Why talking about GDP misses the point. March 8, 2024

26:29When do we go down? It's the only conversation. It's not if we're going to go down, but when are we going to go down and by how much? And maybe that proves to be the correct sort of forecast. but again it's not it's not something that you see in a super healthy economy where like again if we're doing great interest rates aren't being cut so yeah we'll we'll want to see we'll want to see a pickup in in things yeah i don't think we're gonna get it mate i gotta say i don't do predictions but um i would suspect we bump along the bottom for a while which by the way you still have really really really good results you know given given where we are given we've been you know 18 months ago if you'd said inflation is eight percent um you know how happy would you be if we grew at 0.2 rather than being in recession so i'd take it now again we're already in a per capita recession so it's it's not whether it's a well actually so here's the here's the quick tangent recessions matter a lot for reasons that they shouldn't matter and they matter a lot because it's self-fulfilling prophecy they're the things we talk about so what we've been trained i don't think deliberately over the last 40 plus years to to know and believe and to understand is recessions are bad recessions are when the economy sucks and people lose jobs and people stop spending and businesses close and so recessions are to be avoided at all costs that's what we've been taught and or absorbed for ourselves i claim a great and grand conspiracy here it's just that the the um the general conversation so when you when you know and see that as soon as there's a big i headline in the papers we will snap our wallets and purses shut people will go to ground they will fear losing their jobs they will make sure that they keep their hordes of money or that kind of stuff and it will actually make those things worse rather than better just as by the way booms do exactly the same thing the economy's flying everyone's great oh good i'll go on that holiday then you know we we react to the this is investing 101 too we react to the short term we react to things happening right now and the capital R recession i use that term only because it's the one that gets written up in the in the paper and it's not the per capita one that no one's talking about um the per capita recession is fine but when when we get a capital R recession and everyone says, oh, the country's stuffed, look, it's a recession, that will have a really significant impact on confidence, and then it becomes a self-fulfilling prophecy.

28:36And that's kind of why, for all of the things I ranted about, about per capita recessions, while ever the total economy recession is the hot topic, the buzzword, the whatever, the tipping point, effectively, the inflection point, that's why I think it's important we stay out of it. Not because, as you say there's a difference between plus what plus point one and minus point one it's the same number except that and we saw this during the gfc um the the wayne swan kevin rudd cash splash and the economy declined the first quarter i think and they grew up plus 0.1 percent the second quarter now yeah effectively it could have been minus point one plus but the fact we quotes avoided recession is still talked about today and when people say oh the other rest of the world had a recession we didn't have a recession and we got out of this better and all that kind of stuff it's partly mining it's partly other things but to my mind i think it's reasonably well accepted the confidence impact of oh thank god we avoided we can go back to business as usual was a really significant impact in what avoiding what otherwise might have happened which is probably businesses not hiring consumers shutting their wallets and a longer drawn out economic decline because of the very fact we we heard we were in recession so we acted accordingly rather than the reverse, which is we acted a certain way.

29:48So we went into a recession in the first place. Yeah, it's an interesting point. I think you're broadly right. One thing I do think, though, is that we all live in our own bubble and we all act with self-interest, you know, just to call it for what it is. So there is also a very much an organic sort of component to all of that where the psychological impact you're speaking about, I think is meaningful to people who are on the edge. If I am, my business is flying and I've got a million bucks in cash just sitting in the bank. I mean, I really don't care what the headlines say. I want that, I'm going to buy it.

30:27You know, it's as simple as that. That's absolutely true. So there is that to it. And well, speaking of that, we were speaking before about companies that have a significant advantage in having a strong balance sheet during a difficult time. that's exactly true for the personal balance sheet as well so your scott phillips personal balance sheet will will determine um how well you endure said periods if and if and when they that they do come true and and what you will where just to riff a little bit more on on the point you were making before about recessions being conditioned to say that recessions are bad they are bad like any I'm against human suffering.

31:10Let me just put that out there. Right? But I do think the reality of the world we live in is that, you know, this diabolically complex, dynamic, you know, chaotic system we call the economy is always going to go through periods of ups and downs. My, and I've mentioned this before in the pod, my concern is the unintended consequence of trying to get rid of recessions is just to kick cans down the road and make inevitabilities bigger and worse than they should be. As you said before, if this is as bad as it gets and we just sort of bump along the bottom, that's a pretty good outcome. And generally, if you sort of let failures happen quicker and sooner, they are less painful for everyone involved.

31:55Have some people suffered in that? Yes. Can I entirely eliminate human suffering? Well, no, but I'm open to any suggestions that anyone has in terms of ideas on that front. But given we can't, it becomes a choice between what do you want? often and little or rarely and catastrophic. And I feel as though that's, we keep pushing in that direction for the best of intentions and for the best of reasons. But at some point the system just has such a weight on top of it that I'll make the point again, just look at your own balance sheet and think carefully about that. You want to prudently invest and take advantage for the future just as a company does, but you want to make sure there's a little bit of resilience there as well.

32:36You know, by the way, too, just the last point on this one, everything you just said is absolutely true. And yet we all still have a recession because when the economy goes from plus point one to minus point one, you don't need that many people to change their behaviors that significantly. And so it actually is the edge that drags us over. And again, it's those people on the edge you do suffer. When unemployment goes from 5 % to 10%, only 5 % more people lose their jobs. The other 90 % of people stay employed. So it is, as you say, mate, it's all about those who get smashed from this sort of stuff.

33:02because most of us, hopefully you and I included, would keep our jobs in a recession, but plenty of people will lose theirs and it will be a small percentage. And it's not for a second to suggest it's not important or relevant. It's absolutely super important. They're more or less valuable than I am or you are. But that is, it's the edges. The edge cases lose their jobs. The edge cases are where businesses fail or the economy goes from plus 0.1 to minus 0.1 and creates that recession. You don't need much. Man, retail is such a tough game. uh the the margins there are so diabolically small that you only need a small drop in sales with a really high fixed cost base uh to make otherwise profitable businesses you know effectively um put them out of business in fact we saw um we saw uh tiger lily the swimwear brand go broke for the second time in four years this week um now i'm not suggesting it's necessarily you know the plural anecdote isn't data uh the plural plural data isn't necessarily information either uh but But it's interesting that they went broke again for a second time.

34:01We're going to see more of that this year as well, unfortunately. Yep. And just very quickly, I will say this too. There's huge sympathies for those people that do unfairly lose their job for forces beyond their sort of control and impact. At the same time, to be maybe a little edgy, I have less sympathy, let's put it that way, for those that took very excessive reckless risk. is, I mean, there is a consequence to some actions. And there will be, you talk about the people on the edge, on the margin that sort of bear the brunt of it. There is a whole bunch of people who sort of unfairly get bucketed in that because of the exuberance perhaps of people well above them.

34:41And then those that have sort of feathered, well, have made their own bed, so to speak. And again, that's kind of a lesson. Otherwise, you're just going to have an economy dominated by scaces and bonds and, you know, all the corporate kind of villains which is sort of like all they really did was just bet massively and aggressively and got lucky and wanted all the upsides that came with that. But now, you know, feel it unfair if the gods of fortune don't smile at them. Correct, correct. You know, failure is important in a lot of ways. It's one of those things, mate. I think that's right. I'm not as absolute as you on that stuff.

35:18I think I'm happy for us to try a bit harder to avoid recessions and that kind of thing. But overall, you're absolutely right. It's funny, you know, humans are weird creatures. The base effect is interesting. You know, people say, oh, you know, haven't had this many business failures since period X, whenever that X was. What we don't see the headlines of is, oh, we had so many businesses created in the five years since then as well. You know, that idea of, you know, the number of failures is something to do with the, not just the circumstances, but the decisions that were made to create those businesses in the first place, sort of make those companies.

35:56I'm not explaining it particularly well, but if you have 100 more things and 50 of them fail, that's a big deal. You're left with 50. If you have 1 ,000 more things and 900 of those fail, you're still left with 100. So which is better? Now, no one wants the failures, but maybe most of the people shouldn't have gone into business in the first place. And we don't say, gee, business failures are up because people did silly things and went into business. We say, business failures are up, therefore there's a problem we must fix. and I think we sometimes look at the the downside and say let's stop the downside which is kind of your point rather than either let's accept it and just who cares or actually let's not let things get so out of control in the first place and either of those two things they're very different in terms of the causes or the solutions but both kind of rely on the same thing which is starting with where we where we came from is a much bigger deal than maybe we've gone to Motley Fool Money.

36:46For more, subscribe to the free newsletter at fool.com.au forward slash listener.

36:54Now, mate, let's move on to something else this week that I thought was really interesting and probably maybe not all that interesting for the inevitability that we probably all assumed, but interestingly given what's happening in the economy. And this is the closure of every single Bankwest branch. Now, this is a West Australian-based bank. It was bought by CBA during the GFC 15 years ago, basically because it was going to go broke if it wasn't bought by somebody. The ACCC waved it through, APRA waved it through. It was like, well, this is as good as it gets, and it's worse if we don't do something, so you guys can buy it.

37:28And that was 15 years ago, and I don't know what intentions CBA may or may not have had at the time. But we come forward now to 2024, a couple of really interesting stats. So firstly, there's 60 branches remaining of Bankwest. They're going to close 45 outright and convert 15 of them to CBA branches. It's a nice little brand expansion for CBA I'm sure they'll be very happy about. But also, too, the numbers that came out from this announcement, Bankwest reckon 97 % of transactions are now done digitally or electronically, using the app or using some version of electronic funds transfer, whether it's credit card or just, you know, internet banking or BPAY or whatever.

38:06I was flabbergasted about that I've got to say mate I mean I don't know how reasonably that reflects other banks I assume Bankwest had a digital strategy for a while now their branches are certainly more like lounges rather than the old school bank branches with bulletproof glass and tellers handing out cash so they've been cash free for ages I think from memory but I thought it was interesting mate for that kind of the decision that CBA basically made so you know what the branches don't pay for themselves anymore We are losing money with these branches. We think the business is more profitable, more successful as an online only player.

38:42And I think there's a couple of thoughts I have here, mate. The first is that's just interesting in and of itself. The second is, you know, a lot of the other banks have already got their second brand. They're kind of their online brand. Yeah, there's NAB's got Eubank and George got Dragon Direct. And I do wonder whether CBA is kind of looking at this as not only as a bank where standalone, but as a corporate idea of if we shut this thing down, we could basically reposition the brand as a price fighting, lower price brand, digital only, and use that as our kind of way into the digital banking space, which is continuing to take off.

39:18Your thoughts, mate, on the closures, cash, digital banking, the whole box and dice? I mean, I can see it from two angles. I mean I get it it's not making money I mean if I ran any business any business and 97 percent of my customers used one sort of route to my business and there was a tiny percentage that that used another one I'd close the other one it doesn't make I get it it's not a nefarious uh intent that's behind this it's just pure economic rationality and at the same time I do I do I feel mainly for the elderly that that are used to sort of doing it in that way but you got to ask yourself well is it up to private enterprise private enterprise to provide a social good right i don't know maybe banks are different i'm i actually don't know the answer to that i saw you say on twitter actually the um post office could pick up the slack you know and provide banking service there's a really good solution if the government wanted to sort of step in and do something and and again whether you think they should or shouldn't i would say this as well um Again, you've made the point.

40:21We're not spring chickens anymore. I remember when Facebook was for university students. And then it was for anyone under 25 or 30. And now you go to Facebook, it's just boomers everywhere, right? Everyone else, all the cool kids have gone elsewhere. And you know what? The boomers just adapted to it. And I do think that necessity is the mother of invention. It's not quite the right saying, but granddad will figure it out when the grandson comes along and says, look, it's not that hard, granddad. Here, press this, then press this, then press this. It's sort of, yeah. Speaking of old, right, I remember when FPOS, even when ATMs came to my country town.

41:07I do too. No, I'm not getting money out of the wall. And in those days, there was, you know, sometimes you'd get a mistake. It wouldn't count out the right number of notes and you'd have to go, you know, It just seems so regular. And now they're being phased out. That's it. We've gone through a whole adoption and then redundancy sort of cycle. So, yeah, look, I have no criticism to CBA whatsoever. Do what you have to do in that instance. If we want to have a broader discussion of looking after access for those that are less technically savvy, that's a perfectly valid conversation to have. And we can decide as a society if we want that as like a social service of some description.

41:48But yeah, no harm, no fail for CBA from where I sit. It's interesting, isn't it? Because you're right. Our pharmacy wholesalers are paid to provide a certain level of service, which is drugs anywhere, I think literally anywhere in the country, certainly in metro, within 24 hours. We expect of Telstra a community service obligation to have coverage and that kind of stuff. And I think part of the problem with banks, obviously, is there are so many of them that it's hard to give any individual bank that obligation. Telstra gets paid for an obligation that COPDES doesn't have, for example. And the pharmacy wholesalers can choose not to take the money either.

42:22They can be paid by the government to do that or simply choose not to do it. But I'm with you, mate. I suspect that as a social service, banking remains important and allowing people... I have friends and family, frankly, who struggle to use internet banking as it is without help. And so I kind of think... And they're lucky. I was going to say lucky to have me, which sounds a little bit self-serving. but you know they're likely to have someone who can help them i don't know what would happen in those circumstances where those people simply didn't have the facility uh of saying well i'm having trouble with this can you help me i'll say yeah sure here you go if i wasn't around someone else wasn't around what do you do and i kind of think i don't know mate i i you know i i've said many many many times the society the economy's had to serve the society the other way around i have no problem with the banking sector who are frankly protected from from um protected from competition through the four pillars policy they have been allowed to merge and and grow anz's taken over suncorp most recently again i just in the context of the bank west thing i find that just still really bizarre um but for all you know for all those things i have i have zero issues saying to banks hey you guys are you've said many times you know you they get to they get to create money right these guys these guys are a special case there is i think i think there is every uh reason to say i get it but guys you're going to have to do this i would um to point out auspost i what I would actually do is I'd say Australia Post will provide banking services.

43:45Every bank in the country must make their systems operable and accessible by Australia Post staff. They must pay Australia Post for the provision of those services. Yeah, that's a good idea. Yeah, for a sunset period. Call it 20 years. I don't know what the right number is, right? I figure anyone who's still working today can use internet banking sufficiently. So we're talking about, and I don't want to blanket anybody, there's some spectacularly technologically savvy retirees, right? So again, I'm not suggesting they can't. But if you think about those who are most likely to be unable to, they're most likely to be older.

44:14There's probably some questions about vision impaired people. I don't really have a strong handle on that. But I would suspect there's a sunset period of which time you'd say, right, I was supposed to get some money from the banks to provide these services that need to be provided in person for as long as they need to be provided. By the way, did you know the number of ATMs has crashed? Yes, I did. There's something like, it's down by some, I can't remember the numbers, it's down by a stupid amount in five years. Maybe a third, something like that. I go to one sin of blue moon. Same, same. One sin of blue moon.

44:40I don't remember the last time I took cash out of the bank, actually. Oh, I've never been in this side of a bank as long as I can remember. Yeah. Hey, let's kind of stay with the economy, but talk about housing approvals. We've, speaking of banks and lending and mortgages, we've spoken a lot about the house price issues. And we've talked a lot about both supply and demand. We've talked about population growth and whether you're a big Australia or a small Australia person. the current level of growth is just out of control relative to our ability to house people. That was born into stark relief, mate, this week when the housing approvals numbers are about as low as they've been in 15 or 12 years, I think it is.

45:18And the trend over the last 12 months is just diabolically low. That consistent low level we haven't seen since before the last, since before the GFC, actually, before 2009. It's been a remarkable challenge. And I don't know that I have much more to add, frankly, other than the data and just to kind of throw my metaphorical hands up in the air and say, I don't really know what the government thinks they're doing. You know, can the federal government change planning rules? No. But the federal government can show us all impact population. Can state government see a population? No. But, gee, they can work on planning.

45:56It just strikes me that the sheer lack of interest, and yet it's about house prices, I suppose, at one level. but it's literally about it's not just affordability it's now availability there was a domain report out saying that i used to say oh you know um vacancy rates might be less than one percent when the numbers were 0.9 because i thought 0.9 is so stupidly low i'll say probably less than one because maybe there's some error in the data the newest numbers out this week mate 0.7 percent is the new vacancy rate and i just i i regards to ideology or political persuasion or anything else. This is just maths.

46:31This is literally just maths. And for our politicians, whether you're a state, federal, liberal, Labor, colour thump, you don't care. You just look at that and think this is just, it's just straight out negligent, surely. There can be no other word for it. The PM and the states want to build 1.2 million houses in five years. Good luck. We had 12 ,000 houses approved. That's not even started. That's approved. So then they've got to be started. They've got to be finished. So we're talking about 12 ,000, 18 months from now. Hopefully finished to a reasonable standard. Right? And then sold at a reasonable price.

47:01And you kind of think, we're only months away from whatever plan approved today being available to live in. And you look at the five-year plan and say, guys, I don't know. Short of putting tents in backyards or I don't know what else you have to do. I just find this whole thing just so incredibly maddening. I said not from an ideological philosophical perspective, just from the maths. One plus one is two. It just is. One plus one is not three. You can pretend it is. You can pretend it's not. You can simply choose not to do the maths and say, maths, I don't care about maths, it doesn't interest me.

47:30Except that's the only option. Am I completely bonkers mad here? No, I mean, it's so, everyone gets it. Not a single person listening to this podcast doesn't get it. Supply and demand, like you learn it in year nine, right? It's one of the only sort of foundational core truths of economics that exists. Did you see the rant from, and I say rant in the most, in the appropriate sense of in a very kind way from max chandler elisa elisa know that mate we're good ranters we're right they're okay with that from from max chandler mate that one of the greens uh pollens i did um it's just basically saying a third of people rant and they're just they're on the edge so the other the other stat there is that the rental vacancy is at i think all-time record lows like is 0.6 i can't even remember it's so insanely low and i've i've any anyone who's been through it those who know know right yeah um my my conspiratorial not a conspiratorial is my pessimistic take is that cynical particularly the people who are feeling it are young or immigrant students yeah everyone else is fine so it's sort of like from a political pressure standpoint i'm just not hearing it from most of my constituents yeah i'm just not you know and it's sort of like i was a bunch of 20 year old uni students who are up in arms about their rent I was like, oh, way to do it tough.

48:51It's just the pressure isn't there. And that's where Max's point, I think, was well made, was that, yeah, well, it's still one in three people. And they're getting angrier and angrier. And, you know, these people are getting older. They are the, you know, they will be sort of the ones in charge and not that long. It's on an unsustainable path is the bottom line. So something's got to give. Something's got to give. And if you had any kind of capacity to look beyond an election cycle, what you should be doing is just – I'm less of a fan of sort of an entirely government-run program. But I think government should do everything it can to get out of the way, but open up supply, ensure standards, and then the market will meet the need, right?

49:40It will. There's plenty of property developers out there that would love to build some more homes. I would be very careful about putting sort of conditions around that and what was required in terms of standards and space and access to infrastructure. That's the other thing government should do, the infrastructure sort of adjustment to all of that. But whatever you're doing now is tinkering at the edges. Depressingly, everything today you hear on housing from politicians has come out of sort of some focus group. It sounds good. There's a big, you know, we build 10 ,000 houses. you go oh 10 000 houses until you actually look at the numbers and go it's a drop in the ocean you know but it's just it's i can't see to your point i can't see any one taking it seriously it's just yeah good for house prices i'll say that i know for the other two-thirds of people you know yeah it is it really is not that it means it supports house prices forever but it's ever you put it on the positive side of the of the ledger when it's again you talk about supply and demand right what happens when there's an imbalance of supply and demand where there's more demand than That's why prices tend to move upwards.

50:39That's kind of the way it goes. So depressing. So depressing. Yeah. There's nothing to say. I've got nowhere to go with it other than we've just labored. We've flogged this horse to death so much, you know, and it's just. Oh, that's why I'm kind of, I started by saying I don't really know what else we'd do with it other than. Just lament it. Just lament it, you know. Yeah. And I guess the only other thing I would say, you know, and I don't know how ultimately effective it is, but like, have your voice heard at the next election, you know. I guess, or make it more known that this is an issue for you.

51:11It always feels so ineffectual, these grassroot movements, but I guess it's the best sort of option that you've kind of got if you want to be an agent for change in this. But it is a big cross to bear when you're just struggling to pay the rent that I've also got to take up an advocacy role for the bloody property debacle. And I get frustrated because, again, having gone through it, it is an impossible situation. And there is nothing that's going to depress the human condition more than a lack of agency and powerlessness in that realm. And it really is where a lot of people are at, as I said, mainly younger, maybe younger people.

51:53It's just depressing. It is. And as I said, this is one of those weird ones where it's not philosophical. I mean, you can argue about how you might solve it. Yeah, sure. The simple reality of it needs to be solved. The maths is the maths is the maths. It's not going away. Right. I mean, you can argue about power sources, which we'll do in a second. And you can say, well, there's different thoughts and different approaches and different ideas. And maybe that works. Maybe that doesn't work. And no one knows the future. There's times where you can simply say, I think this approach is better or this monetary approach, this fiscal approach, this whatever.

52:22This one is just literally the man that's off. The number of people who want a house, the number of people who have a house, the number of people coming, the number of houses being built. It's just A minus B equals C. There is no way to get around it. The other thing that gets me, because it's more visual, is that you just see this. And it's all over the news anyway. You don't have to be that observant. You know, the standard of housing, the standard of development. I was driving out somewhere the other day and we passed one of these massive mega estates. And the most depressing, just an ocean of black roofs a meter away from each other.

52:54And the friend I was with sort of said, oh, who'd ever live there? And the response is people who have no bloody other choice. That's who live there. right like yeah open your like what do you think like that was a choice between volclus and that like you know this is this and this is this is so even where we are quote unquote addressing the issue we're doing it in a way that it's like are we not just building future ghettos here you know and we're handing the people the keys to the you know massive debt servitude for decades and a massive maintenance bill and brutally real depreciation costs because of the crappiness of everything.

53:33It's just, I don't know. It's where I really get, and this is, I don't want to go too far on a tangent here, but it's where I get back to my concerns about, let's just build more houses. Or let's just build more density or whatever else it is, right? I just think as a country, you start with, there's 27 million dollars currently, right? Let's just, I'm not going to say close the borders and close the borders. Let's just stop here for a second and say to the people who are still here, hey, where would you like to live? And how can you make that happen? And if people say, you know what I'd really love?

54:03I'd really love more high-rise near the train station. Like, cool, let's build more of those. That'd be great. If they say, actually, I'd like an attached house with a backyard, cool. Let's not let... The idea that... This is what the YIMBY group really get up my nose. And if they're living rent-free in my head, well, congratulations, guys. At least it's rent-free.

54:20The idea that... What we should do to fix the housing crisis, build more high-density because then we can move people in there so well that's fine if they're just economic units of production but they're real people with families and preferences if they want to live there i'm all for it i'm not saying don't don't build more help but build them if people want to build them absolutely if they are saying you know what i have the choice of a detached house or a unit i choose the unit please great i i love that's fantastic if they're saying you know what i really love i want a big estate where i'm a meter from the neighbor and our eaves overlap that's what i really want to live and i'm happy to do that great fantastic it was like actually you what i'd like i'd like this or that or something else and we say no no you can't have that because we need to bring more people in we need to build high-rises so we can put them somewhere it's like that whole that that is just so incredibly stupidly frustrating and stupidly bare-faced as a as a motivation you know as i said i don't care where people want to live but as a country if you had this land mass of the population we've got you'd start by saying how could i make you happiest and then if i can add to that by bringing more people and let's do that and if it's 50 million people or any 100 million people then wonderful i'm all for it really genuinely all for it.

55:24My biggest issue with the big Australia stuff is the way we go about it, which is effectively that neoliberal, economically, whatever version of, let's just shove them in boxes and high rises because then we keep the infrastructure costs down and have more customers for our stuff. And again, I'm an investor. I like capitalism. It's fantastic. I mean, it's terrible, except it's the least worst of any other option we've got. So let's go with it and make it work. I just find that idea of we'll build, they will live wherever we tell them to live because we want them to live in this sort of place is just mind-blowingly mad.

55:54Yeah. And that's the other problem. Any supply side response is the imagination doesn't go beyond two-bedroom unit. Wherever we say you should live. How do you raise a family of three kids in a two-bedroom unit? I mean, some people go, well, you've just got to work hard for it. And there's this expectation and this bloody property ladder where it's like, well, you buy that and And then it goes up in value and then you flip into this and then someone else comes in and it's sort of like, so you're telling me the entire housing policy is just based on an ever inflating bubble. Is that the plan here?

56:26How about just build something? And I'm not saying that everyone deserves a swimming pool and a tennis court, but it's not a big stretch. When previous generations could reasonably expect a three bedroom brick house with a bit of a backyard. With a front average wage. With a really average wage. That is precisely my point. You're absolutely spot on, mate. That's exactly my issue and exactly why I think it's one of those things we need to really work out. That's why we've got to start with where people want to live. You're in charge of Australia. The Australian population are your constituents.

56:57And they're saying, I would like an affordable whatever. And if it's an affordable two-bedroom unit, then great. We should make as many of those and make them available to people as possible so they can have what they want. If you're 25 and single or you're in a room with someone and you want to do it in a city suburb in one of the major capital cities, great. Let's make sure people can do that. and then if you say you've got three kids you want to go you know what i'd like a backyard please and maybe a pool or at least a pool nearby and a park nearby and let's give you that yeah not give let's make sure that the the economic settings allow for the maximization of frankly happiness like that's yeah i'm talking about gdp that's kind of where i get to is why would you who in their right mind if you're actually running the country rather running the economy wouldn't say let's try and make that happen let's let's try and make sure people don't feel like they are debt slaves for 30 years both people have to work the kids don't see you because you got to pay for the house that you have no option other than to buy in the place you'd rather not live but it's just opiate it's just bizarre and of course there's there's a massive spectrum between the little boxy unit and the five bedroom palatial mansion like yes there's there is an area near me which they've done so well where it's just like a um a series of townhouses so yeah you could fit a lot more people on if it was a 50-story high-rise with shoe boxes full.

58:10But it's still a lot more people living there than if that was just a few quarter acre blocks. And it's nice. Think a little bit outside of the box here, people. There are other options between only house and only unit, right? And it doesn't have to be an all or nothing kind of thing. But again, full circle, no one's talking about it. No one's listening or taking action on any of all of this so i don't know what you do i feel better yeah mate um let's finish off just with a i this is the episode bought was by twitter unfortunately but um so be it because you know often that's kind of my my thoughts of the events of the week tend to just dribble out on twitter during the week it's the digital town square as they say so it really is well uh let's go to twitter the um i posted on twitter my electricity bill for the last last uh quarter whatever it was and um i i sold back to the grid meaningfully more about a third more power than i bought from the grid so i sent that must not really matter it ended up being 1500 kilowatt hours i bought i sold back 2000 right so i sold back more than i bought and yet i still had a 600 electricity and that's because the cost of buying electricity from the grid was 40 cents a kilowatt hour and i got six cents for selling it back.

59:29Now, there's reasons for that. Time of day, if I'm generating solar power during the day, no one wants it because everyone's got enough, and so it's negative price, all that kind of stuff. So I get it like that's absolutely true. So I think it's important to... I'm not complaining about it. There's reasons why those numbers are different. Except, this is not except I'm going to complain. This is except what it led me to think about is the impact on the grid. And this is... I'm not a scientist or engineer, right? We all know that very clearly. You're at least a scientist by trade. So again, that's the one you can go with.

59:58um i if you look at the pace of improvement in battery technology and the improvement in so i got solar panels on my roof they're 250 watt panels each one and that was the best i could get when i put them on the roof seven and a half years ago the new ones apparently are 440 kilowatts so for the same roof space i can produce what's that probably 80 ish percent more power um which is phenomenal and probably for the same cost per panel i haven't checked but i would i would bet the cost is almost the same battery technology i can get a i put a power one on the wall because i thought i was doing the right thing and it's a terrible roi but you know i felt it was the right thing to do i get a power wall two which has double the capacity for the same price i paid then fast forward a few years so i can't make a i can't make a battery payoff yet we have got to be between power generation from panels and the efficiency and storage capacity per kilowatt hour of batteries, at some point, it's not worth my while to use the grid other than as a backup for a couple of cloudy days in a row.

1:01:03And if you think about that at scale, this is the observation or the, it's not even necessarily a new thought, but it just struck me that once we cross that tipping point, once it makes more sense for you and me and everybody else who's, by the way, not living in a unit, which is other thing as an implication, but at some point, it's a no-brainer to actually take most of your demand off the grid and produce it locally. And that has phenomenal implications for power generation, for storage, for grid stability, for all sorts of things. And I don't know that I've necessarily got an answer, mate. I lean both ways, one of which is do your own power, be self-sufficient.

1:01:40The other is governments by privatizing electricity and not effectively swallowing the cost of the transition to renewables or whatever else we have will effectively undermine the grid, which makes it less stable. It makes the providers, the generators less profitable, or they have to put up their prices, which actually makes the cost for everyone else left on the grid much, much higher than they would be. And so we're going to end up with potentially energy haves and have-nots. Again, this is a social podcast, but you kind of think through the implications here. The bottom line of the tweet was, I wouldn't invest in energy generation for love nor money i wouldn't buy shares in agl or origin or anybody else i could be completely wrong about this by the way i'm not saying that i would short them but if you think about the disruption that comes once we cross that generation tipping point and the storage tipping point i said one more generation of batteries and i can i will effectively be able to use no power from the grid except in consecutive cloudy days uh and my consumption from the grid will drop enormously.

1:02:42And again, I don't know what my point is other than as an investor, when those maths change, we're seeing serious, serious disruption, almost to the point of revolution in the industry. I think it's going to be fascinating to watch. But as I said, I wouldn't put my money anywhere near energy generation right now. Yeah, it's definitely right for disruption. And it can go in a number of different ways. So I think it's actually could potentially be the bank branch problem we were speaking of before. Like the reason why you would do it is if you've got the means to do it, because these technologies, while they'll make economic sense on a spreadsheet, the capital investment is up front.

1:03:19And not everyone will have, particularly as we're still going on our journey down the cost curve, we'll have, I don't know, what is it? 15, 20 grand for a full self-sustaining sort of system at their house. The one that can sort of see them through some cloudy days, et cetera. So you'll have this, this is the thorny problem because the only reason central distribution works is at scale everyone needs it. So we can put it down every street. We've got a customer. When all of a sudden your customers start switching off, you lose the scale advantages. The unit economics change very differently. It goes in reverse at some point, right?

1:03:52Well, I'm building this massive network here to service Bob and everyone else, Bob's neighbors is self-sufficient anymore. Yeah, yeah. So the cost of Bob goes through the roof. Yep. or the provision ends up being loss-making. Yep, or he's got no choice and he's forced into it and there's another challenge. You know, the other little bit unrelated but not very is, did you see the news throughout the week that Amazon is looking to power one of its data centers with a nuclear reactor? I did not. That is remarkable. No, I don't. I saw the headline. I clicked past it and I've not been able to come back to it.

1:04:28So maybe it wasn't fact-checked. But they're talking about it. And so part of the reason is that they need the reliability. I think what a lot of people miss, and not to change topics, but with the AI revolution is that computationally it's much heavier. You know, the data centers you need to sort of serve Google ads and help, you know, search work and make sure that Xero is running is one thing. Large language models operating at scale and handling lots of queries, it's very, very energy kind of demanding. And they're all sort of building out for that kind of stuff. But the related point being is that when you've now got corporates solving that dependency problem, if that's the way to frame it, albeit in an entirely different way in this case, it again adds more and more pressure to the grid.

1:05:13So, yeah, it's going to be fascinating to see how that all plays out. There is a huge advantage with incumbency and the sunk costs that they've got in a lot of the infrastructure. So I don't think it's going to happen anytime soon. but it could be the death of a thousand cuts that we're sort of living through. I think that's the risk, mate. By the way, I just Googled that for you. Amazon bought a data center that is nuclear-powered because the nuclear... So the nuclear power station basically set up this data center and sold it to Amazon. Okay. So it literally sits right next to a nuclear power plant that already exists.

1:05:47As a shareholder, I'm glad Amazon isn't getting nuclear power. There you go. That'd be a thing. But that is those co-location decisions, is another ingredient in the mix. Exactly. I think that's absolutely true. Hey, I think we've probably used up all the available time we have. The podcast has a certain capacity, as our listeners know, and we're about to hit that. We're about to hit our 64 kilobytes of storage, and at that point, apparently everything goes dark and it goes badly. But will you come back on Sunday? Yes. I love the mailbag episode. I have a mailbag question from a listener I think you will enjoy.

1:06:21As much as it pains me. I think I can guess. I'm looking forward to it already. I think you probably can guess. If you do want to make sure you put a question in for the mailbag, just to help me out so they're not questions about things that Andrew likes and I don't, please hit us up. Info at fool.com.au is the email address. Probably the easy way for a big question. Otherwise, feel free to go at us on Twitter. You can follow Andrew at sage underscore simian or at strawmaninvest. You can get me, by the DME, the questions if you have any, at tmfscottp. I'm on Instagram as well at the same handle and Facebook at forward slash scottphillipsmoney.

1:06:52until Sunday, until certain questions that I'd rather not ask, but I am nothing if not here at the pleasure of our listeners. 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 Licence 400691.