increase tax as much as you like, but you do reach a point beyond which, even though the tax rates are higher, the tax intake is lower because people will either hide their income or they will leave the jurisdiction and it becomes a self-defeating thing. So we start with a really, really good idea. Cigarettes are really harmful. They hurt people. They kill people. And moreover, from a society standpoint, it costs us a fortune from the medical system to sort of look after all of this stuff.

1:15:31So we should probably disincentivize that, a syntax, as you called it. But it made a lot of sense and actually helped. It really did, like, in and of itself, there was in conjunction with education and all kinds of other things. but they kept on doing it to the point where it's just sort of like a packet of cigarettes is so ridiculously expensive. The kind of person who wouldn't dare dream of going into the black market or going around the law is now it's just like, well, I don't like to think of myself as a criminal but I'm addicted to this stuff and this one's$10 and that one's$60. So I'm going to do that.

1:16:09And by the way, it then becomes social where everyone else is doing it anyway then it becomes more acceptable to do it and all of a sudden you end up with this I think it's exactly right that was my point mate I don't think the government have done much wrong to date because A.E. the Laffer curve hasn't passed that tipping point until now literally but so for the last 17 years 16 of the last 17 years they've done the right thing I'm not saying they shouldn't have put it up now what I'm saying is this is the time when serious times call for serious people this is the time when you kind of go someone in town has got to go So, huh.

1:16:42Well, I guess that's the thing then. I guess we've found the peak of the Laffer curve. We've dropped off the other side where higher tax rates per stick now means lower tax revenue overall. It's not even my major concern. We've literally provided a structural support for organized crime. We've literally said, here's a cash crop, guys. Knock yourselves out. So from both those perspectives, it just makes absolutely zero sense. And I'm not saying, by the way, some people say, see, prediction doesn't work, therefore there should be no sin taxes. Like, no, no, you can't use those extremes, right? It probably doesn't work, by the way, but that's not why you...

1:17:13A syntax of something. When smokes were$25 a pack, there was no significant black market. When they were$30 a pack, there's no significant black market. When they're$35 a pack, there's no significant black market. Now, I'm sure there was slightly more, but that's okay because, again, Laffer curve works and public health benefits worked and all that kind of stuff happened. But at some point you go, right, it's 2025. We've just found, through experience, natural experiment, right? We know. We saw it happen. We've just dropped over the top. we're now collecting less tax on smoke even at a higher tax rate because there's less legal smokes being sold we know we've just passed that point our job now is to back back and find the point where the laffer curve maximizes and drops away and so that's the next step i'm not i'm not saying they shouldn't have had syntax i'm not saying they shouldn't put them up you put them up until you have you you've gone too far and you wind it back a bit right just it makes it makes every bit of logical sense it's what you do every single time with anything you push to a limit you find the limit you just step back a bit a couple of steps from it say right that's a safe place to operate yeah we found that point which is as someone who loves economics i think it's great we've literally had the natural we know it's like cool that was fun at this price we know this at that price we know that fantastic the only logical policy decision now is to walk back to that previous point or any may have to go further by the way because we've started the trade now we're getting rid of it well because the supply chains are in like the infrastructure has been built now right so for every incremental packet of cigarettes brought illegally brought in yes It's much cheaper than it used to be because we've got the supply chains built.

1:18:39And maybe we could have known that. Maybe we could have surveyed black. I'm not saying they did everything right up to this point. All I'm saying is I can give them a past market a bit to this point. The test now is are you guys mature enough and sensible enough and thoughtful enough and are you acting in the national interest enough to then find that point going backwards where the black market goes away and then that's where you stop. And we know at that point that's where we have to leave it. And that's exactly what we should do. Yes, I know the government depends on it. I'm not going soft on cigarettes, smoking.

1:19:03I'm not going soft on syntax. This is not a libertarian view in the slightest. I'm very happy with sin taxes. I mean, I'd rather have cheap beer, but I understand why it's there. And I just think I'll accept it. I'm not a smoker, so I'd probably have a dog in the fight. But the simple reality is this is for governments now, politicians, governments, regulators, legislators, Treasury, to say, Treasurer, we've got a problem. We need to fix this and go back to this point because that's what makes sense. I've guessed it. And ironically, right, Treasurer, we need to lower the tax so we can increase the amount of tax we collect.

1:19:34that's right yes and by the way the Laffer curve is not a single curve it's a concept just for anyone who's wondering there is no otherwise you do the maths on everything all the time and automatically find the point you don't know the spike of the curve you don't know the tipping point by the way for cigarettes I suspect if you'd have asked anyone 30 years ago to draw the Laffer curve for smokes they would have assumed the tipping point was a decade and a half ago oh yeah because it's logically right but we've done it we know so that's okay but once you find it you've got to anyway I'm going over old ground I just I I guess I'm ranting, mate, because I'm sure they won't change it.

1:20:07No, they won't. Despite all the evidence. And yes, they should do enforcement. And yes, other things should happen. I get all that stuff as well. It's just we know that as an economic tool, the idea of the syntax, we've pushed it too far. So I'm going to wind it back a bit. Do you know the one thing I like about the black market in general? Oh, dear. Go on. Well, it's just a lovely example. It's like the podcast, but someone's still listening. Just be careful. Well, again, if you're going to misinterpret this, that's on me. Just remember there's going to be a transcript without any sort of tone.

1:20:35Yeah, that's true. What black markets show you is that when there's a demand for something, people will find a way and they'll deliver it. So there's been a demand here. And without any bureau or Department of Labor or, you know, treasurer or bureaucrat in Canberra, someone and some group of people on their own bat through their own motivations have built an incredible supply chain and distribution network to satisfy that demand. Yeah. There's a lesson in that. I'm not, forget about the stuff that is being sold, but it's like, I was in the car today. I haven't given you one of my in the car ranting stories.

1:21:17No, news radio again, is it? Well, so they were talking about the challenges with the renewable buildout. There's not enough sparkies and that around yeah i forget her name or what it was but it was the apparent i didn't even know this existed there was a department of of what's it called sparkies oh it's something about you know our job is to make sure that there's enough people and and all this kind of stuff which which makes perfect sense until you pick at it for half a second they go well we need to do this and we need to do that and it just like do you here's what would happen if you guys weren't around right?

1:21:50People who have the most attractive prospects with their business venture, the highest rates of possible return would bid up the price. There's not enough sparkies. Oh gosh, well, we were paying him 30 bucks an hour. This is ridiculous. I'm sure it's much more than that. 30 bucks an hour. We need people. And I'm prepared to pay up because I've got a really good economic activity here. And it's a good economic activity because a whole bunch of people demand this. So I'll pay 40 bucks. And that will take it away from the marginal producers is like, I'm barely hanging on here. I'm sorry, you don't get your Sparky anymore.

1:22:24Not because anyone's being mean, it's just because the market has said that actually we prefer this kind of stuff. But what does that do? Again, prices are always a signal. That's what they are. They are a language in which we communicate across space and time. And you will find that it's just like, everyone, you know, is like, holy, what? You're telling me that I can earn this much as a Sparky? Now, what does that do? What signal does that send? It's like, I would suspect more people go into that trade. And it didn't require anyone in Canberra to go, well, I guess we need to do this and we need to give some grants and we need to put a tax on.

1:22:59It will happen. People will self-organize around this kind of stuff. And what it actually does in aggregate is it actually ensures a really, really good allocation of resources. And you would find, not that there's an immediate fix. An immediate fix doesn't exist in either camp, like in either world that doesn't exist. But my point is that what I think a lot of the iconocrats in Canberra fail to recognize is that you're not helping, guys. Like, in fact, these are the kind of – any student of economics will tell you these are the kinds of things that – it's called the market, which always makes it sound like some capitalistic, hedonistic, consumer at all costs kind of, you know, people look at it through those kind of glasses.

1:23:38But the market will solve it. The market will solve it elegantly, perfectly, without anyone doing anything. And here is a wonderful example in the chop-chop track, right? Yep. You remind me of the bosses who are on the radio and TV regularly saying, nobody wants to work. I've got these jobs here no one wants. Yeah, right. It's like, no, no, no. No one wants to work in your business at the price you're offering. That's a very different thing. You know, that's not no one wants to work. So you are not making it attractive enough for someone, whether they are in a different job in a different town in a different industry make it more attractive right exactly make it more attractive everyone I will work for anybody who wants to pay me half a million dollars a year just you know let's get graphic right so I not long ago I might have told you I had the septic yeah it really is I had the septic tank pumped right now I don't want to go too much in detail it is not you kick the lid off it is not pleasant right and so you ask me it's like hey Andrew would you like to go into the job of going around to people's houses and pumping out their poo and I would say to you no and then you would probably say hear me out and I go okay and you go 200 bucks an hour hmm maybe 250 dollars an hour oh I'm interested I don't know what the point I'm making these numbers up the point is there is a point at which you would go, hell yeah.

1:25:06Hell yeah, I will do that. Obviously, I will do that. Every single person has a price. And that is the Adam Smith invisible hand, which we worked out 150 years ago. When was it? Something like that. By the way, 200 bucks an hour is$416 ,000 a year. So I will happily do it for less than that. I'll do it, right? I will 100%. Anyone needs their septic tank pumped, I will do that. But if you turn around to me and go, oh, I'm only going to pay you$5 an hour, it's like, no. And it's not to, you know, there is a point. There is a point. And every supply and demand curve demonstrates exactly that. The supply will increase as the price goes up to meet the given demand.

1:25:49Can I make another Austrian point here on this? What if you do it actually in a foreign language?

1:25:58I can't be in two places at once, right? So when I do - Are people not just the Austrians believe that's true for the record? Well, maybe the Keynesians don't, right? I don't know if they do, but I can't be in two places at once. So when I hang up my podcasting mic and whatever else I do, I'm not doing that anymore. I'm pumping poo out of septic tanks all of a sudden. So all of a sudden the human capital is being diverted. Again, not because there was a central bureau of labor that decided we need more. It just happened organically. And why did that arise? Because people in aggregate said, we value you, your efforts more doing this thing.

1:26:50And I haven't had to coordinate. I've just basically said, I will just keep bidding until someone will do the thing. And if it's too much for me, I'll do it myself. and if it's not enough, I'll pay for someone to do it. I mow my own lawn. I can whinge to you all the time because it's a big job at my house, right? And I mow my own lawn. It's a pain in the backside. Yeah. And I looked at it the other day. I think I really should just get someone to do this. Now, as you know, I'm famously tight. You're not going to do that, are you? So I'm sure I could. No, I'm not going. No way. So I looked at it.

1:27:16You're not going to tell me you're actually going to do it. No, I'm not paying that. I'm not paying that. That's ridiculous. Even though when you do the math, you're like, yeah, Yeah, that's probably what I would charge too, right? Like it's absolutely reasonable. But my point is, is if someone knocked on the door, kid up the street said, Mr. Page, I'll do it for, you know, 50 bucks. Like, hell yeah. I'm sitting on my front thing with the iced tea in my hand and my chop-chop cigarette going, woo, raising my glass to this guy. And he's breaking his back to him. And it's beautiful. It's such a beautiful kind of thing.

1:27:50And here's the other thing. The final point I'll make is no one is being coerced. No one is being coerced. I'm doing something voluntarily. The kid up the street is doing something voluntarily. Everyone's happy. Everyone's happy until someone from Canberra comes along and goes, well, I don't know if we need it. It starts messing everything up all the time. There are very much edge cases where that kind of phenomenon. So I just, again, people will. And there's lead times and that sort of stuff. And there's social implications. But broadly, yeah, you're 100 % right. But it's something I feel is like I'm making such a ridiculously obvious point.

1:28:21But it's just like the people making very, very, very big decisions in Canberra, they're distorting it. And what will almost, like what happened with the pink baths, like what happened with solar panels, they will have a good intention, good people with good intentions. I don't want to suggest anything otherwise. But what they'll do is they'll overreach. They'll incentivize it to the buggery. They'll not realize it's overincentivized until it's way too late. And all of a sudden, we've overbuilt our capacity. EV is another great example. But look what we talked about that on the pod the other day as well.

1:28:53It's like, well, we've got to incentivize it as if a whole bunch of people weren't going to buy these things kind of anyway. And what we really do there is just like, it'd be one thing if it was a victimless crime, but it's not again, because of opportunity costs, because that thing that you were going to could have been a hospital or a school is now in giving, you know, the investment banker and$400 ,000 a year, a slightly more reason to buy an electric vehicle because you think it's good. And it's just, it's a madness and it makes us all less prosperous as a nation. Yeah. I think it's, I think it's the risk of setting you off again.

1:29:29Why we talk about capitalism with a lowercase C and really what, you know, you simply always said a new word. It's kind of true. Words always get distilled in use for different things and mean different things. And, you know, but the idea of capitalism, it's the, and even when you say it's the allocation of scarce resources, It still feels like it's all about business and it's all about someone in economics doing well. It's just what you've just described. And it's why, for all of its faults, and it has a million of them, it is just still multiple times better than every other system we've tried.

1:30:00Because you get the best – if you can efficiently allocate a resource, right? Rather than me having to do the poo pumping and Andrew's lawn and this podcast and hopefully doing some investing on the side and trying to do it all at one go and doing three of those four badly, you can decide which three they are. and so I'm slow at it and it takes me too long and therefore I don't get as much stuff done if there's four different people and someone does the investing and someone does the podcast someone does the poo and someone does the lawn then you actually they all do it in a much better time so they've all got time left over but what's taken me a week takes four individual people four days so I've actually got that's what productivity is so we're kind of back to where we started right which is and that's why that's why little c capitalism really matters look most people listening to probably get that already I get it but you see so much about the whole capitalism is broke capitalism is wrong wrong uh it doesn't work let's replace it with something else let's tear the whole thing down what people are really saying is if the system is distorted or doesn't work or there's not appropriate regulations where they need to be regulations of thinking about externalities like pollution or other things or competition law is not working but it's not it's a couple of things are perfect and it's not a religion and it's not the only thing we should do and it's not it should be allowed to run unfettered because we just ideologically love it and you know we can't brook any difference i tweeted earlier today i was gonna talk about it i won't do now the stuff we talk about regularly Matt the strong opinions weekly held thing you know have your ideology by all means and yes have a view have some organising principles is what I call them have some thoughts about how things broadly work but then work out where they don't work work out where the interventions are required but also let it do its thing where it does and that's the thing with capitalism small c it's not if it's not perfect now we should throw it away it's absolutely the best system if it's not subverted by bad people and if it's not allowed to overrun on some areas where there are social or other bad outcomes.

1:31:43Minimum wage is a great example. You talk about supply and demand ramp. We probably shouldn't have the 12-year-old forced by his mum and dad to mow your lawn for$2 and go home and have to give them the money and then spend time to that rather than go into school. There's a lot of child life. $2 is not a bad deal. Not for a dollar. But yes, we've got minimum wage laws. We've got child labor laws. Those things matter because we believe that people should have reasonable qualities of life above at least a minimum threshold. So we should have good regulation. but broadly the capitalism thing is just that allocation of resources that just works because it works because it works to your point not because anyone's made it work because it just expresses what we do and it means if i can i'm not going to spend time and money and effort either doing my own poo pumping or paying someone who's bad at it to do it badly i'm going to get the guy who's really good at it he's probably gonna do it cheaper because he's really good and really fast got a great piece of equipment okay well he's gonna win the business so he's gonna do it cheaper so i'm gonna have money left over he gets an income i can also pay the bloke to do lawns because i've saved money on the poo pump because i didn't do it myself and i didn't have to accept the government's poop-upper who sent four blokes and three trucks.

1:32:43Let's move on to a different analogy. It's so elegant. It's so elegant. It's so beautiful. It's why you've got to think about it from the bottom up, not the top down. Capitalism is not a capital C thing. I mean, it is if you describe the system, but it's not really that. It's the name we give to what we do that actually helps us be more productive, be more successful, have higher quality of life. On average, not everybody, all the usual disclaimers. But it's, again, I've said it a million times. Churchill said it about democracy. I changed to be democratic capitalism. it's the absolutely worst system ever except every other one we've tried and that's why you've got to got it just be gutted zealously right don't let's not throw away just because it's not perfect let's fix the imperfections yeah and that really should be the role i i think there of government you're the referee on the pitch right you need to sort of keep make sure that the rules are clear and open and fair there'll be certain edge cases and we can decide where they are you know maybe prisons maybe the military things like that that's kind of like well that It just doesn't make sense in the private sector for various reasons.

1:33:38But that doesn't mean that for 99 % of other things that it's not an incredibly good system. And it actually means – and here's the kicker. It actually means less tax and better outcomes for you, the citizen. Like, that's pretty cool. And it's just like there's a sliding scale here, right? It's like, well, what do you mean? It's just like, well, look at the highly, highly communist-leaning kind of countries and the standard of living you have there versus the free and open market ones. And, you know, it is hard, I think. Where it gets hard, and I made this point before too, is that there's a lot of things that are called capitalism that aren't.

1:34:13I mean, when you have a really deep, wide regulatory moat around you, it's just like, well, that's not really capitalism. I always rail about that in our industry. Like anyone trying to set up a business in this industry, it's just like you're not only competing against the scale and capital advantage that Combank or someone like that has, but it's also the people who are there to protect you actually stop other people coming in and offering a competing service. It's just sort of like, so people go, that's really, that's outrageous. These banks are exploiting us. And then it's like, yeah, because the government won't let anyone else come in and offer a better service, right?

1:34:49It's, you know, shut up at this point. No, it's a good point. And it's where we want our governments to be really thoughtful and really careful about what you choose to regulate. I don't think we should have private police forces. I think a government, it's probably a really good thing that we have a public police force not being paid for by the highest bidder, right? The Fire Brigade. Right? That's kind of important. By the way, Fire Brigade started as insurance company businesses. Did you know that? Well, actually, now you're making a case for not publicly funding it. No, I'm saying that's where it started.

1:35:15I'm saying my old man, my old man was a fire, so I know this. Right, right, right. But I mean, but I'm just saying, people would point out saying, well, if you didn't have it, it would still exist. Yeah, yeah. No, I'm just making the point. It's just funny. No, it didn't exist at university. That was the point. There was a bit like the – remember Foxtel and Optus Vision where they laid cables over the top of each other down the street? Yeah. It was kind of – so the insurance companies funded their own fire brigades for their particular – So when you rang out and set my house on fire, they said, well, you're not our customer, so sorry.

1:35:40So it went from a private good for select food to a public good, which is why – that's why it makes sense that it's a universal. Ambulance, the same thing. Do we want – you know, I've got a – US medical care versus Australian medical care. That's so-called socialised medicine. I think it's reasonable if you break your leg, you can go and get fixed. because they happen to fess up an amount of money or insurance card. Those US insurance companies, they're not free market. No, they're not. They have a lot of government assistance. It's also oligopolistic because they allow them to basically do individual specific deals rather than actually making sure competition works.

1:36:13Anyway, we've got miles off track and we're miles too late. Mate, thanks for a great chat. I would say, well, I see you on Sunday, but I already know I'm going to see you on Sunday because I saw you on Sunday yesterday. You did. It's weird how time works. it all works out in the end AI doing things quantum computing and quantum leaps and all sorts of fun stuff anyway shout out to Scott Bakula for those who know the show great show sorry great show by the way quantum leap what's the other bloke's name Scott Bakula and Dean the hologram dude yeah yeah yeah I can see his face I'm going to look it up just because we're that people want to know probably don't really care we've already turned the thing off Scott Bakula and Dean Stockwell Dean Stockwell oh yes yeah right yeah Jeez, I just looked at the photo.

1:36:55That is crying for a remake, by the way. 1989 to 1993. They stopped making that 32 years ago, right? Yeah. But it went for four years. It says something. Crying for a remake. It's a long time. Oh, really? Have you seen the Naked Gun remake yet? No. That is one I desperately... Have you seen the shorts for it? No. Do yourself a favour. Listeners, thank me later. Liam Neeson plays Frank Driven's son, Frank Driven Jr. Liam Neeson? you will thank me for it later okay wow so you stuck around at the end and you got a special Easter egg I'll check that out not just you I've got listeners as well they know now too I'm generally sceptical going into remakes so I saw it I was like oh god you're going to trash the remake and then you're going to trash Liam Neeson this is going to be like don't don't please don't and trash the franchise and I looked at the thing and went actually no it's very possible like some movies the shorts are the highlights and you kind of go I've already seen the good bits so I haven't seen the movie shorts are very funny Okay.

1:37:54That'll do. Fool on. Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.