The Weekly: Worst Interest Rates Since 2008 & Shein Loses $5bn in a week.

0:01Coming up in today's episode, we are talking about bonds.

0:30news so that you don't have to. I'm Vic Harris, a finance professional who's had a career making money for other people. And I'm Sophie Hallwright, ex-TV radio producer, who was sick and tired of not understanding the economy, my money, how to invest, so we started this podcast. But before we dive in, a word from today's sponsor. This episode of The Curve Weekly is made possible by Pathfinder KiwiSaver Plan, helping you invest alongside your values. Pathfinder's one mindful money, best ethical investing provider for five years running, so we've teamed up with them to bring you the ethical hotline.

0:58Got questions about the ethics of an investment or unsure where you draw the line? Submit your questions via the link in the podcast show notes and thank you so much to Pathfinder for making this episode of The Curve Weekly possible. Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver plan. A product disclosure statement is available at pathfinder.kiwi. So Soph's going on holiday. I'm going to Greece. So I've got five days on Idra. Oh yeah. One of your favorite islands. I feel like everyone's there right now. I know. One of our friends is literally there right now. I've got another friend there.

1:28I'm like, maybe I'd come. Come. Come. Please come. My dad's coming over. Oh, yeah. That's right, Ian. Good old Ian. Bless. I'm sad. How long is he here? He'll be here for a while, right? Two and a half weeks. Yes. Bless his soul. He's coming, jumping on a flight, coming to visit me and having me move back to New Zealand. No, I'm excited. I'm really excited. Sorry, but that is just the ultimate dad, isn't it? I know. You need to move countries. I was like, I'm nearly 40. Wait, we actually haven't even said you're moving to New Zealand, have we? Oh shit, did we just drop a bomb? We just dropped a massive bomb with no context.

1:58Everyone, I'm coming home. What's that song? I'm coming out. Oh no, wrong one. That's about your sexuality. That's not happening. I'm coming home. I'm coming home. Yeah, yeah, that's actually... Tell the world. Sorry, I hate listening to people saying... Yeah, tell the world. Please tell the world. Tell the world I'm coming home. So Vic's going to be... I expect streamers, balloons, signs at the airport. Oh perfect, so if everyone could be at the international arrivals with signs. No, please don't. I would have come off about a 25-hour flight and I might want to see anyone. Everyone looks haggard at that time.

2:33So yeah, we've both got big trips, but very different parts of the world. Yeah. Just selling all my stuff at the moment. Gosh. Maybe I should do a little haul on the tour. Oh, that's actually not a bad shout. Yeah. So let's actually just talk about the fact that you're moving back to New Zealand because it's for an exciting reason. It is. Yeah, no, the fun's doing so well and it's a little hard to do from over here. so just a bloody time difference. It's so funny that the time difference. I'm sorry. I'm not going to Australia. She's on the podcast. I think in general we're a bit ambitious with the idea of what is possible.

3:06When you have a team on the other side of the world, it can be really difficult. And obviously because the Curve Fund right now is a New Zealand fund, everyone is in New Zealand that's helping with it. We onboarded this new person this week. It was 9.30 p.m. my Sunday. What a life. I know. And I was like, okay, so you're all good. If you have any issues, I'll be asleep.

3:29Have a good day. Yeah, have a great day. You know, it's so... It's odd. I'm excited to be back. Yeah, no, it's going to be exciting. I feel kind of... It's bittersweet. Because now I want to make the most of London. And I'm like, oh my gosh, the dirty streets. Oh my gosh. Yeah, yeah, yeah. Everything's got a new glow to it. The tube, wow, it's so fun. Oh my gosh. I think that you'll be back so much. obviously because the podcast and and the rest of the team will be here well basically we'll have people in the UK working for the curve in New Zealand working for that I mean who knows maybe in Australia one day but it is weird because we moved over together and now we're sort of like having a semi like long distance relationship but but I guess that's the beauty of technology we can podcast from anywhere and there's maybe it's kind of fun you can tell me what's going on in New Zealand I'll tell you what's going on in the UK and we've got lots of events coming up in Australia New Zealand which is really exciting yeah if you're in Australia FinFest right in October FinFest yeah there's another one which is TBC many things going on things yes be very exciting so and I'll be home in Jan Feb March you know so yeah we're just we're just international at this point and then I'll be back June July August oh Jesus see we're basically we're actually it's going to be such a lull you're basically I know we're both international we're like we don't care where you are like we can't keep up yeah true maybe it's not even worth an announcement anyway I've got a note here that says get comfy Soph get your coffee this is an economics 101 episode and I need you to concentrate that is the I know and I saw that and I thought well at least she's briefed me you know I know what I'm in for here I actually do love the economic zoom out when you give me an example of what's happening in the world and then relate it to the learning I was just like you're gonna jump in here and read this prep sheet and go nah nah nah and I was like it's important lesson today.

5:20So the title, Why Boring Bonds All of a Sudden Matter. Yeah. Miso's coming home with me. Oh yeah, Miso's just here. She's lying her little chin on this. Should I get her up? I just kind of want her to sit with me. Yeah. Come on. Fuck you. Come on. Yeah, Miso. She can't come until December. I know. Shit. Yeah. You're leaving your daughter behind. I know. It's very sad. But you know, mum's got to work. Mum's got to pay for your life. Mum's got to work. I'll be sending money home. Yeah. Just can't afford her flight home. Just leave it. Oh, shit. Sorry. Sorry, guys. Can everyone look after her? Gosh, honestly, she's more expensive than I am.

5:55But you're so much cuter. Anyway, sorry. So today we're talking about bonds. Boring bonds, but why they're not so boring. So the market the last few days, if anyone's been looking, which probably hasn't. But, you know, I run a fund now, so it's a little stressful when the market starts falling. But that's the world of new. that's why you're doing it not me yes the market has been falling the last few days look it's only a couple of days this is what happens this is the risk we take when we invest markets go up and down it's normal but I just want to explain what's going on because we love the news headlines they love to make a yeah there's blood in the streets yeah it's a big old story guys you know they've got something they've got to find something to talk about yes so this is all to do with government bonds.

6:48Now a bond is essentially an IOU. So it's like when I borrow money off you and I'm like, look, so I'll pay you back. I just need to borrow a thousand dollars. I'll pay you back with interest. Can I borrow that money for two years? You're like, yeah, cool. So I take the thousand. I spend it on something. Usually with governments, it's like you're investing in roads, hospitals, public parks, I don't know, things like that. And then I pay you back in interest and then I pay you back the lump sum at the end as well. So that interest rate, what I pay you for the cost of borrowing that money is called a yield.

7:21Now I want you to remember this. I want you to remember this. Can I just pause and tell you why this annoys me? So like the reason it annoys me is because my dad always uses yields. He always talks about yields and the way he says it, I love my dad so much, but holy, I have to take the deepest breath when he starts talking about yields. It is just so confusing. And do you know what's the most annoying thing about it? Sorry, I just need to have one tiny rant. No, no, vent, vent, please. Okay. It is that I have now learned about investing for six years. I would say I am not a beginner anymore. I know a decent amount.

7:56He talks, I glaze over. He talks, I am confused. He talks, I don't know what the hell he's with. Whereas when I talk, you're engaged. I'm just engaged. I light up a little bit. I do find yields in a way. So yields, it's like, oh, the bond yield, you know, it's the easiest thing to sound like. You know it, yeah. When it's like, it's just the return. You can say like the yield on a property is the rental yield, you know, like it's like the return that you're getting. Is a yield. Yes, is a yield. So technically, could it be the same? Could you use that word for any investment? The yield is the return or is it mainly only used for property and bonds?

8:30Property and bonds is probably the most. Yeah, I mean, the yield on the stock market doesn't really work. dividend yield that's the return that companies will pay from their profits so like yeah it's just if you try and think of it like a like a return it's probably the easiest way but anyway those yields so the interest the percentage so not the dollar amount the percentage of the amount that I have to pay you back so okay let's use an example I you want to buy a new coffee machine and you don't have enough money and you've said so if can I borrow 200 pounds I want to buy this coffee machine I'll give you a 10 % which is unheard of with bonds yeah yield yeah yeah sure but it's going to cost it'll be 10 % yeah in 12 months I want it back so that's 20 pounds so you give me 20 pounds the end of the year 220 pounds so yeah yeah yeah same thing and yeah exactly if you were like Vic I've lent you money before and you have not paid me back yeah she's very well I actually know that you owe all these other people money so I'm actually going to charge you 50 % yield because if someone owes lots of other people money risky they could not pay you back so you're going to make the yield or the return you're a high risk you're high risk because I'm giving you the money so I'm taking a risk on you yeah therefore I want to be compensated for that it's like when you put your money in a term deposit the yield well like the return on that is low because it's low risk you're not the bank's not going to lose your money you know the money's not going to fluctuate and so when we talk about risk it is just yeah the movement up and down and so yes if I was a risky person then you would charge me a higher yield and so this is what we are seeing right now the yield for government bonds is going up and it's going up rapidly in the UK it's just gone over five percent and the last time it's so high the last time it was this was in 2008 which was global financial crisis and for context in 2020 it was at 0.1 0.1 so whoa this is like everyone's like hang on a second the world and the market is like pricing in like the fact that the government bonds are now really risky and it's happening in in the u.s 30-year bonds have just hit 5.3 so this is the highest since 2007 around the world government bond yields are going up and the market's getting spooked.

10:52Everyone's getting spooked. Is everyone getting spooked because governments shouldn't be risky therefore the returns on lending the government money shouldn't be very high. They're the most safe. You've got companies that will issue bonds and they're definitely more risky. Within companies you've got riskier companies and safer companies but within governments, governments are the most, they should be the most, the lowest risk corporations or whatever you want to call them. But is the idea of governments now being considered more risky? So the reason is that the US government, for example, has just passed$40 trillion in debt.

11:31$40 trillion? And if we go back to the example of a coffee machine, I have$40 trillion of debt that I owe interest on and now I'm wanting to borrow more. So you're like, no, no, no, no, no. I'm going to price that super high. That is such a good way to explain it. So it would almost be if you personify the US government as Uncle Joe, and he owes people$40 trillion. Why would you ever give him more money? Totally. And it's not the dollar amount. Well, it is the dollar amount, but it's the interest they have to pay each year on that$40 trillion. It's more than the entire defense budget in the US.

12:07And you know how much the US loves going to war. Like, it's insane. So investors are starting to worry that governments are overextended. So they're now going, you know what? I demand a higher interest rate to lend you money. And this is not just in the US. It's like all around the world. Also, that's one reason. The other reason is the Middle East conflict is kind of back on the cards and oil's now climbing back up. That means inflation. And inflation is an absolute kryptonite for bonds, meaning that when you get paid back that$200 that I borrowed, if inflation's super high, that$200 is now worth so much less.

12:46Oh, okay. So I'm like – So if inflation goes up and up and up, a 5 % return could be nothing if inflation's gone up over 30 years. I'm like, no, no, no, I want to be compensated even more. Yeah. Because when I get that$200 back in 12 months, if you had inflation at 7%, 8%, it's like, okay, well now that's even worth less. So we've got these kind of two forces that are coming together at once. And we also had some really strong economic data come out of the US, which also helps support the fact that inflation is remaining really strong in the US, meaning interest rates are going to go up, which also impacts bonds even further.

13:26There's kind of three strong forces that are at play that are meaning this is why the stock market is falling. and why do you think the stock market is falling if we've got inflation going up? Did you ask me that because you saw my eyes glazing over? No. Because I have been trying to pay attention. Yeah, no. Am I doing a good job? You are doing a really good job. I'm really enjoying it. I understand it. But there was about 30 seconds that I stopped listening and that was when the question came in. So I was thinking, shit, shit, shit. Oh my God, I used to hate that at school. Oh, I know. Someone knows you're not listening and they're like blah, blah, blah, blah, blah.

14:00And then they say your name at the very end of the question and you're like, oh God, I didn't hear the question. I feel like I always get stung with that. Maybe I'm just not listening. I don't know. Yeah, I always, I'm like. You always take notes and it looks like you're doing something else. So that, but you wouldn't have been doing that at school. No. You just did a face like, yeah, I am doing something else. Yeah. I'm like, yeah, I'm taking notes. Yeah, I'm taking notes. It's not an excuse now when you've got like AI note takers, right? Yeah. It's like, you're just like, oh yeah. I'm just like, yeah, I'm just, yeah.

14:26It's like you're on Instagram. No, yeah, yeah. Okay, so what was the question? So why is the stock market falling? Yes, investors are spooked from just like everything that's going on. Oh, can I guess? Yeah. Is it because if you can get 5 % return in a bond, why would you bother investing in the stock market that maybe returns 8 % if you could do something that's got basically no risk but is still giving you a decent return? Yeah, exactly. Thank you. Thank you so much. A whole little mini-claps. A little mini-claps. We're there now. If you're not watching, we're there now. Where we're so late to the mini clap party.

15:04Okay, right. So the stock market is like, well, shit, I don't have a job anymore. Like if you take all the money in the world and you're wanting to get a return on that, where do you put it? It's like, well, now if interest rates are going up because of high inflation and bond yields are going up, it's like, well, I may as well put it into that. Yes, it's still risky because we've just talked about how there's added risks now. But you're right. It's like, where can I get the best return? But if more people start doing bonds instead of the stock market, so there's heaps and heaps and heaps of demand for bonds, wouldn't that mean that bonds then – The demand for them, the price goes up.

15:42Oh, yeah. And then the percentage return goes down. Say demand for bonds goes up and say someone comes and buys my bond for$300. It's my$200 bond, but they're still going to pay$20. $20 on$300 is less. It's a lower percentage than$20 on$200. Oh, so you can on-sell bonds, but the percentage, even if you make a return on that bond, the person who buys it doesn't then get more of a return because they bought it for more. No. They're getting a smaller... Okay, that makes sense. Yeah, so the percentage or the yield is locked in for that period. But why can you... Isn't the whole point of buying a bond you buy and hold?

16:19So it doesn't kind of defeat the purpose if you can then sell it on? No, it's kind of like... It's like stocks. But why would someone then want to buy it for a more expensive price? wouldn't you just get the bond straight from the horse's mouth yes but they're only released you know like a 30-year bond you know like you you you can buy those throughout those 30 years it's just weird because it kind of defeats the purpose of a buy and hold for 30 years I would have thought you were like no you're locked in yeah but then like I own it so I can on sell it to it's like a stock it's like if you buy a stock you originally at IPO you buy it from the business but then if you sell it or buy it from someone else in the stock market in a situation changes right i might be like yeah yeah cool i'm gonna buy apple five years and then i'm like oh should i actually need that money and then yeah i just honestly thought it was like when you first told me about you know when you invest you've got to leave it five years i just thought that was like the rule and you can't pull it out which yeah i know but like imagine the caveat on the curve fund oh you can't get money but that's like i sort of thought when you say about bonds that it's a 30 year that it would just be you actually do have to leave it for that long but you don't you can still buy and sell and not these bond markets just like there's stock markets you know Some people can, yeah, you can be a bond trader or a stock trader.

17:30Bond trader, like, gosh, I couldn't think of anything. But you, yeah, I mean, you are. But, like, there's some incredible bond funds and amazing people, but, like, it's just not my cup of tea. Yeah. It's more exciting to own a company. Anyway. So that is basically why the stock market is going down, the bond market is starting to look quite exciting. What does this mean in everyday life, though? It means that mortgage rates are going to go up because interest rates are going up, it means that because the government's debt that they owe and that the interest they have to pay on that is so large how are they going to solve that problem?

18:07You either cut what you're funding so you cut spending on hospitals on education, on healthcare on parks and infrastructure or you tax people more I feel like it always comes back to and taxes and you're taxed more and who has to pay the difference? Sometimes we do. Yeah, it's like the government's gone out and gone, you've been spending willy-nilly, and then they're like, oh, okay, can we just get some more of you? Thanks. We didn't budget appropriately. They're the irresponsible spender that then blames their friend for drinking the tequilas. Exactly. It's really annoying. It's like, oh, shit, I've run out of money.

18:43Can you just pay me more? Thanks. Oh. Yeah. You budget better. Yeah, exactly. Budget better and spend better. Maybe we should just all set up like a coup that's just like, no. you're not going to tax us? You don't do a very good job. We need you to do better and then we'll be the ones that suffer again because the rubbish won't get collected. True, that would be really annoying. There'll be no one at hospitals, no one will get paid. Oh God, yeah. It wouldn't be good. Well, you're kind of in a bind. You sort of have to, you have to. There's no way around it and you don't have any control over how much tax is your taxed except for who you vote for, I guess.

19:14Yeah. Do you think in the same way that businesses are adopting AI to make their systems and their processes more efficient and spend less, If the government could get their A and to G and implement proper AI systems that, in the same way businesses are saving costs, they've got less overheads, they're able to produce more and be more productive. If governments did the same thing, would that help in terms of A, the money they need to borrow, but B, being able to pay back what they owe quicker? Yes, definitely. Yeah. And also when you've got huge, large tech companies that are spitting off cash, you know, like they are literally like growing at a phenomenal rate.

19:55That also helps because they can invest in things that the government might not be able to and like all of that. Oh, my God. So tech companies could end up helping. Well, it has to be a good return on investment for shareholders and all of that. But there'll be more private companies funding things. Wow. If that makes sense. Yeah. That's so interesting. yeah and I just want to finish on a quote from Warren Buffett of course you do and he said it's only when the tide goes out that you discover when everyone's swimming naked and that is the best quote he's ever had I wouldn't have not have expected that from him and it's like when right now the tide is going out rates are rising like bond yields are rising everyone had so much debt no one cared when rates were low because everyone could pay their bills and it was fine yeah and now the rates are going up everyone's like oh shit I've actually got too much I've got too much Yeah, so we're about to find out who's naked or which country is very naked.

20:47Do you know the thing about that? Not just countries, but also people. If you've loaned, if you've got a loan car and you've got lots of really high expenses that you can't afford to keep paying back, you might see people downgrading their lifestyle because they actually just can't keep up with interest rates. And companies as well. If interest rates go up and they've got now massive interest bills and they're having to pay that rather than invest in growth of their business. It's like debt can really hurt. It can be great when interest rates are low, but when interest rates go up, it can really, really hurt.

21:17Coming up after the break, we are talking about Shein, which is a fast fashion brand that has done, well, it did very well, and then it's been struggling recently. So we're going to explain what's going on. But first, we have a quick word from today's sponsor. I invest so much more now, but I still don't feel great about profiting from companies that I don't believe in. you know, weapons. I just, I personally do not want to be making money from conflict. But what about weapons companies that supply like both sides of the conflict? Pretty confusing, right? I know it's so confusing and I feel like I'm not alone in that.

21:52Yeah. I mean, 80 % of New Zealand investors don't want weapons in their KiwiSaver, yet Mindful Money reports that over$400 million is still invested in weapons manufacturers, which is why choosing the right provider matters, like Pathfinder KiwiSaver plan, which aims to avoid profiting from conflict. They've been recognized as weapons-free by Mindful Money and written loads of blogs on this topic, even covering their position on Gaza, which a lot of people have avoided. So if you want to check out our podcast show notes to learn more, and thanks so much to Pathfinder for making this episode of The Curve Weekly possible.

22:24Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver plan. A product disclosure statement is available at pathfinder.kiwi. So Sheehan, they went public recently. Which was being spoken about for a very long time. They had to shop that business around to pretty much every stock exchange going, who wants to take us, which is unheard of. Do you mean because everyone wanted them or no one wanted them? The US was like, not us. UK's like, not us. Imagine. That's so embarrassing and really sad. And also you've got Anthropic, right, which is Claude, that has got exchanges climbing over themselves to have them.

23:03And it's just so interesting. But it finally found a home on the Hong Kong Stock Exchange. And interestingly, the company was valued at about$27 billion. Now, I want you to remember that number. $27 billion. Yeah. On its first week of trading on the Hong Kong stock market, it lost about$5 billion. So it was down about 20%. So really, really bad start. But in 2022, it was valued at$100 billion. I actually knew this. I saw a headline because it's worth like a quarter of its value now. In 2022, if you had invested 1%, so say you put a billion in, that now would be worth about$200 million. I guess what I think is if someone has that much money to invest, is it the same as me investing$100?

24:02and therefore it goes to 20 isn't a big deal. It's still the return though, right? Like you still have to answer to your investors, which are probably private investors that want to return. That's still a really bad outcome. Optically, what is that saying? You know, that the business has had to IPO at such a discount to what its previous round was. It's just like crazy. It also shows just how times change. 2022, markets were on a absolute tear. People were climbing over themselves to invest in anything really. Remind me where it started? In China. So a huge amount of the cap table, Chinese investors, or would it be a global?

24:42It's global. Yeah. And also that's why they wanted to invest in the US and the UK because like those exchanges are way more highly regarded than like the Hong Kong stock exchange, for example. And they want to position themselves as a global company. The biggest thing with Shein is they built their business on a legal loophole. So they would ship their products direct from China to American doorsteps or European doorsteps, you know, like they do direct to customer. And there was an exemption that if you ship something below$800 directly to a US customer, you didn't have to pay import duties or tariff or anything.

25:21You know, selling like eight to$12 dresses, you know, like they flew under the radar. Because no one is spending$800 on Cheyenne. But that's a massive cost advantage. then they change the rules isn't it so dumb to create a business based on regulation that could change so this is what my learning is from this story is that you should never be investing in a business because of a loophole it should be on genuine growth and a genuine competitive advantage whether that's brand whether that's you know whatever it is we've seen this happen with like Airbnb for example they had you know there's been crackdown on short-term rentals we've seen it with Uber there's been a crackdown on whether their drivers are contractors or you know now they have full-time employees like if regulation is the way that you're growing your business or you're skirting around the rules or whatever those can change in a heartbeat and really impact and that's what's happened with Shein and that's also why the value of the business has gone from 100 billion to 25 billion question do you think that the same could be said about innovation that has come or been born out of regulation or lack of regulation i've had a business idea so i've been thinking lately how outrageous is it i'm not actually selling this business by the way this is just something else thinking looking at you like when are you doing this you have quite a bit on right now I'm not sure how you're planning on doing that no so I was just thinking because this is a good example it's almost like it wouldn't be built on a loophole in a dodgy way but it's built on the lack of there being more government support in an area that it's just crazy to me that it's not I mean you you're so passionate about the space too hypothetically my new business idea um it's crazy to me how many of my friends are looking or thinking about having kids but can't afford it.

27:17The childcare problem, which we've spoken about forever on this podcast, is such an issue. A lot of people can't afford childcare. They then don't think they can afford to have kids. It is one of the biggest barriers. It's almost more expensive for people than their rent. The system is broken, right? We all know this. We've talked about it. So I'm not trying to beat around the bush. But I was just thinking how cool would it be if you set up some kind of business that allowed more community rather than people having to go to nursery or external paying all these exuberant amounts for someone to look after your kid what if you know on your street or something there was some kind of community thing where every day of the week it went to a different person's house everyone shared the cost of nannies or you know you're seeing all of the stuff pop up in the in the u.s where there's almost co-working spaces for people who work for themselves where there's a creche internally but those types of businesses are kind of built or the premise is because government hasn't stepped in and said we'll pay for child care up to three years old so if you then built a business around it and then regulation change is that also super risky yes and no it's a great way to think of like okay what is where's the friction in society or where's the what do I not like doing or what do you know like what is the problem what's the problem I'm trying to solve yeah and it's a great way to start any business a great way to think of like because if you can solve a problem for someone then you know you've got such price flexibility essentially because because people need it what you're saying is that is quite a different kettle of fish than this because this is almost the reason that they look financially successful or like they are, you know, killing it in terms of orders is because they're kind of not paying for all their expenses.

28:55So if you compare the amount of revenue, profit, where they're at as a business compared to similar businesses, they look really good. But that's because there's almost this enormous cost that hasn't been built into their P &L that other businesses like them pay. So it's almost inflating the value of the business in a fake way. A hundred percent, yeah. A really good example is like retirement village operators, for example, get so much of their money from the government and that helps pay for pensioners accommodation. If they were to change those rules slightly, that impacts those businesses. You know, it's kind of, sometimes you want government support or you want government involvement and when it works, it works great, but they can also change.

29:33You know, we've just had a whole segment on how government is so stretched right now. So, you know, the likelihood of them paying for childcare is very slim. It's probably not on their top priority list. A really good example is comparing it to Zara. And Zara has an incredible, I know people have issues with fast fashion, but it has such a competitive advantage. It has genuine, fast design to shelf turnaround, strong brand, operational excellence. That business would never disappear with a change in a tax rule because it's been around for a long time. This is also the issue with IPOs. So yeah, she in.

30:08We are back for the ethical hotline. Now, I want to say before we speak about the question that's come through, I love all our listeners equally. I love their questions. I think they're genius. I will say, I think today's question, perhaps a bit lazy, you know, maybe a little bit too broad. This is a really hard question to answer. And so we're not going to be able to cover all bases. So the question that has come through is, should I be invested in AI companies? Is this ethical? And I thought, I get where you're coming from but how are we meant to answer this succinctly I'm not sure but you still send it to me I know sorry but it's like there is so much nuance to this but at the same time it is what I think most people are interested in knowing can I invest in AI and can it be ethical and I mean look this answer you're probably going to need to read the full one on Pathfinder's website.

31:03We're going to link it in the podcast show notes, but we are going to give a bit of an overview for anyone that just wants a quick fire. Is this ethical or not? I don't know where to even begin, Lily. I'm going to be honest. Okay. I mean, it's not a binary. Is it ethical or not? Yeah. On the long form article, we cover off a little bit of what AI is and what the pros are, what the cons are, and then what tools investors have to navigate AI. So it's just kind of equipping you with information because when you're educated, you can make better decisions. But look, there's a financial component. People are freaking out about the AI bubble.

31:37You guys have talked about this. There's concerns that the companies are overvalued and whether or not they're actually going to deliver the returns that they're kind of promising shareholders and what will happen if they don't. We just focus in on the ethical components. You got stuff like energy use. We know it uses a huge amount of energy and then it also like what kind of energy so when there's a increase in use like what kind of energy is being produced to fuel these data centers that that fuel the AI you've got water and land consumption issues one of the things I wanted to bring up with you because I don't know I hadn't heard about this before I wondered if you had which is the human labor component no so it's like this new job everyone's complaining that AI is taking everyone's job it's made a new job for everyone but it's kind of an awful one um which is called sometimes it's got different names but data labeling essentially it's human beings who have to parse the information before it goes to the ai because they don't want to like ruin the ai so that it will like they don't want to put yucky stuff into the ai in case it reproduces it so they use humans to like parse the information first.

32:48And you can imagine the nature of this content that these people are having to review. And there was a big furore because OpenAI was using an outsource provider called Sama, and they were using contractors in Kenya who they were paying at most like$3.74 an hour after tax to go through all of this objectionable material. And some of them were so traumatized. Also, Meta, you know, the glasses, that stuff, what people are recording also goes back to Meta and these data labelers review it and they have to like edit out. Sometimes people watch pornography, sometimes people film subjects without consent.

33:30It's almost like the worst parts of humanity are having to then be filtered by people. But the weirdest thing about that as well is, yeah, like the dark web or like the underbelly of the internet that lots of us don't see. It's almost like even just a tiny, tiny glimpse at the Louis Thoreau Manosphere documentary. It's the stuff that normally stays within its echo chambers of people who are thinking or seeing or doing quite messed up things. But now there's these other people that are basically being paid to sift through that. It's really scary and weird. But just thinking about it, broad strokes, it's like too big of a thing for fund managers or individual investors to like rule out with a blanket exclusion because it's so interconnected in everything we do.

34:14So actually it's more about assessing individual AI companies on a case-by-case basis and thinking about things like how transparent are they about their environmental protections? Do they have a policy around environmental impact? Do they have a supply chain policy to protect human rights? Do they have a responsible AI policy that addresses all of these things, a sustainability report, whether I'll put back on it. So it's really a case by case basis in terms of how each AI company behaves. Right. So it's kind of similar to when we talk about like ESG, like whether you're looking at any kind of investing, whether it's, is this harming the planet?

34:52Is this harming people? Is this harming animals? There's so many different ways that something could be or not be ethical. When it comes to AI companies, you have to really look holistically at so many different elements before you would say, yeah, we'll invest in that or we won't. But if you're probably worried about, you know, the AI is an ethical question, perhaps there's some ETFs that are exclusive of some AI. I don't know, maybe we can explore that in the full answer for people to have a read. Yeah. Also, if you're with a fund manager, like Pathfinder, for example, because we have a set of exclusions like weapons, if an AI company produces a weapon or produces software that fuels a weapon, that will hit our exclusions and we won't invest in them.

35:36So if you look at your fund manager and review their policy on how AI intersects with their other exclusions, that could give you a greater level of comfort as well. Okay, amazing. And for anyone that does want to read more about this and feels quite, I guess, probably overwhelmed with the amount of information and things to think about, Obviously, that's the whole point we've got the Ethical Hotline is to ask the experts and to be able to sort of outsource responsibility. So if you would like to read the full answer, you can find that in the podcast show notes. And if you've got any questions that you would like Lily to answer, then please submit them to the Ethical Hotline.

36:13But thank you so much, Lily. That was really interesting. I definitely feel like I need to go and read the full answer. Thank you. The views expressed by Pathfinder via the Ethical Hotline are of a general nature and are not specific to Pathfinder's product. To learn more about Pathfinder and what they do, please visit pathfinder.kiwi. So we have one last episode of the Curve Weekly this Wednesday. So coming out in a couple of days' time, we're very exciting. We've got Vic back on the pod. I am back on. She's been, as you know, very busy with the Curve Fund. She's relocating to New Zealand. There's been a lot going on.

36:45And we've had Emma Louise Boynton filling in the last month. But this Wednesday. I'm back. Vic is back, back, back on the pod. and the last episode before we have a two-week break is our property podcast. We're going to be answering a whole lot of curveballs with the amazing Holly Ekerton from Succession. So have a good rest of your week. Please leave a comment, review, let us know how you found this episode. We will see you on Wednesday with Victoria Harris. See you. Thank you so much for listening to The Curve Weekly. Make sure you hit subscribe or follow wherever you're listening so you're always up to date with the latest finance and investing news.

37:18And feel free to leave a comment to let us know what you thought about this episode because we would love your feedback. We've got new Curve Weekly episodes for you to listen to every Monday, but until then, listen to Erasing the Curve. These are our in-depth podcast episodes where we chat about all things money. We're also around all week on socials if you're hungry for more Curve content and all the links are in this podcast show notes. We hope you have a great week and we'll catch you for the next episode of the Curve Weekly on Monday.

37:48okay quickly the curve was created to empower and educate you about investing but we are not financial advisors our platform exists for educational purposes only and it doesn't provide personalized investing advice for your individual needs and should not be relied upon to make an investment or financial decision and always remember to do your own research before making any investment or financial decision. We're here for any knowledge and support you need, but the final call is always yours. And thanks for being here. You got this. Yeah, we know you got this.