2021 – WTF was that about?

Adam: [00:00:25] Hello and welcome to the final official comedian versus economist for 2021. We demystify the world of money and help you get a handle on the bigger picture. My name is Adam, and we're joined, as always, by my little older brother and real life economist Thomas. Hi, Thomas. 

Thomas: [00:00:41] Yeah, good, Adam. How are you going?

Adam: [00:00:43] I'm doing very well. Thank you. Final show for the year. Final show for season two. Yes, it is. Season two. If you didn't, if you weren't aware, season one was actually nine episodes that we did. That was really an introductory season where we Covid off the fundamentals and the basics of the economy. So if you feel like you want to get back to the basics, then why not go and check out the first nine episodes we have released, which was about this time last year? So we've been at this almost a year, but go back and listen to that if you want a bit of a brush up. We probably should give it a disclaimer, though a lot's changed in a year. And dare I say, the quality of this podcast might have changed as well. So your mileage may vary as you go back and listen to the first nine episodes. Do you have any fond memories from the first nine times?

Thomas: [00:01:32] I've got no memories of it. I forgot we did it. 

Adam: [00:01:38] It has been a big year, massive year. And in fact, we'd love it if you have enjoyed the show throughout the year. We'd love it if you left us a review. Dropping as a review does help and we'd really appreciate if it did, if you did that. So yeah, if you've enjoyed the show and you've liked what we've done and you want us to come back next year, it's not a it's not a threat, then please go and leave us a review that would really help us out. Of course, Thomas, this is our ask us anything show to where we asked you to ask us anything. And I thought, given the given, it's the final show and and we're we're looking back a little bit. On the year that was, Taylor sent us a message on Instagram at CBC podcast. Taylor's question was What do you think the most memorable news story of the year was Thomas. So we had some big stories. I particularly liked the Ever Given ship getting stuck in the Suez Canal, so that was hilarious. But for me, for me, and I'll get to yours in a minute. For me, the biggest one had to be the announcement of bonds are airlines as a new airline that's going to launch in 2022. I was just thrilled to know that our from home and away has set up a side hustle of naming airlines for when he finally retires from home and away. He's actually a fun fact. He's actually helping launch a cruise ship called the Flaming Mongrel in 2023, 

Speaker 1: [00:03:06] though that's totally false. 

Adam: [00:03:11] Thomas, what was your most memorable news story of the year? 

Thomas: [00:03:16] Oh, I reckon it was the whole GameStop story at the start of the year or the end of January. Yeah, yeah. The way that that sort of launched meme stocks into the into the vocabulary. And yeah, I think it really put retail investors on the mark and sort of came it came out of sort of the Robinhood traders, the way the trading apps. It sort of brought a whole generation of retail investors into the market, and it showed that they were a big force to be reckoned with and could move markets. Hmm. 

Adam: [00:03:48] Well, that's actually probably a really good place to start. So what we want to do on the show today is we want to just take a look back. And Thomas, you've given me a list of all of the big topics for the year. Some of the big events throughout the year. So. So we're going to cover off those and then we'll get to some more ask us anything questions, some as we go through and then and then a few more later on. So I really appreciate you guys all sending us your questions in. It's a really good question in there. But before we get into those, we'll get started. And so we're talking retail investors to begin with Thomas. And the emergence of the retail investors you mentioned was was one of the big things of 2021.

Thomas: [00:04:25] Yeah, we thought we saw a lot of money coming out of the retail space to space out of your mum and dad investors. You read it, investors. And it became, yeah, it's became a serious force and it was sort of enabled by these, by the trading apps. And a lot of it was this sort of meme stock Reddit investors taking punts on on spec ease. But it also also got into ETFs quite a big boom in retail inflows into ETFs as well. Yeah. And so I think that, I think is interesting now like it's it is just the the share market is just so accessible to people these days, and that's changed quite quite quickly. Like it's only a couple of years ago where most people didn't know what was going on, didn't know how to get involved. 

Adam: [00:05:10] You can you can combine your love of ETFs and meme stocks. Now there's now a meme stock ETF, right? It's actually it's the ticker. Would you believe Thomas is Mame Miami and it tracks stocks? Trending on social media, which is not to be confused with the existing and well-known FOMO ETF, which tracks stocks with high social media sentiment. And to be honest, I'd go with FOMO over meme because trending on social media, not necessarily a good thing. Oh, there's been plenty of cases where people have trended on social media for not being at their best, not living there and not living their best life. So I don't know, just because your company is in the news and trending that that makes you a good investment proposition. Surely, surely they're filtering it somehow. 

Thomas: [00:05:57] It's not just 

Adam: [00:05:58] in the news, right? Well, I don't 

Adam: [00:06:00] know what separates meme from FOMO. Then if meme is stocks that are trending on social media and FOMO is stocks with a high social media sentiment, so they're actually have gone that extra step and said we'll measure how people are feeling about this stock. Mm hmm. Sounds like it's just kind of is it funny if you're getting mentions, if you get getting, 

Adam: [00:06:19] is it funny? Yeah. So yeah, yeah, 

Adam: [00:06:25] I mean, there was was it Wirecard in 2020 where there's a accounting for Wirecard? And they blamed an accounting error, which accidentally added $2.3 billion to their balance sheet, and they got busted for accidentally adding that money. People got arrested, and now the company is insolvent, so I'm pretty sure they would have got a few mentions on the socials as they were as they were spiralling out of control. The think that would have been a good investment. 

Adam: [00:06:55] So I'm sorry. 

Adam: [00:06:58] Do your own research. Alright. So that was that was definitely one of the big things of 2021. The collapse of Chinese property developers. Thomas was another big one you had on the list. 

Thomas: [00:07:10] Yeah. Yes. I think this story is still unfolding. And like we, we did this a few months ago and the question was is is it going to the collapse of ever ground? Is that going to bring down the global economy? And it's still an open question. I think like this evergreen still in trouble this they're still kicking along on life support, but no one's quite sure how they're holding up. They still need to. They're still kind of in the process of restructuring their debt and their fire selling assets, and they're they're staying alive. But that contagion is spread through through the whole property sector. So remember, this came out of the Chinese government introduced the three red lines policy, which was these well, yeah, these three red lines around sort of debt to assets ratio or something like this that had these three three ratios that they weren't allowed to go over. Yeah, yeah. 

Adam: [00:07:58] I like now. [00:07:59][0.7]

Adam: [00:08:00] Will I remember you share the chart on Instagram at Savy podcast? Yeah, yeah. And yeah, I just kept swapping. Kept going. [00:08:08][8.1]

Adam: [00:08:08] So it was good. I remember the chart. Yeah, yeah. [00:08:12][3.4]

Thomas: [00:08:12] Well, that chart showed that two thirds of the property developers in China are on the wrong side of those red lines. And so there's a shakeout happening in the whole industry. And yeah, it's not just it's not just ever grand anymore, it's it's this fantasia. There's a whole bunch of whole bunch of big players going down. And so far, the Chinese government hasn't stepped in to sort of bail them out, which has sort of happened in the property sector in the past. So it's sort of an open question. And the interesting thing about it is it comes from this common prosperity doctrine that's been introduced in China this year. And this seems to be the idea that capitalism, they're okay with capitalism, creating winners to an extent, but they're wary of creating, you know, these massive winners, which sort of like American capitalism has done. We have sort of Amazon and these kind of players that just dominate the space and then become so big that they become. They slip out from under government control that you no longer have any control because they just have too much money and too much power. And so there seems to be this sort of push in China with the Common Prosperity Doctrine that they're not going to let that happen. And that started with a crackdown on tech early, early in the year and then became a crackdown on property as well. And there seem to be happy to to to let it all shake out. So that's still big. And I think that's going to that's going to through there's going to be a big story through the first half of next year. And so it's still it's still it's still live. It's still something to watch, right? [00:09:44][91.9]

Adam: [00:09:44] Because I thought I thought it had finished. [00:09:45][1.2]

Thomas: [00:09:46] Yeah. Dropped off the front pages. But it's yeah, [00:09:48][2.1]

Adam: [00:09:49] I don't really. I read a little a long way past the front page. I got to be honest of any book or publication. Yeah, right. [00:09:57][8.3]

Adam: [00:09:58] So where does that leave? So that's happening in China. And the other big story was, of course, Australia's kind of relationship with China got a bit strained through this year. Where where are we at now? [00:10:10][11.8]

Thomas: [00:10:10] Oh, that hasn't changed course. So, yeah, so a couple of years ago. Well, so with with the launch of Covid, really, it coincided with a shift in the sort of geopolitical landscape. America moved more towards strategic engagement, a way. From sort of seeing themselves as best buddies with China, Australia followed suit, we had the sort of we can do what we sort of had to choose sides between America and China. And we chose chose America and that sort of coming out even more. Peter Dutton came out last week or the week before with quite a big sort of heavy hitting speech about the need to sort of engage, contain China and engage China as a strategic rival. I think he was using those exact words, but that's sort of shaping up. People are talking about the coalition running on a khaki election, making the sort of tensions in China a key point of difference between themselves and labour. They are still going on [00:11:06][55.5]

Adam: [00:11:06] a khaki, [00:11:06][0.1]

Thomas: [00:11:07] a khaki election. Yeah, that's what they're looking at. [00:11:10][2.5]

Adam: [00:11:10] So not not a very beige brown sort of election. [00:11:12][2.7]

Adam: [00:11:14] Yeah, yeah. All right. Yeah. [00:11:19][4.8]

Adam: [00:11:19] So we're not going to be we're not going to be sending China any Christmas cards this year. [00:11:22][3.1]

Thomas: [00:11:23] I don't think so. I don't think we're on the Christmas card list now. Yeah. Well, Chinese New Year presents, don't expect any. Yeah, I mean, the interesting thing was there were all these sort of trade bans. They banned Aussie coal, but then the energy crisis hit and then they said, Oh, actually, we need to let some Aussie coal in. It was a kind of a funny thing. So it's interesting, like because we're a commodity exporter and commodities are fungible, like they were sort of interchangeable. One container load of coal is no different from another. It kind of doesn't matter where it's coming from. And as long as global demand holds up, then commodity exports in Australian commodity exports hold up. So it doesn't hurt us too much on that level. But there's things like wine and milk, and they're like agricultural products that are feeling the heat from from the from the China lockout. So yeah, it's sort of. So it is it's not. It's not a massive blow to the Aussie economy, but it is changing a bit of the shape of our export profile. [00:12:20][56.8]

Adam: [00:12:20] All right. I did. Actually, I did some research because I was curious when I had the thought about whether we would send China a Christmas card or not. And I did some research into how they celebrate Christmas in China, and it turns out they do. They do celebrate it and they pronounce the same. They celebrate it the same way that we do here. They have massive sales events and bargains galore to be had. So it's not so much a really religious holiday there like it is here. It's kind of more like a Valentine's Day or a Halloween type of event where we just do it for fun so that Jesus doesn't get a big mention over there, though, to be fair, is not really trending here either come Christmas time. So what I did find out, though there's some interesting facts. It's it's a tradition to eat an apple on Christmas Eve in China or to give apples as gifts at Christmas time. Yeah, that's there as a kind of tradition, which got to be honest. That would make Christmas shopping so much easier with [00:13:19][58.4]

Adam: [00:13:19] just a single trip to the produce market. Have you done? Santa doesn't have elves to help him at the shopping centres in China. Santa has sisters. He brings you sisters or sisters. Yeah, sisters, the helpers. They are referred to as Santa sisters. Wow. But that's probably because Santa is way cooler in China than it is in the West in China. Santa plays a saxophone. That is that. Yeah, well, it's pretty much Christmas, Bill Clinton, maybe just not quite as jolly as our bill, but there's some things I learnt this year. That's what I've been researching, Tom. So I think we'll call it even on that one. Yeah. All right. Inflation was a big, big theme throughout the year. People wondering what it was going to do. Is it here to stay? Is it temporary? What's your [00:14:19][59.7]

Thomas: [00:14:19] thought? Yeah. Well, we still don't know. This is this is another this is another live question. We expect that we knew inflation was coming through the supply shocks. We saw a lot of supply disruptions and we knew that was going to create a price shock that's landing. It's kind of happening right now. Prices are spiking in the developed world. The question, though, is it is is it transitory or not? Is it going to stick around or does it just wash through the system? Because kind of like the economy, like energy prices, we just got a bit muddled up with supply and demand because there was all these disruptions from COVID. But then once it once it works its way through the system, will will get back to normal. That's so that's the question. Is that is that true? It sort of the the economy wide level. Is inflation transitory or is it more permanent? If it is permanent, then central banks need to start tightening tightening monetary policy. So either winding back on money printing or and or raising rates, and that has a big, big impact on our own valuations. We saw that with the sort of the build the bond quake early in the year. That was a big story around March or April. And that's yeah, it's still a lot of questions at the moment. The central banks are running with the line that they think it's transitory, though. In New Zealand, as we said last week, it's, you know, inflation's up around five percent there now. So they're thinking it's more permanent. They're starting to raise rates as more central banks around the world started to raise rates as well. Yeah. So that's that's that's still a live question right now. And that and where that lands in the first half of next year will really define the outlook for markets. I think Wolf, the share prices in particular, particularly for your growth stocks. [00:16:02][102.9]

Adam: [00:16:03] So all I've heard there is you've had since March, which you economists, you don't know. So we're well accustomed to not not being able to forecast anyway. But you've had long enough with this problem, surely. I guess either way, we're headed. But uh, anyway, something to keep on working on 2020 to. Uh. All right. So Covid had a big impact on the obviously, and immigration was took a big hit as part of Covid, nowhere near as many people travelling and coming into the country. So what's that done to unemployment and wages? [00:16:49][46.2]

Thomas: [00:16:49] Yeah. Well, the the rate we have at the moment is that it's helped hold the unemployment rate down. So we're in the middle of a really, really interesting experiment in what it's like to run zero immigration. So we've been running immigration at around 300000 people a year for the past 10 years or so. And that sort of was up from around 100 or 80 to 100 odd in the 2000s. And so then that was a really we're doing a really interesting experiment like what is what happens when immigration is zero? And we're seeing like unemployment rate is very low. And it does seem that that it's always hard to identify things purely in economics as you never get a pure experiment. There's always other things going on, but it does. The evidence seems to suggest that the unemployment rate is substantially lower than where it would have been and that wages growth is higher than it would have been as well. And this, this, this and this is it's an interesting kind of yes, it's an interesting experimental result. And I think it does shift the way we we the public discourse around immigration is shaping people. It's less popular than it was before Covid. There's been a bit of a turn in sentiment in the polls against immigration or against particularly high immigration. And that's been really interesting. That's quite different. And yeah. [00:18:15][85.6]

Adam: [00:18:16] Is that a turnaround? Is that is that more a sentiment against Covid, though, like PayPal's a c Covid as existing in other countries and we don't want Covid being brought here? Is that the sentiment or is it against is it a change in sentiment against immigration generally? [00:18:31][14.7]

Thomas: [00:18:31] I think it's more general because the question is the question that the polls that I've seen it has been like, where do you think? Where do you want immigration to go back to next year? Do you want to go back to 300000? You want to go back to 100000? Do you want it closer to zero? And it's not very popular to push it back towards 300. Thousand is much, much more popular to sort of go low or zero. And I think I think people do realise that the labour market prospects in the short run are better with lower immigration. And and that's partly the way that we we run immigration policy in Australia. It's very skilled, shortage driven and skill shortages. It's another way for a tight to describe a tight labour market. And in a tight labour market, you get wage increases. That's kind of the nature of it. So we we kind of deliberately run immigration in order to keep wages down. That's sort of that's how we design our immigration programme by and large. And I think that we're sort of looking at that going like, is that really what we want to do? Maybe, maybe, you know, humanitarian visas visa programme is a better way to run immigration policy rather than targeting skill shortages and wages. So I think, yeah, yeah. So I think that'd be so. I think I think that's that's I think there's been a bit of a shift this year because we just have had this experiment and we've seen the results of that experiment. So, yeah, I think that'll be an interesting one in 2022 to track. [00:19:55][83.2]

Adam: [00:19:56] Right. 2021 the year of money printing. Is that fair to say? Well, maybe that started in 2020. True, but it's still it's carried on, right in 2021. Where are we at? With the printing [00:20:07][11.7]

Thomas: [00:20:08] press, there were still four billion a week pumping it out four billion a week. Yeah, yeah. Not slowing down any time soon. This is a bit of an arms race, too, because you kind of we're kind of stuck trying to keep up with our neighbours in a way, our economic neighbours and sort of. So if we stop, if we stop printing money and America keeps printing money, then the Aussie dollar becomes relatively more scarce compared to the US dollar. And that pushes up the price of the Aussie dollar, which creates problems for Aussie exporters, typically so. And the RBA has got that in mind. And so they're like kind of their bit tied because we're a small economy to sort of following what's happening in the global level with in terms of money printing. And yes, America is not slowing down yet, either. So we're kind of yeah, we're still just pumping out the money and we still really don't know what's going to happen. We know we still don't know exactly what's going to what's going to come with that. Is it going to create consumer price inflation? Is it going to create asset price inflation? [00:21:07][59.8]

Adam: [00:21:09] It's well, yeah, it's it's we still don't know. [00:21:12][3.3]

Thomas: [00:21:13] We still don't know. After ten years of [00:21:15][1.7]

Adam: [00:21:15] the value of the show, it's it's the week and just every week come back and just say, we still know we're still working on. And uh, I think we actually have a question about that coming up later on to ask us anything. All right. The final one I wanted to touch on was house prices. What's happening with house prices? They've gone through the roof. There was a house around the corner from me. We walked in, we had it open and I had an open inspection. We went, had a look just to see what it was like. We walked out saying, You know, you know, my wife and I and I, we went and had a look and and you kind of talk to each other and say, What would you pay for or what do you think it's worth? We pegged it. We haven't looked at a house in probably two years. Just we're just curious. We pegged it at like between eight and nine hundred thousand. We got a message from the real estate agent a day afterwards saying it had sold before act before auction for one point for. Well, we would just like get out of town. That is ridiculous. And as a. like, it's a bulldozed job. It's not a good job. She's adjusted to the new kitchen quickly. Then it was good. No, it's out a lot of stuff in there, like three toilets. [00:22:33][78.3]

Thomas: [00:22:34] We had the same with the same story. Place around the corner from us. Quite nice. We had a price guide of 1.2 to 1.3 ended up going for one point 1.8. That's crazy. It is pretty nuts. It's pretty nuts. Yeah, I mean, [00:22:46][12.2]

Adam: [00:22:47] that's tell me. That's not our research on house prices for this segment. Yeah. Yeah, we've done some market analysis. We looked at a house around the corner from Adam and a house around the corner from Dollars. We decided that house prices are through the roof. [00:23:02][15.3]

Thomas: [00:23:05] I mean, we're seeing this. They're seeing this nationally is 20 percent. Nationally is like, that's a phenomenal pace of growth, 20 percent year on year. It's interesting in the sense it's a regional level. Too often you have growth concentrated in the capitals, but the regions are booming as well. Yeah, going, yeah, so going crazy. So, yeah, again, super interesting. Super interesting. The rental is also growing at rental. Prices are growing at nine percent without immigration, so that's really interesting as well. Um, yeah. So yeah, it's is interesting. I but I think it's what happens when you got super low interest rates and money printing. It's a sort of what happens. And the way I kind of think about it now is I feel like land is the the bedrock of the economy. And when you print money and when you create money or you create cheap money through through money, through low interest rates, that money filters through the economy and settles in land and builds up land prices are all act. All economic creation ends up in land eventually and sort of how I'm coming to think about it. [00:24:14][68.8]

Adam: [00:24:16] Hmm. Long as it doesn't end up in landfill, that's not environmentally sustainable. All right, cool. Coming up after the break, we got lots of your questions for us on our Ask US Anything episode a final one for the year. Stay tuned for more comedian versus economist coming up right after this. Welcome back here on comedian versus economist, and this is our final show for the year, the final official one, I said earlier. So this is the final one that Thomas and I will be doing together. But over the Christmas break, we do have some content for you to get your eyes around. So Thomas has been busy. He's been doing some interviews with with University of Queensland, actually the economics society. Yes, right at UK, as well as holding some, some sessions at various sustainability festivals, talking about economics for good and also the weaponization of confusion. So we're going to be bringing you those episodes throughout the throughout the summer, throughout the Christmas period. So, yeah, hopefully you tune in to listen to those. I'll be back with Thomas in January and we'll get back onto the programme regular as it were, but hopefully you will enjoy that those episodes coming soon. But before we get to that, Thomas, we did ask our listeners to send us in anything and you guys have done amazing all year and you've sent us through some really good questions. So we've got a lot to get through Thomas. I want to start with David, and David wants to know why he needs to beat the mark. And he says if my goal is just to improve my living standards, don't I only need to beat inflation or if I want to become one of the top one percent? Is there a different benchmark I need to measure for success? Well, David, good news is if you're interested in not beating the market, then have I got some solid tips for you? I can definitely help you not not make any money in the stock market. My question, though, would be how do you plan on getting your Lamborghini if you don't beat the market? That's the big. That's the big challenge. [00:26:18][122.1]

Thomas: [00:26:20] Thomas Yeah, I mean, this is this [00:26:23][2.6]

Adam: [00:26:23] is [00:26:23][0.0]

Thomas: [00:26:24] the look. It's hard to beat the market. We know this now like it's, you know, active fund managers have have trouble beating the market after fees consistently that it's possible to do year to year, but to consistently beat the market is difficult. Yeah, and it depends on what you're yeah, what your goals are like. If you if you're tracking the market, if you know, for the past 20 years you were tracking the market, you should be doing pretty well. Mm-Hmm. Yeah. So it's really just kind of depends on how quickly you want to get out of the rat race, really or what your financial goals are like. Maybe you're happy in the rat race, maybe get a nice job and you enjoy it. [00:27:00][35.6]

Adam: [00:27:00] So everybody's is happy in the rat race I got for anybody. If you're if you are, you know, in the rat race, yeah, that's that's, you know, like here, you're someone who walks around saying, I love my job. It's, you know, I do. I do it for fun. That's not someone who's in the rat race. [00:27:20][19.8]

Thomas: [00:27:21] I reckon. I reckon there's a there's a demographic dimension to this. And I reckon, look, I feel sorry for someone who's in their early 20s now. Like for all previous generations, pretty much you just sort of track the market, invest solidly, gets, get some solid returns. You can sort of get all the good things in life. You can get a house, you can have a few holidays, you can set yourself up these days, like if you're in your early twenties. I don't know that just tracking the market is really going to set you up for buying a house because house prices have just gone so crazy relative to incomes like it's going to be, it's going to. You're going to have to be pretty patient to save up for a house. So we know that, you know, it takes 10 years on average now to save up for a house. That's good. Yeah, that's and that's that's a full decade of working solidly and tucking money away. [00:28:10][48.8]

Adam: [00:28:11] What did it used to take? I felt like that for like when I started working, I was about 10 years away from being at a safer deposit. It's not. In fact, I never I never did. I just married well and [00:28:22][11.5]

Adam: [00:28:24] well, that's our advice, David. I'm married, someone really sensible, and that's helped me a lot. [00:28:33][8.8]

Thomas: [00:28:34] Now, look, it's up from like four or five years back in the 90s. [00:28:38][4.5]

Adam: [00:28:39] So are we're looking at a correction any time soon, though, in the housing market or in, you know, is it going to come back? I heard something the other day that said we're looking at 10 per cent drop in 2023. Is that on the cards, you'd have [00:28:51][11.7]

Thomas: [00:28:51] to kind of think that if if interest rates fully reversed to where they were pre-COVID, that you'd have a 20 per cent correction because if you if you think that the 20 percent that we've had has come about through record low, that through through the drop in interest rates and money printing, if that were to be reversed, it would make sense that that the house prices would be reversed. The housing market kind of doesn't work that way because people often don't sell into that. They are forced to. They don't, they don't take a haircut on their house or their investment property unless they really have to, and they only really have to in a recession when they're losing their job and they need to liquidate and get rid of their debts. And that's that's when you see large house price corrections. [00:29:36][45.3]

Adam: [00:29:37] I'm really confused because we had a recession and housing prices boomed. [00:29:40][2.8]

Thomas: [00:29:41] We had we had a recession, but unemployment was in the falls. So like, I don't think you're going to see a house price correction until you get unemployment in the heights. [00:29:51][10.0]

Adam: [00:29:52] OK, well, that's actually that's a good follow on. Good segue way to Jane's question. And Jane said, what is the interest rate rise where Australia is likely to experience real issues servicing the large home loans? So many have taken on. So I think so what she's asking you, I guess, is what's the number like at what point? What what is the interest rate number look like where, you know, we're going to start seeing some servicing issues for the home loans that everyone's taking? [00:30:18][25.9]

Thomas: [00:30:19] Yeah, yeah. I mean, yeah, I mean, I guess the banks have their buffer right, which is like three percent. So if you take current interest rates plus three percent, anything north of that is beyond what the banks think. So people can comfortably service. They can probably still service it for a while. But but north of three percent north of current rates, plus three percent is when people probably start to get into trouble. [00:30:44][25.8]

Adam: [00:30:45] So what would that be? That would be about five per cent in the average. Yeah, I think home loan rate at the moment, about two and a [00:30:52][6.3]

Thomas: [00:30:52] half, maybe two and a half to three. Yeah. Fixed rates are sort of coming off of their record low. So yeah, look, I think yeah, five and a half six probably is probably going to start start to see a bit of pain, but it's only in the cohort that has bought in recently that. And so it's not too the other thing. So, you know, if you bought like if you bought when we bought, like when I bought, which was like four or five years ago, you know, I'm very comfortable because I like I was buying it. You know, a lot of it wasn't like I like my I was. I was paying four and a half percent. My buffer was like seven and a half eight percent. So I'm I'm not in trouble until we get theoretically and my income is gone up since then. But like, if my income hadn't changed, I'm not in trouble until interest rates get into like nine percent or something, theoretically so. So it's really just the cohort that bought most recently and. Even if all of that cohort gets into trouble, I don't know whether that's enough of them of the total market to be able to move the whole market prices determine even if that everyone who bought in the past 12 months had to sell like it definitely would have an impact, but is not going to, like create a 50 per cent correction or something like that. Hmm. [00:32:12][79.9]

Adam: [00:32:13] Yeah, interesting. All right. Another question here from Tom Tom. Tommy, Tommy. Anyway, Tom, thanks for treating it anyway, Tommy. However, Apprehension now said he's got a question regarding the current global debt that has accumulated over the past 50 years had governments around the world expect to ever get out of debt. It's an insane question. I guess there's two. There's two parts to it. First one being, does anyone care? No one seems to care that they're in debt, and therefore, if no one cares, then to then getting out of it becomes kind of irrelevant. So does anyone care? And do they expect to ever get out of [00:32:56][42.8]

Thomas: [00:32:56] this sort of a question about who they owe money to? So if you look at the sort of where with debt crises happen is when you owe money. Typically, when you owe money to external creditors and you owe money in foreign currencies. So imagine Argentina owes money to US investors and they owe it in US dollars. That's where that's that's a risky situation because if the currency moves against you and interest rates rise and then you can't, you just can't meet those repayments. B-side, like Japan, for example, Japan owes its own population. So like the government, debt is large. Like I had something 80 90 per cent to Japanese domestic investors, largely through pension funds and things, and it's issued. It's in Japanese yen and the government, because it can print money is never really going to get into trouble. And it's yeah. So as long as that sort of stays manageable. And yeah, and it can suddenly just sort of roll on, you know, kind of indefinitely like you can kind of long as you can keep servicing the debt, you can kind of just keep carrying the debt. And because you're a government, you have no life cycle. So you just keep just keep rolling it on year after year after year. [00:34:14][77.4]

Adam: [00:34:16] So didn't didn't the the Australian. I forget which government it was, but we had. Was it Tony Abbott, maybe, who was spruiking back in the black was not a Covid this on a very early. [00:34:27][10.4]

Thomas: [00:34:27] Josh Frydenberg. That was his budget before Covid back in, back in the prico, back in, back in black and back on track. Yeah, right. [00:34:35][8.2]

Adam: [00:34:36] That's right. And so there was obviously a priority at one point, but that we've abandoned that now. [00:34:41][5.3]

Thomas: [00:34:42] Yeah, no. It never made sense. It never made sense. It was always like it was a it was sound bite politics that you could point to this debt. I mean, yes, isn't like some countries did get into trouble with it, but there weren't monetary sovereign. They were issuing debts in foreign countries and they didn't have control over their own, you know, interest rates and exchange rates. And they got into trouble. And that created this idea that that debt is always bad. And then you could sort of prove yourself as an economic manager by keeping debt low or zero, keeping the budget in surplus. But there's no sort of great economic theory that says that about a reasonable budget deficit is not is worse than a reasonable budget surplus. That's not in economic theory that that was pure politics, that people call it the debt fetish that that if it became this totally unrealistic focus point because people would sort of talk about it and people got it. And yeah, so [00:35:44][62.3]

Adam: [00:35:45] typical economists, even their fetishes for monetising. Yeah. [00:35:55][10.0]

Thomas: [00:35:55] So like, there's a thing like, is this just foreign? Makes the same the same, uh, you know, treasurer who's given us the current record deficits now and everyone's like, Yeah, whatever, no worries. And we're kind of like the conversation's just moved on now. Like, I don't know where that conversation goes now. Like, we just I don't think we're going to talk about balanced budgets with the same, you know, fervour that we used to talk about them. [00:36:18][22.8]

Adam: [00:36:18] All right. Dylan has sent us a message, so it's a pretty weird world at the moment. All asset classes seem to be up from coffee to crypto bonds offer a nice safety against inflation. Cash is bad for inflation. Asset prices seem too high, which would be a normal hedge against inflation, and economists predict doom. I'm not sure about that, but doing so opinion only, of course, Thomas. We don't give financial advice on this show. How do we hedge and protect ourselves against pending inflation? I think this is an excellent question, I've been wondering this one myself, because you keep hearing, you know, inflation's coming so you can buy assets in inflation. But but if you also accept that asset prices are grossly inflated or they're there to too expensive, then what do you do? I'm stuck in no man's land. [00:37:09][50.5]

Thomas: [00:37:10] Yeah, I mean, it's a really interesting time in economics, in the sense that we're really in uncharted territory. It is. It is cliche, but there's no there's no playbook for the current economic conditions like we've never we've never seen this. We've never had interest rates at pretty much zero. We've never had central banks the world over just pumping out the cash in Australia four billion a week. We've never really had this scenario, so we don't really know what's what's going to happen. And so that's the first point is like, are you going to hedge inflation against inflation? Like, it kind of sounds reasonable, but like I'm like, personally, I'm not convinced that that inflation isn't just transitory. And I think when you look at the structural factors driving inflation, which is sort of like the de materialisation of the entire economy economy, everything's going digital, everything's going to like freemium models like the entire economy is monetising. Victor Schwartz at Macquarie says everything's going to zero like even the the concept of a companies be sort of becoming is dissolving the rationale for having a company so that structural factors that sort of playing out over the past 10, 20 years, they're not they're not disappearing. There's still a huge amount of work labour force coming online in developing Asia and then into Africa. So the ability to pump out super cheap goods isn't going anywhere anytime soon. Then you bring in AI and all of these sort of things, like stocks getting cheaper and it's going to keep getting cheaper. And that's that's the structural driver. So you've got you've got that at a structural level on on one side, on the other side, you've got massive money printing programmes happening and huge amounts of cash gushing into the system. But where that money ends up is an open question. You know, like, does it end up in consumer prices? Maybe. Does it end up in asset prices? It seems to. My theory is talking about before is it tends to sort of all end up in land, right? Does it end up in asset prices? Does it end up in speculative investments because interest rates are super cheap and you got like a crypto boom? That's sort of not sort of settled either. So it's like it's quite possible you could have inflation, whereas all in asset prices and speculative assets, but have no consumer price inflation. But we've never seen that before. So typically we're talking about an inflation hedge. You're talking about hedging against consumer price inflation, but we might not have consumer price inflation. We might, you know, the money printing might create a different type of inflation, or it might create something entirely new that we've never seen before. So that that's that's the challenge in hedging against the current economic kind of climate is it's just not exactly clear what it is, and it's just very difficult to forecast. [00:40:04][174.8]

Adam: [00:40:05] Yes, right? I knew that's where we were heading. I mean, anyone, Dylan wondered, maybe if art was maybe a good investment, saying things like that? Maybe classic cars? I don't know. I saw it like, I saw a Toronto the other day. I was gone for $60000 minimum wage to have Toronto's when we were kids, you know, first got our licence. He had Toronto spinning around like this sixty grand like cheese that's performing pretty well and not the kind of investment. But yeah, yeah, maybe. Yeah, yeah, I don't know. [00:40:44][39.0]

Thomas: [00:40:44] Yeah, it could be. That's the other thing. Like we talk about the concept called the everything bubble is that when when prices, when interest rates get so low, you just get a bubble in everything. So it's in crypto, it's in NFTs, it's potentially in growth stocks, it's in land, it's in property prices. [00:41:02][17.3]

Adam: [00:41:03] What about commodities like silver and gold? And and you know, yeah, I don't iron ore and things like that, I guess they're all that's been all over the shop. [00:41:11][8.3]

Thomas: [00:41:11] Yeah, I mean, gold and silver has been really interesting in that they haven't hasn't done anything like it's gone nowhere for the past 12, 18 months. Again, against all economic theory like Soviet followed economic theory of a decade ago. Massive money printing would have said, Buy gold, buy silver, buy commodities. Yeah, but if you know that strategy and up until now hasn't served you at all, like, you know, yeah, the gold I bought, [00:41:38][27.1]

Adam: [00:41:39] it's gone nowhere. Well, I bought it. I bought a silver crypto coin. That token that tracks ages, I think it is, tracks the. It tracks the price of silver. And so I was hedging against buying into just the the metal I'd thought I'd hedge by buying a crypto token. Then I decided I'd had enough. I'd been doing it for like a couple of weeks and it went nowhere, which is just totally, you know, against my crypto investing philosophy. It moved by like one percent in two weeks. I thought, this is nowhere near a wild enough ride for me, so I got out. And when I do sell it, I lost like 50 bucks on the on the fee for selling it. I was outraged. [00:42:19][39.8]

Thomas: [00:42:20] I mean, if if it's if it's any comfort, like there's no one who like it that I've read right now, that is high conviction. Any one way or the other, like the general vibe that that I'm reading is kind of one of confusion like this. People kind of able to identify the trends. But there's no one's high conviction about where it's going and what the best way to hedge for it and to to prepare for is like the lot of sort of hedge bets, one way, one way or the other. That's what that's what I'm seeing. So, you know, if you're feeling that confusion, if you're feeling like, I don't know how to play this market, you're not alone. [00:42:55][35.5]

Adam: [00:42:56] Like buy everything or sell everything. You can't be you can't be sitting on the sidelines, Kenya, because the inflation. Yeah. But if you buy everything, then you might. [00:43:06][10.1]

Adam: [00:43:08] Yeah. [00:43:08][0.0]

Thomas: [00:43:09] Yeah, I mean, I've been I've been. I mean, I reckon, [00:43:12][3.3]

Adam: [00:43:14] OK, but some of this, that's my point. Like, yeah, look [00:43:20][6.2]

Thomas: [00:43:22] in a reasonable way. Like, I'm not like, I'm not giving up in a massive way. Like, I still think I still think we'll bump along. I think, you know, think that everything in the economy is in a like is a relativity. So like a price is is is an indication of relativity. Bread is worth something relative to cars. That's what price allows you to do. And so that relativity has adjustments. So I think like, you know, share prices, for example, like if they're out of alignment, the share price itself doesn't have to adjust to come back into alignment that other things can shift. And there's a whole range of things in play now like it may be. It's like property prices adjust and that's how it plays out. And so I kind of my my sense, you know, and this is like, this is I mean, we're in pure personal opinion right now. My sense is that that asset prices are protected in a political sense that no one wants to see a stock market crash. No one wants to see property prices crash. And if the adjustment can be forced onto other sectors of the economy, it will like, we will create policies that do that. You know, and then the big criticism of money printing and record low interest rates, it was that it was designed to to defect to stop the sharemarket crashing. And that's that's all that was designed to do. Yeah, like it wasn't actually about helping the economy, it wasn't actually about keeping people in jobs was just about protecting the protecting the share market. And I don't buy that exactly. But I think there is might be some grain of truth to that. And I think we have sort of seen, you know, particularly for property like as soon as property starts looking a bit shaky, you start, you see first home owner grants, you see construction grants, you see sort of these measures come in to to try and protect the property to protect property prices. Because any government that, you know, presides over 20 percent, 30 per cent crash in house prices gets wiped out of the next election. Mm-Hmm. So that if there's any comfort in that, maybe there is [00:45:16][114.6]

Adam: [00:45:19] not financial advice. All right, very good. Finally, one last question here from Liam and Liam is asking, and I know Thomas. I know you don't like I don't need I like this, Liam. Sorry, I've got to ask you is Liam wants to know. Liam was asking what is forecast as being the biggest contributors to Australia's GDP going into the future, mining and financial services for the rest of our lives or technology software and advanced manufacturing growing Thomas. And we know you should ask it, [00:45:52][33.3]

Adam: [00:45:53] but what do you what do you think it's going to be? Is it Taranis? And I think Darren is going to hold up Australia's GDP? [00:46:05][11.6]

Thomas: [00:46:07] Uh, yeah. I mean, it's very difficult to forecast, very difficult to predict. When we talk about industry mix over the long run and partly because technology changes in a way that that makes it really hard to, yeah, anticipate, you know, even look 20 years on, like twenty years ago would be hard to look at the current time and kind of understand what the economy would look like and what, what sectors are doing well and what companies are doing well like we are. You know, you look at the ASX where we're overweight on commodity exporters and banks, that sort of the you know what, people to stylise fact about the ASX? I don't expect that to change. I think we'll probably, you know, two met like a 10 year horizon, like I think like I think we'll probably see a shift away from coal. Look, I think that that does seem like we're sort of coming to the end of that run. But like iron ore, I think also it will still be strong kind of minerals and construction, energy, minerals, other energy minerals probably do. Okay, I reckon so. I still think we'll get the wool trade on that strength. When we had him on a few weeks ago, he like he really laid out a great case for why how Australia could become an energy superpower. Because we have the land and the energy resources, the solar and the wind and all of that and the and the technological barriers to exporting that are disappearing. You know, to melt cables to Singapore and that sort of thing. So I can I can I can see a future now where where we become an energy superpower and whether we remain a big energy exporter. And then that kind of allows the domestic economy to kind of take whatever shape we like and say, yeah, we'll probably stay, stay heavy on banks. And yeah, the rest of us will be consumer focussed, I think. So that's sort of my 10 cents on that. But yeah, very difficult to predict. [00:48:01][113.9]

Adam: [00:48:03] So I would just do the opposite laying out. I would just assume the opposite way. Now I think that that makes sense, that makes sense and makes a lot of sense. All right. That brings us to the end. Thomas brings us to the end of this year. Thank you so much for for doing the show with me. I've genuinely enjoyed doing it with you and genuinely enjoyed getting all the feedback and questions along the journey, particularly for the Oscars. Anything questions today, but also throughout the year. We love having your questions coming through, whether that's on on Facebook and Instagram at, say, the podcast or via email CBC at Equity Mates dot com. Feel free to send us an email over the break. We'd love to hear from it, though we might not get back to it as promptly as we otherwise would. As I mentioned, we do have a big summer series of shows coming up. The two part interview kicking us off on the 15th of December was with an interview that you did with University of Queensland Economics Society, then on the 5th of January. We've got a two part series Economics for Good Thomas. Tell us a little bit about about that one. [00:49:06][62.4]

Thomas: [00:49:06] Is it at a festival that I help run? We just got some interesting people there talking about what a how we might make the economy work better for humans. Yeah, got an impact. Investor guy runs a kind of big investment company focussed on doing some good work, plus a few social change activists. Yes, quite those are quite interesting discussion. [00:49:28][21.8]

Adam: [00:49:29] Yeah. Cool. And then on the 19th of January, we've got another two parter weaponization of confusion. Thomas, that was another first. [00:49:37][7.6]

Thomas: [00:49:37] Yeah, yeah, yeah. Same festival also as hosting another panel there that when we got the filmmaker, Damien the Damon cameo, who's has two two of his films in the top four of all time documentaries in Australia and a couple of other content creators. And we're just looking at the kind of current climate and how to sort of sift the truth from the noise and how and how that's become difficult and just sort of taking taking stock of the the information landscape. [00:50:05][27.6]

Adam: [00:50:06] So it's a really good content there. Some really interesting stuff of had to listen to them already, actually. And yeah, that actually is actually a really good lesson. So. So make sure you tune in for those. And don't forget, of course, across Equity Mates Media Equity Mates Investing Podcast Get Started Investing feed You're in good company. They all have a summer series of of shows running, so there's lots of content to get your eyes around. And I guess that's it for us for the year. So yeah, once again, thank you so much for listening. Please go and leave us a review. One last one last request. But otherwise, we hope you have a Merry Christmas. Happy New Year! Stay safe. Look after each other and we'll be back with more comedian versus economist on the second starting resuming the 2nd of February. Thomas So I'm very much looking forward to that day. Do you have any final thoughts? [00:50:54][48.5]

Thomas: [00:50:55] Not not. Thanks everyone for listening. It's been a fun journey. I've enjoyed it a lot. [00:50:58][3.2]

Adam: [00:50:59] Mhm. Excellent. All right. Well, take care of yourselves and we'll talk to you again soon. [00:50:59][0.0]

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