Bold predictions – Andrew Brown

Bryce: [00:00:15] Welcome back to Equity Mates, a podcast where we explore what's possible in the world of investing. We're here today with Andrew Brown to do bold predictions. My name is Bryce, and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:26] I'm very good, Brice. Very excited. We always like to start the year the same way, and some people might laugh that we're starting the year in mid-February.

Bryce: [00:00:34] Yes. Got to take a holiday.

Alec: [00:00:35] That's what we're doing. We always like to start the year with bold predictions. And we have made some of our own. And you can listen to that in the podcast feed from Monday. But now we're joined by Andrew Brown, our returning expert, to make some bold predictions for the year ahead. Andrew, thanks for joining us.

Andrew: [00:00:52] Absolutely. Thanks for the invite. Can I just stress this is bold predictions five. 

Bryce: [00:00:57] Yes. 

Andrew: [00:00:58] A bit like Die Hard. There are five Die Hard films. Hopefully we get to number six.

Alec: [00:01:04] We will see. We'll see how we go this year. 

Andrew: [00:01:06] Number five is recorded on the 13th of February. And just to give you some context, S&P 500 is 5022 up 6% on the year to date. the Nasdaq 17883. That's the 100. That's up 6.3% year to date. As usual the ASX 200 is 7614. And that's up. Blart Year-to-date. And the ten year bond right in the US is 417. So not quite the year end levels on a lot of those. That was 387 last year. 

Alec: [00:01:36] So we've got a lot to cover today. We asked Andrew, for high level view on, on some of the predictions we're going to be covering, the big stocks. We're going to be covering bonds. We're going to be covering scandals, media landscape, sport. So we've got a lot to get to 15 in total. But before we get into it, two quick bits of housekeeping. First of all, a reminder that whilst we are licensed, we're not aware of your personal financial circumstances. Anything you hear on this podcast is for education and entertainment purposes only and is general advice. The second bit of housekeeping, the Equity Mates Community Survey, is live. You can see the link in the show notes. If you have thoughts on what content you like, what content you don't like, and what we should be doing, what experts we should be speaking to, what stocks we should be analysing. Let us know via the community survey. Now with that said, Andrew, when you sent the, 15, oh, the high level look at the 15 bold predictions. Number one, you said very bold and secret. So we have no idea where you're starting today. So kick us off. 

Andrew: [00:02:41] Okay. Number one, I think 2024 is going to be chaotic. Okay. And I think it's been really difficult in investment markets, which obviously the first six weeks suggests otherwise. And bold prediction number one is that on November the 6th the president elect will neither be Joe Biden nor Donald Trump. 

Bryce: [00:03:01] Wow. 

Alec: [00:03:02] I don't think that's that bold. 

Andrew: [00:03:05] I suspect I think most obviously Biden may pull out because of medical issues and just, you know, I just aged to be quite blunt. And Trump could pull out for a number of reasons. You know, he may be legislated out. He also may pull out for medical reasons. I mean, you have to go to sort of deep, dark places to understand what his medical conditions are. And they're certainly not a source for this podcast. And, you know, quite clearly, it's not beyond the realms of possibility that, yeah, something might happen to him along the way. So and then you say to me, well, okay, if it's neither of those, who's it going to be? And guess what my answer is? I have no idea and neither does anyone else. 

Alec: [00:03:45] Well, I put a bet maybe like six months ago on Gavin Newsom to be the president. So. 

Andrew: [00:03:51] It could be anybody. 

Bryce: [00:03:52] Is he still in the race? 

Alec: [00:03:54] No, he's never in the race. Governor of California. But if Biden pulls out, he'll be up there with Kamala as a front runner. 

Andrew: [00:04:00] Absolutely. So I think what that's going to mean is there's going to be an amount of chaos because they're not necessarily going to pull out on the same day or the same week. And I think quite clearly, if Trump were to win last time when Trump won, everybody said it would be bad for markets and it was bad for markets for about two hours. Yeah, because he ended up cutting the tax rate. But this time around, I think, you know, there'll be no holds barred. Yeah, he'll go completely bonkers. It will be highly protectionist and that will be horrendous for markets over a period of time. So number one is that neither of them will be there in the elections, the fifth. So the president elect will be the sixth and it won't be any of them. And that's a real mystery to markets. 

Bryce: [00:04:43] Okay. Wow. 

Andrew: [00:04:45] Number two. 

Bryce: [00:04:48] Rusty, I was gonna say something. That's all right. Keep going, keep going.

Andrew: [00:04:52] Number two, as a consequence of that, despite the fact US inflation is going to be falling into the two, 2.5% range, I believe US bond yields will not fall below 3% because the US is running a budget deficit of 6.3% of GDP. It's not going to come down under either candidate, even if I'm completely wrong about number one. The interest bill is 2.5%, and that's going up to 3%. So basically, I believe that US bonds are going to get a risk premium attached to them, even though they are, of course, the world's ultimate risk free security, from which everything else in the world is priced off. So I think there's going to be a bit of an extra risk premium attached to them. Don't forget, last year, despite all the volatility in markets, you might have discovered this by now. But just in case you haven't. The US ten year bond yield started last year at 3.87%, and it finished last year at 3.87%. On the dot on the money to the basis point did not move. From December 31st to December 31st, it went to five and obviously as low as 3.3. When the US banking system is under a bit of a creak in March April. But I think this time around bond yields are not going to come down as people think, even if short rates come down and fed fund rates get cut. Just well, we're on that very quickly. Don't forget we started this year with the most stupid thing, which was earnings growth of 11% and six fed rate cuts expected in eight meetings. And one of the meetings was January, which we've already had. And nothing ever happens in January. So you're expecting six fed rate cuts in seven meetings. No, no. That's just how stupid the market got at the end of last year in relation to interest rates okay. Not in relation to I am okay. But we can come onto II if you wish.

Alec: [00:06:54] Let's not get it. Yeah. Let's start at a high level. And I think you mentioned in the intro that the S&P 500 is up 6% for the year, and a lot of that has been driven by some of the Magnificent Seven. I think Tesla has been like the worst performing stock. So your third bold prediction is about the Magnificent Seven, the seven Big Ten stocks in the US. What have you got? 

Andrew: [00:07:19] I think the Magnificent Seven will fragment completely okay. Okay. Now Tesla fragmenting already is not fragmentation because the other six are, in broad terms, moving together. And is one of those not moving. 

Alec: [00:07:34] And for people who are unfamiliar, we're talking about Nvidia, Microsoft, Apple, Meta, which is Facebook, Alphabet, which is Google, like the big tech stocks.

Andrew: [00:07:43] Amazon. 

Alec: [00:07:43] Amazon. 

Andrew: [00:07:44] Amazon, etc.. Okay. Tesla is in there. That's full. And now I will touch on Tesla later okay. But I think the fragmentation is going to happen for quite a few reasons. First of all, one of the stocks has no growth and it trades on 23 times EV EBITDA. It's got very, very strong cash flow, but it's barely grown for the last three years. 

Alec: [00:08:05] Hold pn. Don't say which one of no growth, a lot of strong cash flow. I mean I'm thinking either Alphabet or Apple. 

Bryce: [00:08:12] Yeah, I'm thinking of Alphabet.

Andrew: [00:08:14] You're not right. And Ren is right. It's Apple. Alphabet has been growing. Okay. The issue for Apple is that basically, it seems to be stuck between product cycles. Secondly, the services business, which was the real driver of it over the last few years, this kind of, you know, profit growth in services is now down in single digits. Okay. So that's not a big boom right now Apple could come out with something whiz bang new. 

Alec: [00:08:42] I was going to say you're not a fan of the glossy. 

Bryce: [00:08:47] Anyway, I was about this in another episode. We will look back on this year and be like that. Yeah. Game changing. Yeah. 

Andrew: [00:08:55] Okay. That's cool. All right. That's cool. So if I'm wrong, I got me wrong for exactly the reason you're right. Okay. But at this juncture, without. Yeah. Without new model, smartphones, which are what drives the the the game changers. Okay. And as you know, now and again, the smartphone becomes a game changer. There's something new about it. You've just got to buy it. I think that's the most likely one to actually fall away. The other likely one to fall of why is alphabet because where the alphabet sat? Does AI really compromise the search business? Because, you know, you got the option F, you got GPT four, which I do and can I you know, then, you know, that's your real alternative to search. And you know does that take away from Google search. The numbers so far suggest not. 

Bryce: [00:09:48] I'm a convert now. I'm a Gemini guy.

Andrew: [00:09:51] Yeah, yeah. 

Bryce: [00:09:52] Big time, I think.

Alec: [00:09:53] Yeah, but the question is still the same. Like if Gemini cannibalises Google search, even though it's the same company, the revenue isn't as good. 

Bryce: [00:10:02] Yeah, yeah. 

Alec: [00:10:03] But I didn't think it will. I think it's like the use cases are quite distinct. I think it's broadening. I think yeah, I think the, yeah. 

Andrew: [00:10:10] As I'm going to discuss later on in one particular sector what I was predicting in one particular sector 5 or 6 years ago. And remember, I'm a baby boomer, so I'm not a Gen-Z millennial. You know, you know the bleeding edge of this stuff is only just starting to happen. So some of these things take a slower pace than you imagine. 

Alec: [00:10:30] Yeah. Like the Vision Pro you should remember that. 

Bryce: [00:10:32] I think Alphabet falls away more than Amazon. 

Alec: [00:10:36] What is Amazon falling a lot? 

Bryce: [00:10:37] I just feel like it's. It's hard. 

Alec: [00:10:40] It is number one in web services.

Bryce: [00:10:42] Outside of web services. 

Andrew: [00:10:44] Why it's no why it's had its time. The big issue for people to confront is that 40% of Nvidia's business comes from Microsoft, Amazon, Meta and Google. Microsoft. Meta. Amazon. Google in that order. Okay. And one of the interesting things I'm going to come to is what is the return on capital? These companies are going to get out of all this spend because the some stage investors are going to look at that and go, oh my God, you guys are spending so much money. Where's the incremental return on capital and even equity mates followers? Because I bet a year ago none of them had ever heard of Constellation Software, and now they can all quote you it backwards. And I never heard of the Fair Isaac Corporation, and now they can quite do it backwards. Everybody's got wind of return on incremental capital. How great companies compound you know. So compound is the word of 2023 really not the Magnificent Seven. Because if you look at what else went up strongly, it was those kind of stocks irrespective of what valuation I tried it on. And so you start to look at these companies, to give you an idea, Microsoft will spend $44 billion on CapEx each year. Okay. Its return on invested capital is 29%. So it's got to earn close on $13 billion on that incremental spend to make it worthwhile and non dilatory. The same numbers for Google. It spends 32 billion a year. and its return on capital is about 31%. Which when you consider it's carrying all this other bits stuff which might one day when on a great grandfather and some money. So I need to add about 9 billion incrementally and invest, as I think over the year are going to question that. And that's why the fragmentation will take place within the group that yeah, Nvidia's ludicrously valued. I'll give you an example as to how much later on. But that I think is going to distinguish between the group. They're not going to move together, for that reason. And I think that most of them, with a couple of exceptions, are extraordinarily well priced anyway, so that, yeah, they may fragment just from the point of view releases can't justify.

Alec: [00:13:02] I would love to take the other side of that bet. I don't think investors are going to. All of a sudden wake up and think about, you know, these big tech stocks that differently like I think, if we had a problem with some of those companies pissing away money on other bets, we would have had that problem for a long time. I don't think investor mindsets have changed that much. 

Andrew: [00:13:27] Wow. They changed dramatically in April 2000. I'm telling you that difference of the first few months of 2000.

Bryce: [00:13:34] Clip that. 

Alec: [00:13:35] Yeah, yeah. Click that. Yeah. Okay. 

Andrew: [00:13:39] Eventually I'll eventually wake up if my bond right scenario is correct. If bond rates linger around in the fours and these things are trading on 30 times earnings and their return on invested capital starting to decline because they're going so headlong into AI. The question you also have to ask is how do you incrementally monetise AI? Okay, will I pay more for AI stuff? Are you going to extract more from me? For an AI driven product, you've got to ask, can I actually incrementally drive profitability from investing all this money in AI? And I think that's going to be the real question for investors in these stocks over the course of 2024. I accept the jury's out, okay. And I'm not taking a wholly negative viewpoint on that, by the way. I'm just saying that's the question you got to ask.

Bryce: [00:14:31] Good question. All right. Well, number four, you've also said, is another secret and relates to the prediction around magnificent seven. 

Andrew: [00:14:39] Yeah, absolutely. Number four is Elon Musk will leave Tesla. 

Alec: [00:14:44] Yeah. That feels like it's written. 

Andrew: [00:14:47] I think I think it's becoming inevitable. Yeah. I'll be blunt. I think the man needs help. You know, you don't go, you don't go on sort of things that you know, are broadcast to a wide audience and tell people to, you know, get good after. That's not acceptable. There's no new models in Tesla. You know, the stuff that's news. All incremental. It's not core. He's been competed away by the Chinese quite aggressively. And the most bizarre thing is for such a smart man, he doesn't seem to understand basic arithmetic, you know, which is if you cut prices and that reduces your margins from 27% to 18. It's very elemental arithmetic to say you need to sell 50% more cars and that, believe it or not, go through the account. 

Alec: [00:15:33] Why do you think he doesn't understand that. 

Andrew: [00:15:35] He doesn't want to advertise? For some reason, he's got some set against it. He wants to seemingly drive more and more volume, and that's reduced his operating margin from cars. Okay, not so not including energy and and, services, but it's reduced his operating margin from cars by about 4 billion a quarter. Yeah, from its peak. Its peak was basically the December quarter 22 when it had a beautiful balance between volume and nice margin. And he's killed the margin and he can't sell enough cars to mike up back up to the dollar gross margin. And that's impacting the company. It's why the estimates are coming down. Don't forget the second hand price of Tesla's is collapsing. And BYD is just, you know, stating he's launching one of his biggest markets. So I think basically he's for some reason he's lost the innovation. Dunaway might be too busy. He's got too many other destroyers. 

Alec: [00:16:33] I think he's lost focus. 

Andrew: [00:16:35] Lost focus. And so I think he'll focus on some other things. And obviously, you know, with the court award against him, there's pressure on the board quite clearly the border. Not that great. Let's make it clear because some of them are distracted as well. And all by one, a compromised, you know, lot of Murdoch doesn't need this in his, in his, in his lifeblood, like, and if I was him, I'll get out of it. So I think Tesla needs to change, and it needs to be a little bit more conventional. And I think Musk will leave in some shape or form. 

Alec: [00:17:08] Nice. All right. We are full predictions down. We have 11 to go on to. Number five. Yeah. This relates to what you said earlier about 2000. Smells like 2000.

Andrew: [00:17:20] Yeah. Stinks like 2000. can I urge everybody and my, my thing about 2000 is that 2000 was horrendous. If you were stock in crazy tech stocks, many of which were rubbish. Okay. Not these are not the apples and Amazons of today. Okay. But what happened in 2000 is that those kind of things fell to pieces. The Nasdaq fell to pieces. But if you were a value investor, you had a bull because your stocks, which were trading on pieces of six and seven all of a sudden started trading PEs at 12. Yeah. And they did like, you know, you had a number of value stocks double. So value investors killed it. So my suggestions here is the current market mania will subside. But equities is still an okay place to invest. It's probably just not in the in. Just sees okay. Okay. So the index can go down the S&P 500 and certainly the Nasdaq and pulse and the ASX 200. But if you're smart about where you are and we can talk centrally, then you can still make a good return in 2024. It's just you're going to have to work a bit harder. Let me show you where to go. Morningstar have something called a style box Trademarked. And what it is, it's basically a nine square matrix across the top. It's got value core growth. Okay. So value stocks cool stocks growth stocks down the side it's got large mid small. And so as you would imagine it's you know you could all draw the matrix. You might be able to put the exact numbers in but you get the directions and concerns right. So large cap growth stocks in the past 12 months have returned 44% in the US. You know, which is obviously, you know, the big six small cap value stocks have returned minus one and a half. So there's a 45 plus per cent gap between small cap value and large cap growth. And basically large stocks by and large have outperformed small stocks except in the growth area. So it's been gross price growth. And so what my suggestion to you is in the current market mania is if you invest via ETFs rather than stock specifics, look for some value ETFs. One of the easiest things to look at is to check the performance of the Dow Jones Industrial Average versus the S&P 500 versus the Nasdaq. And I think you might find the Dow Jones might outperform the other two this year. Not because it's more value driven. It's more basic. It's got banks. It's got you know it's got a drag called Boeing. But you know it's got kind of things like that in it. So just one thing to be aware of in the past, I've come in here and said consensus earnings are too high okay. And they're 245 points for the S&P 500. So it's on 20.5 times earnings. Okay. Just to give you an idea of the 11% growth in consensus earnings for the current year, six and a half plus percent of that comes from the big six. Okay, so not Tesla but the other six. And I think they're going to continue to grow. I'm not going to come here and tell you they're not going to grow their profits and grow them probably quite strongly. It's just I think you're paying too much for that except for one situation perhaps. And it means when you take those companies out with their big multiples of 30 odd, you know, for Microsoft and Apple, not for meta nor Google. If you take those out, the rest of the market's on about 16 times earnings. That's a tiny bit expensive, but it's not nuts and there's plenty of scope to invest within that. So if you're smart and you want to go spectrally light with value and a couple of other sectors, I'm going to come too with your ETF investing without having to go pick stocks. You could do quite well this year, I think. But you're going to you know, you're going to have to do that. I think rather than just have an S&P 500 ETF. 

Alec: [00:21:32] Yeah I, I understand what you're saying. I'm going to say I'm going to challenge your 2000 characterisation, because I think 2000 was similar to 2021, where there was a lot of crap that had been run up and then that all of that fell away unprofitable, but stuff. Whereas what you're talking about here is undoubtedly high quality companies. Yeah, but will they continue to grow? I'm going to say it smells like 1974 where the nifty 50 was. There was a generation of investors that could buy the nifty 50, the big 50 US stocks. Blue chip, high quality. But they just got over it. 

Andrew: [00:22:06] Didn't you say 1968 is the better analogy. If you want to. 

Alec: [00:22:12] Hold on hold on. Just so there was a lot of quality companies that got overbought.

Andrew: [00:22:20] Yeah they did. 

Alec: [00:22:20] And then the question was could they keep growing. And I think that's the better analogy for people who were worried about what you've just said. You're not saying that Microsoft and Amazon know the Pets.com of the next generation. No, no, no, no, you're just saying.

Andrew: [00:22:35] That I'm not even so I'm not even saying they're going to have or anything like that. I'm just saying they are going to retrace. Okay. That doesn't mean to sell them. Okay. Yeah. I mean, don't forget in 2000, I mean things like News Corp, which were high quality businesses, you know, got beat up to crazy, crazy prices. Yeah. And, my shares came back considerably, as did many other high quality counties. Don't forget everybody. The great analogy from 2000 is Cisco Cisco still around Cisco still doing really, really well as Cisco. Still not at the price it was in 2000 because you were paying too much for 2000. That's my warning. So, and I'm trying to, you know, as I said in prediction three, trying to show you what might be the issues that investors focus on as the year goes on with that, unhinge them slightly, let's put it that way. So, keep an eye on, on, on the Starbucks from Morningstar and keep an eye on the Dow Jones versus the others. 

Bryce: [00:23:31] Love it. We'll Andrew, we're going to take a quick break. And on the other side we're going to talk about AI scandals, Aussie dollar plus a lot more. We'll be right back. Welcome back to Equity Mates. We're here with Andrew Brown doing bold predictions for 2024. And Andrew we've got six seven and eight number six seven and eight AI scandals changing the media landscape and sports. What have you got? 

Andrew: [00:23:56] Oh my God okay. Number six I think there will be a major scandal in AI. It will rely effectively on copyright theft. Obviously. Obviously I mean, we know about scandals already about, you know, using AI to create pornography, you know, featuring well-known people. So that's not going to go away. But I think somehow or other, it's got to get legislated against service in major scandals. The main one you've had at the moment is, the world's largest music owner, which is Universal Music Group, has turned off the music on TikTok. Okay. And basically TikTok, we're trying to rip off UMG, which if you ripping off UMG, you're ripping off the artists. Because the one thing about UMG, Warner Music, Sony, and even Spotify, okay, is there's now been a recognition that the artists have been systematically underpaid for years and years and years, and that they can do different things to get more of the money for themselves. Okay, who owns Taylor Swift's rights to the Taylor version? Taylor. Thank you. She partners with UMG. Okay, who help her immensely, but she owns the rights. And increasingly when you get to that sort of thing, you know, you're going to get through a situation where to protect themselves and to protect the artist, because what UMG do for their artists is incredible. And yeah, it's why they're a phenomenal company. And you should keep looking at them. But I think there'll be more and more scandals about AI, and it's going to really lead into the whole copyrighting issue. 

Alec: [00:25:34] I mean, that's not really an AI scandal. That's just. 

Andrew: [00:25:37] Well, it is, because it's the use of technology to basically subvert paying people who aren't supposed to be paid. 

Alec: [00:25:44] Well, it's just it's just it's just TikTok. They just want more money from TikTok. 

Andrew: [00:25:47] Yeah. TikTok basically has shown the usual Chinese lack of respect for intellectual property. Yeah. In this case, it's, you know, songs as opposed to, you know, prologue. But you know, it's I think it's going to come to something.

Alec: [00:26:01] You're a UMG shareholder, we should let's, let's make. Because I feel like there's a different interpretation of this dispute. 

Bryce: [00:26:10] I reckon would say the first major court case of some celebrity getting majorly. 

Andrew: [00:26:15] Yeah. Paid out. 

Bryce: [00:26:17] Or what's the word? 

Alec: [00:26:20] Deep Fake 

Bryce: [00:26:21] Yeah. Deep fake 

Bryce: [00:26:22] Yeah. Yeah. Like it'll be. 

Andrew: [00:26:23] Yeah.It will be a deep fake celebrity. 

Bryce: [00:26:25] Something really damaging beyond the Taylor Swift nudes and that sort of thing.

Andrew: [00:26:28] Yeah. Exactly. 

Bryce: [00:26:29] Yeah, absolutely. I think that's where it gets. Yeah. Did you say the hackers that created a deep fake of a CFO logged into a meeting in Hong Kong and got this other guy, like a guy in the finance team to transfer 26.

Bryce: [00:26:44] No why.

Bryce: [00:26:44] Yeah, because he thought the CFO was delivering this. You need to transfer this money.

Alec: [00:26:51] I mean, yeah, as quickly as these things happen, there will be new control. There will come. 

Andrew: [00:26:57] Yeah. Yeah, they will be. 

Alec: [00:26:59] Yeah. It'll be like, you can't just take the cfo's word on a video call. Yeah. You know. Yeah. Yeah. 

Andrew: [00:27:04] Exactly.

Alec: [00:27:04] Need like two factor authentication. 

Andrew: [00:27:07] The risk at the risk is that the Goggles and the Amazons and the Microsofts get legislated against. Google is the one that is obviously in the gun sights, which is why Google trades on a P a 21 and the others are broadly in the 30s. matters not matters of lower quality. Okay. So it's a it's a it's a it's a lot of a stock as well. So there you go I think, I think that's another thing that will just shake up the current mania for. 

Alec: [00:27:34] People who are interested in this. The court case to watch is The New York Times one. Yeah, that's going to be where a lot of this stuff first gets tested in court. 

Andrew: [00:27:41] Absolutely. 

Alec: [00:27:42] All right. 

Andrew: [00:27:42] Next. Number seven, I believe media ownership in Australia is going to be shaken up in 2024. The reason why is that channel ten belongs to no one. It notionally belongs to Paramount. It's got a value on a what? Foxtel's declining rate of knots. The radio market is in flux. I urge you, if you don't believe me, to look at the Seven West Network interim results presentation, which has a 20 year chart of TV media revenue. Not for them, but for the whole market. It peaked in 2010. Okay. And as we know you guys, you guys don't own TV's. You own computers or Apple TVs, and you, if you need, if there's something you want to watch, another program a year, you want to watch on free to air television, then, you know, you just stream it through there, in VODs. And basically, you know, what you're looking at is you're looking at the gradual creep of, yeah, the Netflix is. The Amazons, the Googles and others basically into what is effectively free to air media. Okay, or very cheap to air media, let's call it at ten bucks a month or 14 bucks a month for all kinds of products. So that's, that's, that's going to start getting turned upside down. And don't be surprised if you see someone like, yeah, a Netflix, a Google or someone buy a free to air network because it's just widening out their scope. They're buying production studios and they're buying a library, you know, of various things. So those things may get undervalued. But I think channel ten will not be owned by Paramount by the end of the year. That's for sure. Yeah. Okay. And I'd be surprised if Channel Seven's ownership changes. Dad wants to keep it because it's politically advantageous and he has influence, and some think it's. 

Alec: [00:29:38] When you say dad, you're saying daddy's. 

Andrew: [00:29:43] Ryan's not into the media. So Ryan likes bricks and concrete. Damn right.

Alec: [00:29:47] So, Andrew, one of my predictions, we did our own episode on Monday, and my prediction was, we say, a major transaction with at least one of the three free to air TV networks.Great minds think alike. I'll be surprised if a major US tech company bought an Australian free to air TV network, but.

Andrew: [00:30:06] I would say as well. But it's just an incremental small change. It might be of interest.

Alec: [00:30:11] All right. Next one is sports. 

Andrew: [00:30:13] Yeah. Next one. We're lights to all this. All this stuff gels together really well. Okay. What's killing free to air TV in Australia? Well, the killer for free to air TV in Australia is sports rights. Because sports rights inflation's been huge okay. And I've driven it themselves and until the last few years. But of course I pay the wrong price for the wrong sport okay. There's only two sports and try worth paying for nothing else.Yeah absolutely. There's nothing else worth paying for. Okay. And around the world, there's only in a in outside of North America, there's only one sport worth paying for: football. And in fact, there's only one league. 

Alec: [00:30:52] So now Indian Premier League. 

Andrew: [00:30:54] Indian Premier League. Sorry for my apologies. Correct. But in most of the rest of the world there's only one sport who has time for which is football. And by and large the English Premier League and the UEFA Champions League. Okay, so my suggestion to you is sport. Because of the massive inflation of sports rights over the last few years. Okay. And I am a shareholder in Manchester United, and I've tended my stock only because I'm going to get a very high price for part of it and I'll buy it back if, I believe, another English Premier League team will be publicly listed by the end of the year. 

Bryce: [00:31:30] Okay. Any ideas on who?

Andrew: [00:31:33] I have some thoughts, but I just want to give you an idea why when Manchester United when the Glazers said we're reviewing the ownership and the structure and everything else, they had 170 viable contacts. They signed 26 non-disclosure agreements, 19 people entered the process and there were ten non-binding indicative offers at the early stage. And the source of that is that document they put out for the Ratcliffe tender of a quarter of your stock. It's the most brilliant eight pages of reading on how investment banking works. It's fantastic. Okay. And you ended up with Ratcliffe as the player. So I think sports are an investment proposition. They have been in America for a little while, but there's still only a handful of publicly listed teams. Well, I think one of the other EPL teams will float. If you asked me to say which one, I suspect it will be someone like Liverpool because they've got American owners. Or it could potentially be Tottenham. Okay. Simply because Tottenham have a massive asset which people undervalue, which is the stadium. The stadiums are £1.25 billion stadium. Okay, so you can buy Tottenham shares on the Unlisted market. And I think they're quite undervalued relative to other stocks. 

Alec: [00:32:59] So let me put the counterpoint to you, which is that we're at the peak of the cycle in TV, right? And I listen to Mark Cuban speak about selling the Mavs. And yeah, you know, he didn't explicitly say that he thinks were at the peak, but he implied it pretty strongly. He thinks the economics of teams have to change. And he's now doing the whole like resort casino in Texas things. Yeah. But he was basically, he was talking about how we've seen massive TV rights, inflation. But those players that were bidding up the price are starting to really struggle. And those that are still there are now merging together. Yeah. Which we've seen in the States. 

Andrew: [00:33:38] It's really interesting TV sports in the US. Okay. It's a real mixture of national but so much of it because, you know, the sports play so many games basketball, baseball and and hockey. Yeah, I play 160 games a year ish. Okay. And so it's right. It's local, even local radio, let alone local TV. And so they're not sports rights where people are garnering a major advantage. Okay NFL yes English Premier League. Yes. European Champions League. Yes. You're looking at ten continental. You know, rights. And that's what, that's what Mike Siemens Premier League so valuable. It's not people in England staying at home on a rainy Monday night. You know, in Walsall, it's global. It's people in Thailand sit on a deck chair having another sing a beer. It's people in India not watching Indian Premier League but watching English Premier League. It's people across the world. It's Americans okay. And that's what makes those things tick. The other aspect of America speaking out may be, of course, the whole concussion issue with NFL and everything else, but they have a new lease of life after this year's Super Bowl and the ultimate. Yeah, brilliant. Okay. But no, I don't disagree with him in some ways. It's interesting he's selling the mask because basketball is obviously the one that's got the big TV rights negotiation upcoming which which will shunted up because it's underpriced at the moment. 

Bryce: [00:35:14] So Andrew, for the next three, we're going to come back to Australia. Yeah. Number nine is around the Aussie dollar. 

Andrew: [00:35:21] Yeah. The Aussie dollar. I think we'll at one stage at least got a $0.75 against the US dollar. Part of that's driven I think by chaos in the US. And I think the US dollars, ascendancy perhaps starts to be challenged a little bit more this year for the reasons I've said. Risk premium.

Alec: [00:35:37] Now, for context, as we record, it's at $0.65. And, last year it got down. It didn't get into the 50. 

Andrew: [00:35:44] It's get into the 50s now. I think it might touch 63 last year. It certainly was 75 at various stages last year. I think it will certainly go to 75 during the year. And it will end the year much higher than it is right now. So on December 31st, we'll have seven days in front of it. And don't be surprised if it's 75. Okay. My number ten prediction is you know what's driving that. I don't think the official Reserve Bank rate will get below 3% this year. It's currently 4.35. I don't believe it will go below three because I think inflation in Australia is way sticky as it is in the US. US inflation, I easily see it two and change two and a half, but Australian inflation for a whole variety of reasons. Services inflation. Yeah the whole immigration issue, the whole supply demand issue. I don't think we'll be like 3%. And I do believe Michelle Bullock has the type of spine and intellect which her predecessor lacked. 

Bryce: [00:36:43] So I gotta go below four.

Bryce: [00:36:46] Whoa. Yeah, I anyway, so. 

Alec: [00:36:49] So with that, then I assume no rate cuts in 2024. 

Andrew: [00:36:52] If there are, they'll be very small. So it's 435 at the moment. It won't go below three. So I'm giving myself a bit of leeway. 

Alec: [00:37:00] Oh you're. Oh sorry. Sorry, sorry. I thought you were saying the inflation rate. 

Andrew: [00:37:05] Sorry. It's efficient. No.

Alec: [00:37:07] The cash rate. 

Andrew: [00:37:08] Cash rate won't go below three, which some people say. 

Alec: [00:37:11] Right. Oh, so you're saying multiple cuts this year? [00:37:13][1.8]

Andrew: [00:37:13] No, there might be one cut towards the end of the year. 

Bryce: [00:37:16] No before it's 4.352

Andrew: [00:37:19] To 3 is along. I'm giving myself a lot of leeway. 

Bryce: [00:37:21] Yeah that's right. 

Bryce: [00:37:22] So you're saying that. But you. 

Andrew: [00:37:24] Well sorry it's not going to be very minute. 

Alec: [00:37:26] Can I just just put those two things together. So you saying inflation is stickier and you don't think it will get back into the target range? No. Yeah, that will be right.

Andrew: [00:37:33] There'll be a small rate cut. Yes. 

Alec: [00:37:36] But why wouldn't they stay the course until they get inflation back in the target range? 

Andrew: [00:37:39] Political pressure.

Alec: [00:37:40] Okay, but I thought Michelle Bullock had a spot. 

Andrew: [00:37:44] She does have a really, really strong voice. Well, the interesting thing, my prediction number 11 is that the CPI stays at least 50 basis points, or a half a percent greater than the inflation rate in the US. At the moment the US is 3.4 with 4.1. And I don't see any way that we're going to be down in the twos. Okay. Yeah. And the US, I'm telling you, I think we're going to be down in the twos and that's what's going to partly drive the Aussie dollar. Okay? And there are some other things I think that'll drive it, which I'm going to come to you okay okay. So I think the Aussie will go up. So you know it could get quite interesting. But all these things don't necessarily bode that well for the Australian investment environment at the beginning.

Alec: [00:38:35] So just to, to wrap those up. Yeah. The Australian macro predictions, the Aussie dollar will get to above 75 US cents. 

Andrew: [00:38:43] Correct. 

Alec: [00:38:44] The official cash rate will be cut, but it won't go below 3.25%. Yeah. And inflation will stay above the US. Yeah I won't get the target percent.

Andrew: [00:38:54] One against the target man. 

Alec: [00:38:55] No. So then that leads to 12,13 and 14 which you've wrapped up as sector specific ideas. 

Andrew: [00:39:02] Absolutely. Number 12 Australia and small caps will outperform big caps. So if you want to look at it on an index the XSO which is the small loads. So it's got the racial stocks in to outperform the X JO which is the ASX 200. 

Alec: [00:39:22] Nice. 

Andrew: [00:39:23] Okay. The reason why they're too cheap in what might be a difficult economic environment, that's what people say won't work because the economy might be tough. Yes, it might be tough, but they're two cheap. They're already being priced for destruction. There'll be lots of corporate activity because foreign companies will come and pick these things off, where, you know, where they are relevant. So I and I think some of the smaller resource companies will do very well because they've been smashed okay. Already. So so will outperform x j so small XL bait large. I think Morningstar do have a style box for Australia, but I couldn't find it that easily. And it may not be as good as the US one fair Morningstar. Number 13. I've come with this most years, but this year I'm more, I'm more convinced than ever. And I was right last year. Not not the prior. Gold stocks will do really well from here. The world's largest gold miner is Newmont. They bought Newcrest last year. Newmont stock is down 40% in a year. It's down 20% in six weeks since the start of this year from start of the year to today, 13 Feb. And the gold price obviously has been rather quiet. If you don't like buying individual mines or individual stocks because you think the management are now good, then just buy something like Gdx, which is the VanEck Vectors Gold Miners Fund, because you basically get, you know, the biggest gold miners in the world and you can buy selected aussie's even if the Aussie dollar goes up. Remember the Aussie dollar gold price is like 3000. Yeah. And still some of them conspire to mess it up. But, you know, because they don't get their production right and costs have been going up for Aussies, don't forget. So, I think a selection of gold stocks will do really well from where we are here now. So the best baskets if you're a bit more aggressive Gdax which is the juniors version. Oh yeah. of that. So slightly more speculative. But you know, I certainly think about buying stuff. You know, I do think Newmont's really cheap, which is, as I say, the world's largest gold miner. Some North Americans are really cheap. But, perhaps the best way is through one of those ETFs.

Bryce: [00:41:43] Oh, nice. And then number 14, Andrew was around oil. 

Andrew: [00:41:47] Guess what. I'll be buying oil stocks two okay. Why is the high oil price a lot less volatile? Because the major oil producers. Yeah, they are definitely, you know, they're definitely manipulating supply and demand to make it less volatile. With the oil price at Brent, $80 a barrel, roughly as we speak, there's no major oil company in the world not making a ton of money at 80 bucks a barrel. And so you've got a really bearish view on oil, which I do not. And if we do have a little bit of chaos around the world, and if we're going to have a bit of chaos in US politics, we might have a little bit of chaos in oil. And maybe that'll be dampened down because to be blunt, the Saudis don't want chaos in oil. Really, even though they benefit when it's a hundred dollars a barrel for a brief period of time. But most of the major oil starts in the US are on pace of 11 to 12. At these kind of levels of the oil price, they are exhibiting far more capital restraint than they've ever exhibited in the past. And, you're saying that just just follow Occidental, okay, which is obviously the stock that Warren Buffett has been buying because he thinks it's going to disappear. So he's going to buy every share of it. Yeah. They're capital management in the last three four years has been absolutely outstanding. It's been really, really strong. So yeah. And to be fair, it's been much the same for many of the other US oil majors, and when they're on sort of 10 to 12 times PE at an oil price, which looks fairly stable, I think that looks pretty interesting. And today's little trick fact. Nvidia has a market cap of 1.75 trillion USD. It makes 19 billion of operating profit. The entire S&P energy sector, which includes obviously all the massive major oil companies, makes $147 billion a year of operating profit, and it has an equity market value of less than $1.6 trillion. So Nvidia is capped greater than the entire US energy sector. 

Bryce: [00:44:01] Wow. 

Alec: [00:44:02] So of the oil stocks you said you were buying them at the moment. Is there 1 or 2 names at the top of your list? 

Andrew: [00:44:08] I'm quite happy to buy Occidental because I'm buying at a lower price than Buffett has been buying it at, and I like their capital management. But again you can buy ETFs in this. If you're not if you don't fancy my stock picking or. 

Alec: [00:44:20] What about the Aussies Santos and Woodside. 

Andrew: [00:44:23] Well I think Santos gets really interesting now that the merge is off. you know so I think they're quite fascinating. I think there's a lot of potential spin outs from Santos. And I think the pressure's going to be on Santos now to actually do something. Yeah. no I don't forget it wasn't their fault the merger failed. Let's make that clear. It wasn't Santos board saying we don't want to do it. Okay? It was. There was a mutual walk away. Okay? So, the pressure is going to be on Santos. And I think that's quite fascinating and quite interesting. 

Alec: [00:44:51] Now, speaking of fascinating, we've got to the final prediction, which when you sent them through was just five question marks when we saw each other. So final prediction for 2024 Andrew, what is 

Andrew: [00:45:03] Your final prediction for 2024? In a chaotic world, okay. Politics, investment, there's one thing I think that's going to return to normal so that you can rest assured it is going to happen and you can rest comfortably that the world really is in its rightful place. After all, 

Alec: [00:45:28] Aussie house prices up 20%.

Andrew: [00:45:33] It's that the roosters. I think I was losing on your players like Joey Manu's going to rugby.

Andrew: [00:45:43] That's that's in 2025. And sorry, are you aware? So now that we have it lightly the salary sombrero is alive and kicking. There you go guys. I think it's going to be a hard year for you guys as investors, okay? It's not going to be easy. You're gonna have to do more work, I think, than last year. But I think, what's clearly coming through from, you know, a slightly bullion mood is the fact that I think if you do that work, you will get rewarded, okay. Because there are some really cheap things underneath. It was very expensive looking. I said there are some really, really cheap stocks. I can tell you the Dynasty trust, ironically, is highly idiosyncratic stocks in it. And yeah, they're starting to get recognised. I think it's fair to say. And so, you know, it's not just what's not what's in my little fund, but I think around the markets just be a little bit more idiosyncratic and think outside the box a little bit more this year. 

Alec: [00:46:46] Nice. Well that's a good way to end it I think. 

Bryce: [00:46:48] Yeah. 

Alec: [00:46:48] Let's, let's keep looking outside the box throughout this year on this podcast. But for now, Andrew, until next time, thanks for joining us. 

Andrew: [00:46:57] My absolute pleasure.