We’re not in tariff-free Kansas any more, Toto. March 7, 2025

25:05Speaking of tangents, I'm going to go on one. I don't know if you saw the Australia Institute out. I saw your tweet. Yes. Right? So these guys used to be really good. And there's some good people who still work there. And so I want to be really careful. I don't think blankets help anybody. um they have morphed in my opinion from a genuine think tank to a lobby group with some researchers and i i say that pretty clearly i believe that i don't think it's anyway they think they're having an impact on society that's fine but the reality is they're they are starting with conclusions and working back for questions and that's always a bad place to be right and the starting point is big business bad big company bad big number bad it's it's about the laziest way you can approach an issue.

25:44They would say, I'm sure, that they think the corporate class is taking too much money, and you and I both railed against crony capitalism. So we're not here saying all business good or all big number good. We're just saying you can't start with big number bad. They had a whinge. Now, I own NIB shares. I'm going to be really clear. I was clear in my tweet. It was the first line of the tweet. I'll say it again. Because I had to go up to private insurance companies. Now, the first thing was they said, oh, they're making big profits and then use return on equity. I've got big profit margins, and then use return on equity to manage it.

26:10Now, return equity is not a profit margin, right? profit margin is how much is left after I've paid all my costs. I just mentioned revenue, I paid all my bills, the margin is what's left as a proportion of something else, usually revenue. What is it for NIB? 5%, 6%, something like that? It's 4.57 I think someone said on the feed, I haven't checked it. It's worse than, it's about as good as supermarket retail. I mean, anyway, even if it's slightly too high, they use the return on equity. Why? Because return equity numbers are large. One of them, I don't know if it's NIB, one of the big, I think think it was Medibank, was making a 44 % return on equity, as if that was somehow egregious just because it was.

26:45So firstly, it ignores the capital they use, the debt they use as part of the capital structure, which makes it, why didn't they use return on capital? Because return on equity is higher. Let's be really honest. This is selective production of information. Is the data wrong? No, that is the return on equity. Is it useful? No, because it doesn't tell you anything about the debt structure, the capital structure. It doesn't tell you how cyclical or otherwise the businesses are and by the way it then goes to look at the combination of that compared to for not-for-profits who make less money it's like yeah that's the point why would a for-profit company have that are not profit have a return on equity of 44 they're not they're not trying to make profit that's that's literally the point and you say well these other companies are making money yes they are the question is not are they making money it's how well they provide so if If people didn't like them, if their service was, I was going to say another word, rubbish, almost slipped out of there, they'd go and join the not-for-profit, which is great.

27:40I'm a member of a not-for-profit health fund. I love Vanguard's not-for-profit ETF provider. I'm not saying that BlackRock or bloody Betashare is making too much money. I just use not to use them because I want a better service. But if people want to use them, just the idea that somehow the fact companies are making profits is some horrible, horrible thing is just so unbelievably stupid. People who say that, I often think it's just like, well, what would you do? I mean, you don't give away your time for free, and nor should you, right? And there's subtlety there. There is unfair profit due to political advantage and, you know, unscrupulous business practices that, you know, break the law.

28:21I mean, no one's for that. Well, I'm certainly not. Cartel behaviour, anti-competition, polluting the rivers, saving money by underpaying workers. That, you know, that's not how you make, well, it shouldn't be how you make money. Well, just think about it then. And I guess, like, there is no profit. Let's do what journalists do and make everything a cafe because that's the only way that I can understand business as a punter is thinking about a cafe, right? What does the cafe owner in Balmain think? Well, you know, it's like, I tell you what, no one's opened up a cafe if they don't have the prospect of making money, right?

28:54And an excess there to, again, back to our original point, to compensate for the risk. is there risk in investing in equities yep is there risk in opening a cafe you want to believe there's risk in opening a cafe there's far more risk in doing that than there is investing in the s &p 500 index right like it is incredibly diabolically risky and we know it because most of them fail right and so to then say well actually we're gonna be the only incentive for someone to take that risk they're either like completely delusional or they're taking a calculated, they're making an economic calculation here is I'm taking a risk because I want the reward.

29:32And you take the potential for that reward away. And all it does is just means, well, no one gets a coffee. Like again, you've got to think downstream of all of this. So I'll let you get on with your point here, but I'm just so with you there. It's just like profit is bad. It's like, no, it's not. It's necessary. Incentives matter, I guess. I'll tell you that, yeah. And here's the other thing. So, NIB is making too much money. Maybank, again, I own NIB. NIB is such a small portion of my portfolio. I sold tomorrow. I don't care. It's not about NIB. I think you said it was like 0.26 something percent.

30:08No, it's not that low, but it's less than 1%. It's just tiny. Less than 3.25 % or something. Anyway. So, you're talking your book. Well, this is the thing, right? I have bagged companies I've owned. If people reckon I'm trying to talk up my NIB position, and somehow fight back against the Australians on my own craven grounds. You're welcome to have that view. If that's your view of it, stop listening now because the rest of what I say will be useless to you. And by the way, I don't blame people for being sceptical. There's plenty of people who took their books, right? It's just what people do.

30:35So, you know. But here's the thing, not-for-profits exist. It's not like there's no competition. It's like, if those... Why do we make better marginal and Medibank? Because they do a better job. The not-for-profits are literally there. So how is it possible for Medibank to make money when HGF isn't making any money because it's not-for-profit? How's it possible? Well, either they've got a better product, better marketing, they have lower costs, they have better underwriting. Whatever combination of business practices exist, there's literally a not-for-profit competitor. I don't even care. I don't even – when I buy something, be it a service, a product, anything, I don't care what the other person is getting out of that.

31:16All I want to know is I have to give up a certain amount of my dollars and in return I am getting a product or a service. That's my calculation. It never comes into it. You know, I had to get a tradie out the other day to do some stuff. Whether he's making a 12 % margin or 2%, I don't care. All I care about is I need this thing done how much. Is that worth it in my mind? I could do it myself. The arrogance. Could I do this myself? How much would it cost? How long would it take? You know, it's much easier if you do it and you'll do a much, much better job. That's the calculus. And that is always the calculus, I think, for all of us.

31:51When we go in and we look around the market for things that will satisfy our desires and our wants and our needs, that's the only thing that matters. And the person – if someone is able to deliver something that other people value and make a really high, almost unfair amount of profit, well, I guess that's a problem. but it's also a problem that fixes itself because this is the beauty of the market, right? Others will go, hey, wait a second. Scott just set up a lawn mowing business and he's getting a return on equity of 90 % and his profit margins are 50 % and he's just making out like a bandit.

32:30What do you think I do? It's like, I'm going to buy a mower and a whippersnipper in a truck and I'm going to start doing it too. And if I want to sell some market share, yeah, I'll charge a little bit less, right? I have to, I must either charge less or do a better job or some combination of the two. Otherwise, no one will buy off me. Not because of my profit margins or my return on equity, just because it's like, hey, this guy's offering me a better deal. I'm going to take that deal. That's the beauty of it. That's the whole Adam Smith invisible hand thing. And that's naturally the Australian Institute's point.

33:03If there is an issue with health insurance, if there are some barriers that prevent competition, Yes. You and I are all there, right? I'm all there with the best of them, yes. If there's collusion, if there's cartel, if there's something structural that just simply – and, you know, you're a little more market than me in that sense. You know, the market won't solve everything sometimes. Oh, absolutely. There are just obstacles that are structural or regulatory or whatever. I mean, the US got love, and for all their laissez-faire stuff, they broke up the oil trust. Yes. They broke up AT &T. So think about Telstra, right?

33:29Yeah. The Telstra of the early 1980s was AT &T, American Telecom and Telecom for Telecom, something else. or whatever it was. Broke it up in like four or five parts. This is too big to be competitive. We're breaking the thing up. That's, you know, we don't do that. And people look at our government and say, oh, you have two interventionists. Like they literally went, break it. And it was a public company. We're breaking it up. So, you know, that idea of if there are obstacles, they should absolutely break it up. But that's not, the Australian's point isn't that. I mean, there are not-for-profits in the space.

33:56There is so much competition in this space. The fact that someone's making some money, like that's somehow horrible. It's like, if your allegations they're doing, because of illegal or unethical things. That's a great... I'm going to promote the hell out of that thing. And by the way, also on the Australian Institute stuff, they do some really good stuff. They've been really strong against the political donation reforms, which I've banged on about on Twitter endlessly. So they're not good or bad. This is the other thing. People paint them as either the heroes or the villains. They're neither. I think they're uncomfortably lobbying rather than genuinely trying to add to the intellectual debate.

34:28That's their call. But anyway, back to where we were, which was understanding the disruption and distractions and the changes of markets, I think is where you start. And tariffs are just more of that. They just are. They incentivise inefficiency. They push up prices for consumers. They lower living standards for both the exporter and the importer. The whole idea is just absolute madness. You know, it's a really interesting workarounds too. Again, you've got to think bigger picture, right? So there was an example where there was a certain tariff on dolls and that impacted Marvel, right? With your Spider-Man doll, your Hulk doll.

35:12Sorry, sorry. Action figure. Sorry. And so they lobbied successfully to the government. I forget what year this was to say, well, they're not human, so they're not dolls. And so they avoided it. So G.I. Joe's a doll, but the Hulk's not. Yeah, something like that. Yeah, absolutely. So you get these really weird – the trouble with it is even if you buy into the ideology of it, the execution of it is very, very, very difficult. Another example was with – I think it was Hush Puppies. I know. Anyways, there's a particular – Yeah. It's on the tip of my tongue. Anyways, a particular shoe brand. And they changed the sole so that it was a little bit of felt.

35:53and the reason was if a certain percentage of the sole was felt classified as a slipper and not a shoe slippers had a different tariff so therefore they avoided the tariff right yeah and again it's a sort of like people administer isn't bureaucrat administrating it and so i was like here's the tariff for this that's the rule you okay that you you come under this classification therefore you pay a lower rate of tariff so what it does is it's actually incentivizing a worse shoe because now I've got belts at the bottom of my sneaker. I was like, wait a sec. And another example, another example is when they did this, Trump's first term with, oh, what was it?

36:32The aluminium and stuff. So it turned out that a lot of stuff was still coming from China and it was not being paid the full rate. How was that? Well, we ship it to somewhere else first. Yeah, I believe it. So, you know, it's sort of like saying, I'm putting a tariff on anything that Scott does. And so you go, all right, well, I'm going to sell it to Bob and then I'm just going to buy it off Bob. Now, it just adds in a middleman. It adds in inefficiency and it does all this stuff. But there's all these workarounds and you've got to try and – this is where even – and I don't think it is a good idea in any way, shape or form with tariffs.

37:10But even if you do think it's a good idea, it's like the devil is in the detail with this kind of stuff. And it's those unintended consequences that can just really make for some really unusual, unexpected outcomes. And again, at the end of the day, the consumer is worse off. That's the great tragedy of it all. You are worse off, dear listener. You know, it's not some evil person in a corporate glass tower somewhere. It's you that is worse off as a consequence of all of this. Hey, by the way, the Atlanta Fed is now predicting recession in the US, speaking of worse off. Yeah. I mean, that's, you know, and you know my views on predictions as I tweeted during the week, but like just that, but it just gets dumb.

37:47Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

37:57The other big bit of news this week economically was GDP. Gross domestic product was out. And for those who don't know, I try and explain our terms more often than not. Gross domestic product is basically the sum total of all the things we make and do, all the goods and services produced in the economy over a three-month period in this case, from October through to December. Some unusual and welcome good news, mate. I've got to say, I don't mind tearing this apart. I will throw a couple of asterisks at you in a second. But we saw GDP growth for the fourth quarter of last year, the fourth calendar quarter, of 0.6%.

38:29That is almost more than the previous three months combined. So you think about, you know, there's a definite uptick in the economy, which is awesome. 1.3 % for the year, way too low. I was going to say, isn't it funny how that's what we're celebrating, right? Yeah, exactly. Half of what our long-term historical average has been, but okay. But a recovery is going to start somewhere, right? So wait until it happens and go, oh, finally we're there. You're going to miss some of the good stuff. So let's be fair and honest. It is improving. That's really, really good. Per capita GDP recession is finally over, which is the best part of that for me.

39:02What did that run for? Seven straight quarters. Yeah, yep. So for the first time in two years, we've actually gone forward on average as Australians, which is bananas. is um by the way only 0.1 percent and as uh tarik i know you follow him on on twitter as well tarik booker i think it's booker booker um under the avid commentator you might know him um came out literally five minutes after yeah but it was only 0.07 it might be it might be revised downwards later i was like come on dude give us something to hang on to for a minute um so yes 0.07 percent roundup 0.1 is growing we are we are going forward per person on average now averages hide a lot of distribution dramas and everything else.

39:40We don't get that money, but as an economy, things are improving. You ought to be making more stuff per person, or higher value of stuff anyway. That would determine improvements. So that's a really good thing. Still minus 0.7 % for the year. So one quarter does not make a summer. Could still be downgraded, as Tarek said, but fingers crossed, it'll stay at a positive number. So that's a good thing for now, at least. Last thing for me, mate, savings rate went up. Now, again, from a tiny number to a less tiny number, 3.6 % of income to 3.8 % of income. Average is close to six. We got to about 22 during the handout phase of COVID.

40:18And it crashed to, I think it might have been under 2 % for a period. What does it say when you're at 3.6 % and going? The number's important. The direction is more important, as we often say. What does it mean? It means we're saving more of our income. Why is that? Well, stage three tax cuts. Incomes are growing faster than inflation. So those two things are going to mean we have more money, at least available to be saved after tax. So those are positive things for households. Why is it good to be saving money? Because it restores the household balance sheet. Some people say, oh, we should spend everything because it's good for the economy.

40:48That would be true in the short term. When you have a shock, then everything goes to custard. So having higher savings to a level is really good for the wellbeing, not necessarily the velocity of an economy, but the wellbeing of a society. And we both know that's more important. So those were sort of the three kind of key takeouts. One last one, mate, just to give some colour. The 0.1 % per capita GDP growth, exports added 0.2 % to the GDP number. And so you kind of go, so that export, and look, it's all, you can't say but, but, but, otherwise you extract everything, right? Except for the castles that went down, everyone else went up, you can't do it.

41:23But I guess the point there is, had our exporters not actually managed to find a couple of extra places to throw some product and service, we still would have been in negative territory on a per capita basis. So that's just a little watch out. Trade tends to be, you know, sometimes we import a lot of aeroplanes and don't export as much and trade detracts from GDP. In that case, we would have had a negative per capita number and it would have been eight straight quarters. Yeah. I mean, look, you know me. I'm going to be a little bit negative. Yeah. I mean, I welcome it. I think, I mean, I've been on the record for a long time saying GDP is very flawed metric, but, you know, it's the one that everyone looks at.

42:00So I won't revisit that. And society, you can interpret it in that context as well. I guess the short version is, if you haven't heard me rant on it, it speaks nothing towards the quality of spending. Yep. So I could go and hire 100 people to go and dig holes in the middle of the Simpson Desert and then fill them back in again, and that would be great for GDP. It doesn't make anyone richer. It transfers some of my wealth to someone else, but as an economy, we're no better off. It's a broken window fallacy if you want to Google something. So, yes. Is it good that it's come up? Yep, it is. I agree wholeheartedly with your point.

42:37It's more not so much the numbers but the direction of things. So we've seen this. And, again, when you look at this series over time, it's just been going down and down and down and down with a tiny little tick. So, right, I'm welcoming the upward tick, but I'll be more enthusiastic about it when it looks as though that's more sustained. You know? I'll tell you. It's very – next quarter we could find that we're right back on the original train. It's the same if you're looking at, I don't know, what's a company that hasn't done well, you know, Myers or our retail food group. You know, it's been falling and falling and falling and falling.

43:12And then, you know, shareholders are getting exciting. You'll stop up. 2 % up today. Interestingly enough, a little factoid here, you usually see the biggest one-day pops in stocks that are falling very rapidly. It's just weird, right? Even in markets, the biggest one-day gains over the last 20 years, I think, happened during the GFC. These huge, terrifying drawdowns, and then there's this little bit of these little relief rallies or paper coverings. Hopefully, I can now. It could be the same kind of thing here. It's like terrible, terrible, terrible. A little bit of an uptick, and it's like down, down, down.

43:50Let's celebrate it when it looks a little bit more sustainable. I think that's true. That being said, you want to be careful not to only celebrate the best three months of a seven-year cycle. Say, oh, good things are finally as good as I want them to be. The reality is we're always going to live in cycles. We know there are booms and busts, there are ups and downs. And so there's something to saying the curve has flattened and maybe is rising, hopefully, as you said. Maybe not. Maybe it goes back next quarter. But we are moving towards a greater prosperity, which is... I'm really glad it wasn't down.

44:20I'm not trying. This is better than the alternative. um the the other thing though that i thought was interesting was that um the non-market sector which is just you know a silly term to basically say uh government jobs i think accounted for something like 40 percent of the improvement there so you've got spending in areas that that that are mandated through the allocation of taxpayer dollars now maybe that there's a really good investment on that. I don't, I want to automatically assume that that just because it came from the non-market sector that it was bad, but these are, these are capital allocation decisions that are made generally without reference to direct investment return or nature of the economy.

45:10It's just like, you know, and then maybe you would even argue that actually it's good that we have this kind of counter cyclical spending when, when things are going bad, but it's not, But without the government saying, hey, we're going to step in and we're going to spend all this money here, it would have been much worse, right? Yes. Yeah, again, I just make that point. No, it's a very, very, very good point. And the other thing is that, and this is like all good news is bad news, all bad news is good news kind of thing when it comes to economics. Especially at this point of the cycle. Right?

45:43Yeah. So this is Australia. And so all we care about is interest rates. And we only care about interest rates because we're all up to the eyeballs in household debt. And this data, and that was the response you saw from a lot of the pundits, was just like, oh, don't expect another interest rate cut before the election now. And think about it. The RBA is going, well, we would cut interest rates if we felt as though the economy needed a bit of stimulus. Oh, the economy is doing better than we thought. We don't need to cut. So is that good news or is it bad news? Well, it's - Right, exactly. You know - What do you want?

46:19Depends on your perspective, but I guarantee you a lot of people out there, look, and even myself included as a mortgage holder, I'd be like a little bit, oh, I would have liked to cut in interest rates, right? I would have to keep my job for everyone else to lose theirs so I could pay more for my mortgage. Yeah, exactly. Right? So it's sort of - And this is what's always true of economic data, particularly one single data point in in one particular metric in one particular period of time. You've always got to look at the bigger picture. So I'll just summarise by sort of saying, I'm really happy to sort of see it went in the right direction, particularly on a per capita basis.

46:54Yes. But, you know, there are some wrinkles, I suppose. A healthy economy is the basis for everything else. I mean, healthy, not, again, this is between climate and weather or happiness and contentedness. We're not talking about, you know, a good quarter is not useful to anybody but a healthy economy over time is very very useful for a whole lot of reasons including employment business investment standards of living all those things come from a healthy economy not too hot not too cold that that literal mid mid ground that that's where the that's where the winds come from and even even longer than that the circumstances for a healthy economy so good government regulation uh without over regulation under regulation you know getting those things right matters a heap um even just simply rule of law and other stuff those are the fundamental building blocks to allow for a healthy economy.

47:42I will very quickly, Matt, I don't want to dive too deep. This could expend 15 minutes. I don't know if you want, but you mentioned the components of GDP. And here's where we've got to be really, really careful because, as they say, there are no solutions, only trade-offs. I want people to think about three legs of a particular stool here. We have got – some people will say to me, well, what are you complaining about? Inflation is down. We haven't lost jobs. Therefore, it's a perfect solution, a perfect outcome. Now, I would say to you that, yes, if we can get inflation down without having job losses, that's a really good result.

48:14We didn't have to go into a recession, touch wood so far, Trump notwithstanding, to get inflation out. That's great. Now, again, your views of the RBA notwithstanding, let's assume there was no RBA and inflation still came down over time because prices are the cure for prices. Either way, if inflation can come down and jobs aren't lost, that's great. Really, really great. The problem in part is it was kind of a sleight of hand. And I don't mean this necessarily pejoratively or even necessarily critically. What I want people to understand is what the cost of this was. So government was responsible for, depending on what numbers you believe, somewhere between 80 % and 90 % of new jobs over the past few years, right?

48:51In other words, what would have happened with unemployment, and again, we can't know the perfect counterfactual because you can never see it. In other words, had they not been on an absolute hiring spree, unemployment would have been worse. and people will again say well that's good that's what governments are supposed to do that's kind of what you alluded to before and that is kind of true as well except when you say right well what is the third leg of the stool the third leg of the stool is inflation i mean there's multiple legs but for our purposes inflation unemployment and government debt and so what we've effectively done is we've raided the national credit card to pretend that we still have jobs if i get put off tomorrow and i said hey no honey i actually still work i'm employing myself uh to to do stuff around the house so i'm still employed oh look just by the way i'm paying myself i'm putting money you know two grand a month out of my credit card onto my savings account saying well see employment my unemployment rate hasn't gone up i'm still employed i'm employing myself excellent analogy yep well and yeah it sounds a bit flipper but it's not it's very good and it's not even bad it's it's absolutely not bad if the budget was such and what i'm gonna do is over in four months time i'm gonna be employable again and so i'm gonna stop paying myself when i start getting paid again by someone else i'm going to pay back the credit card and i have smoothed out my fiscal recession i've i've dealt with my personal circumstances i've kept myself in a job in whatever form it is i paid my bills i'm better off because i've done it i pay off the credit card so that's great that's that's how this kind of works right and so when people say to me and they're generally labor sports because they want to believe and and by the way the lmp sports will blame albo for everything so it's not it's not a one-way street here but in this example it is the the government support saying, well, what more do you want?

50:29We've fixed inflation and we kept unemployment low. This is perfect. We've done a wonderful job. Just be really careful because the result is we have more debt than we should have. We have a structural deficit which is bigger than it should be, and we have no plans. And by the way, if you think there are plans, the government has put out its own forward estimates in the budget. There are no plans to pay back the debt. There are only plans to make the debt higher. And so that's, you know, if the deal was, if they'd have said, and look, you know, I like to expect perfection because I don't have to be said for an election.

51:00They should have said, we will do this. We will spend this money. And here is our plan to get back out of once the economy starts growing. It's growing now. Here's how we're going to get back out of it. Here's what we've structurally done to make sure we're paying off the debt that we've incurred. Not the gross debt. We had a couple of budget surpluses, which is great. They're tiny, but it's good. Here's how we're going to pay that back. Here's how we're going to offset the extra cost we incurred to keep people in work. And if they did that, I would be all ears. and if they did it well, I'd be very supportive.

51:26But what they've done is basically said, look at inflation, look at unemployment. Let's not talk about government debt. Let's not talk about forward estimates. Let's talk about structural budget balance because no one cares. If no one asks me about it, I get away with it. And that's just what I want people... I don't care what political party you support. The last government left a truckload of forward estimate deficits as well. This is not a political view. It's a governance view, not government, governance. And that's what I just want to highlight to people in terms of, you know, it's not just inflation and GDP.

51:53And unemployment, it's what we have to pay for it and how that debt gets repaid. Strong agree. I'll just add one thing, which it's not, it's that, but it's also what we get in exchange for that as well. So I would be much more, even if all of that was true, but the jobs that were created were just doing wonderful things, getting a real return. And I'll be very clear here. I'm not talking necessarily about monetary returns. If we got a really great social dividend, to use a fairly loose kind of term, I could be behind that. And I'm not saying this is the case, but just to paint a contrast. If, however, we hired 1 ,000 bureaucrats to add another 37 different licensing requirements to cafe owners, I would be way to set.

52:45It would be creating employment. You're not only increasing debt. You're not only throwing good money after bad here, but you're actively stifling small business. This is not good. So it's all of those things and it's more, I mean, there's nuance, there's context, there's subtlety, all the things you get on social media, right? With this kind of stuff. Long, nuanced conversation with lots of puts and takes and best efforts and positive intent. Yep, absolutely. And that is really the nub of it here. In fact, the reason I say 37, I'll give a shout out here. Just quickly, I'll find it. Someone tagged me in a tweet the other day.

53:24And I want to give the proper attribution here.

53:32Live podcasting, mate. It's always good. Jeremy Rockliffe, who is the 47th Premier of Tasmania, was talking about taking a stance on the licenses you need to open a cafe and he said there are 37 of them and we need to get rid of them so at greatest fails someone on Twitter thank you so much, they said a man after your own heart Sage Simeon, it's like yep absolutely you've got to be careful with that too because I'll often rail about this to friends and they'll go oh so you think there's no regulation, again there's no subtlety nuance. I was like, no, I'm really glad there are food safety standards.

54:14I'm really glad of a lot of different things. But if someone needs 37 different licenses to open a cafe and make a coffee, it is ridiculous. And it really just stands in stark contrast to everyone shaking their fist about, we need more productivity. Explain to me how that improves productivity. Like I'm an idiot. Explain to me how someone who is desperately trying to keep their head above water running a cafe is going to be better served and more efficient and more productive by having to fill out all of this ridiculous paperwork and go through and jump through all of these different hoops. It is so outrageous.

54:52And again, people are employed to do this. Is that a good spend of my taxpayer dollar? I don't know. I don't know. So anyway, point made. Hey, man, let's finish off with some good news. I got a message on Twitter during the week from a listener who says, I think Vanguard are listening to you, to which I said I'd like to think so too, but I'm sure they're not. But what's really, really good, you and I have talked about Vanguard's, one of their, I think it might be their most popular, certainly most popular amongst retail investors or private investors, you like to say. As far as I know, certainly from the noise and the kind of the hubbub you get, VDHG, I hate codes, as you well know, but that's what people call it.

55:34The Vanguard Diversified High Growth ETF has long been a favorite. Why? Because it's diversified and it's high growth. That sounds great, right? Well, you and I have talked about the fact that, yeah, it's got 10 % fixed interest and that's not high growth. And so, guys, maybe this isn't exactly what you said it is. Now, I don't mind people buying it. I don't mind people investing that way. I don't mind them having 10 % in bonds if they really want to. But it's not diversified high growth. That's not what it is, right? The good news is yesterday, the day before, Vanguard have announced they are launching a diversified all growth index ETF.

56:07And this is basically what we said they should do, which is a single, if you are an ETF investor, a single ETF that covers local and international shares, but doesn't saddle the ETF with low growth stuff. Now, it'd be more volatile as a result. We all know that. And you all have talked about the fact that volatility, if you have no, some people can send me back on Twitter. Oh yeah, but surely reducing volatility is good. Surely hedging is good. I'll get to that in a minute. if you need lower volatility because you need to sleep at night, sure. Otherwise, if you have a long-term horizon, you are going to do better, as long as shares don't do anything different than they have in the last 116 years, I don't think they will, with all equities rather than settling yourself with debt.

56:48So here's what they're going to hold. By the way, the management fee, this is not added, it's good, 0.27%. The Vanguard Australian is going to be comprised of the Vanguard Australian Shares ETF, ETF, the MSCI International Shares ETF, an International Shares Hedged version, and an Emerging Markets Shares Index fund. This is almost the perfect global, if you want a single touch global passive ETF, this is exactly what you would go with. So I'm really, really excited that Vanguard have done it. I say excited, I'm excited, I think it's great. I think, you know, if you are someone who likes VDHG, I'm not saying sell it, particularly if you're making capital gains, be careful of incurring capital gains for the sake of it.

57:26If the capital gains are greater than the cost of holding some lower return bonds, don't sell. But if you're looking to put money into a higher growth ETF that still is diversified, low cost across lots of jurisdictions, this is one I think you should look at, with one exception. As I said on Twitter during the week, hedging is just such a waste of money. And you've talked about this before. You're spending an insurance premium to have less volatility and lower overall returns. Unless you need the sleep at night, absolute madness and why they want i shouldn't want to do it because they want their customers to feel better to not be whipsawed maybe their experience is too many of their investors sell if they don't have some of the hedge component i don't know um but with that with that small uh wrinkle they're moving further and further towards let me put it that way around further further towards what i think is the perfect passive global as in including australia uh index etf so big big fan vdal is the code i'm not recommending you buy it i am saying if you're someone who looked at VDHG and said, I like that, whether or not you noticed the bombs part.

58:30VDAL, brand new one, launched, I think, on the, maybe Wednesday. I can't remember. But yeah, I really, really like it. Glad it's there. Glad Vanguard are doing it. I like Vanguard a lot, as you know. No dog in the fight. We don't get paid by Vanguard. I have no interest other than on behalf of our listeners, but really, really pleased to see it happening. Yep. You've got to be careful. This is true in investing and it's true in life. There's no such thing as a free lunch, right? So there is always a cost to things. You reminded me, and again, not to make this about the thing, but a friend enthusiastically messaged me during the week going, there's a new ETF out for Bitcoin and it guarantees no loss.

59:09I'm like, well, that sounds fantastic. So you're telling me I get all the upside and none of the loss? I'm like, well, Well, yeah, that's what they say. It's like, dude, how do they do that? How do they do that? They do that by hedging, to your point, right? And that means that there's less upside. So why would you buy something, and it doesn't matter what the asset is, any asset. Why would you buy an asset that you have no conviction or belief in, but you'll do it just in case it goes pear-shaped, there's some downside protection? All you're doing is running with weights on your legs. You know?

59:44You are guaranteed. Again, you either believe in the asset or you don't. And if you think it's going to go up, then buy it. And if you don't think it's going to go up, don't buy it. If you don't think it's going to go up, but you'll buy it anyway because you're protected for the downside. It doesn't make any sense. All you're going to do is guarantee underperformance. Hedging is actually a really, really, really smart, clever thing to do if. And the big thing is if there is some short-term considerations, right? Yeah. So I need to sell in the next year or so. I want to buy a house. I've got money in equities.

1:00:22I just look, I'll buy this knowing that I will limit my upside. But it's just what really matters to me is capital preservation. That's my priority. I mean, as we've often said, all of these derivative products really stand back to the agricultural space. and really what it was, was a very clever, efficient way to transfer risk from those who didn't want to bear it to those who were willing to bear it. So I'm planting wheat. I have no idea what the price is going to be when I harvest. I tell you what, it might be better, it might be worse, but I will lock in this price right now. And if I get that, I'll be happy with that.

1:00:57I'll be a bit annoyed if I could have gotten more, but I'll be certainly very happy if it turned out that it was less. Someone on the other side who might have a longer timeframe, He might have more capital, more opportunity to diversify, who has more skills with statistical analysis and markets. You're really good at plowing fields and growing wheat. This person over here is really good at making these financial calculations. What a beautiful synergy there that you have got this mechanism. The free market has come up with this wonderful way to transfer risk from someone who doesn't want it to someone who does want it.

1:01:33someone wants to take risk because risk equals reward as we all know they're happy to take that bet the other person doesn't want anything to do it this i've got no problem with any of that kind of stuff but when people say oh i want to invest in markets and i want to do all of this kind of stuff but i don't want any of the downside it's like it just you've got to be careful what you wish for here because i can guarantee that over any meaningful time frame all you're doing is It's just taking a loss. Not a loss. Taking an underperformance. Yes. I'll get it even further in your previous example, though, mate.

1:02:05It actually wasn't even the wheat farmer and the financial type. It was the wheat farmer and the bread maker. Right. It was, yes. The very original was just simply, I'm going to grow some wheat. Cool, I need some wheat. Yeah. How much wheat can I sell you? Well, how much have you got? Well, I need that much wheat for my bread because I think I'm going to make this much bread. Yeah. So they do a deal. The farmer gets certainty on his price and volume. The bread maker gets certainty, or the flail maker, I suppose you should say, on his price and volume or her, but it was probably him in the past.

1:02:33That's the beauty of it. I know what I'm going to be able to sell and what for. I can plant with certainty. I can buy the seeds. I can buy the fertilizer. I can buy the tractor. I can plant the stuff because I know when I sell it in a year's time or six months' time, I'm going to get this price for this much wheat. I know roughly how much an acre of wheat. There are no guarantees. It might be raining. It could be cyclones, whatever. but hopefully I can plant this much seed, get this much wheat. And the bread maker goes, you know what, that's great because I know I've got customs for my bread. And if I can lock in some supply, I'd have to go to market and hope I can find some bread on that day.

1:03:03I hope somebody hasn't sold it to somebody else. That's the idea. Literally a futures contract was just literally, I will buy this much in future. I will sell this much in future. When two parties agree, that's perfect. Then it becomes financialized. And I don't have a massive issue with it being financialized, though I don't think it's great. But as you well know, mate, I would restrict, you know, It's not going to happen. But if the market is going to operate as a stock market rather than a speculation shop, then I would say all options get off the table except for genuine futures contracts of, I need some chicken.

1:03:33Good, I'm selling some chicken. We can do a deal. That's what it's for. It's literally what it's for. It was never supposed to be a gamble on who's going to take the risk. It was just, I got it. I need it. Great. Let's shake hands across the table and see you in six months. At the same time, well, I mean, that's a big conversation. We shouldn't go down that path. I just feel if someone... I enjoy being in a society, environment, economy, whatever, where if I want to transfer risk to someone else, there is someone who will take that. They can be right or wrong. They can be a degenerate speculator.

1:04:08They can be a savvy long-term. I don't really care. It's just like, gosh, I'm holding all these CBA shares. I know I'm going to sell it in a year. And there's some idiot investment banker in Martin Place who wants to give me that protection. I mean, great. And if I don't want to do it, then I won't do it. So I'm a little bit more open to it. And the intentions of the counterparty, I don't really care, as long as they're not doing reckless things with the pension savings of ordinary people and those kinds of things. Again, there are always exceptions. But, yeah, it's a big conversation. Unless we get to physical products rather than speculating on, you know, naked options.

1:04:47A naked option is, I had the price of this is going to be higher. I don't know. I'm just guessing it's going to be. I think it's going to be lower. I'm guessing on that one. That belongs to the bookmaker. That's just, you know, what a random thing is worth at some point in the future. Again, if people want to bet on it, they're informed and they're not misled and they're, you know, able to not be taken advantage of, then fine. But let's not pretend it's investing. Oh, I wish you there. That's just casino tab stuff. I guess if I was going to rail against that kind of stuff, I will put my shoulder against the anti-pokey wheel.

1:05:22And all of the degeneracy of gambling that's out there, that to me, if some very rich people want to do these silly speculations, is less egregious to me than milking poor ordinary people with machines that are designed specifically to rob you blind. My moment is gambling. There's nothing investing about betting on the future price of CBA. if neither you nor I own the shares. Sure, sure. And I'm not saying, if you're going to allow it, that's cool, but let's put it where it belongs. You know, it's like, did we promote Robin Hood a few months ago? A month or so ago? Oh, maybe. Where they could invest on the outcome of a futures contract that happened in a football game?

1:06:02Oh, yes, yes. that's what that is, right? It's like, they're effectively saying, well, I'm a bookmaker. At least they're being honest about it, right? In this case, what is investing, what is gambling? If you're betting on the future price of something either of its own, in no way is that stock market related other than the fact that the instrument happens to be on the stock market that's not something that a stock broker should do frankly a share market shouldn't quote it it's a gamble knock yourself out, go and gamble go to sports bet, go to wherever else who else is in the family market don't care to your point, go and do that I'm not saying don't do it you're right, there are more egregious issues with gambling than that, but let's at least call it what it is which is gambling, and let's put it in the right house let's not pretend it's investing because it's offered by a stockbroker uh you missed the memo we we don't call it gambling anymore it's gaming i'm sorry i was going to be right so it's less harmful that way yeah yep yeah i'm sure that the kids and the gaming addicts will be happy that we've changed that i'm gonna go off gambling you shouldn't do that no i'm game oh i feel your boots that's all right put some on for me anyway mate i reckon we are done here will you come back on sunday we could have talked about star as well which maybe we'll do next time oh yes i will Absolutely, I will.

1:07:13I figured if we started that conversation. But behind the scenes, if you're still here, I said we're going to stop, so plenty of people have gone click and they're gone now. There's always a lot at the end of our agendas that get finished. And occasionally I look at the time and go, I'd say about an hour or five minutes. This one's probably quick. And I'm feeling discretion is a better part of valor. And this podcast is becoming an hour and a half pod. If I open that to kill a pen to his box. I'm glad you did. Did you want to talk about it very briefly? It was a wide open segue, but we did not have the time.

1:07:40And anyway, everyone knows what we're going to say about it anyway. and frankly by the time this goes to web so it may not exist anymore it'll be replaced don't worry well phew okay cool yeah it'll be all good they'll find some way to milk poor bastards out of their money yeah as long as it's not milking the taxpayer out of their money I'll take that as a celebration right like don't assume yeah the government's going to lose some tax revenue as a result of a star of foreclosers and someone in government's going to have a gravity to fix that problem okay but can we spend more money fixing the problem, then we will get back in tax revenue because that would be smart, right?

1:08:15You know, we almost certainly will. Okay. Okay. Woohoo, I suppose. On that happy note, enjoy your Friday evening, your Saturday and your Sunday morning. Until such time as Andrew is back from his feats of endurance and strength, we will talk to you on the flip side. Have a good weekend. Full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.