Dr Doom vs Mr Sunshine – what’s instore for 2023?

Adam: [00:00:30] Hello and welcome to Comedian versus Economist. Our first for 2023. We demystify the world of money and help you get a handle on the bigger picture. My name's Adam, and we're joined, as always, by my little older brother and real life economist Thomas. Hi, Thomas. Yeah. 

Thomas: [00:00:47] Good, Adam, how are you going? 

Adam: [00:00:49] I'm doing very well, thank you. Happy New Year. 

Thomas: [00:00:52] Oh, and to you. And to you.

Adam: [00:00:53] I've been busy. I learned a lot over the break. I mean. I mean, researching. Turns out that with my frypan set on a medium heat, it takes the exact same time to fry an egg as it takes my toaster to perfectly cook my toast. So I like. Yeah, 2023 looking pretty good right now. Hey, new New year, new intro music. What did you think? Did you pick all the voices? Yeah. Tell us what you think. Even better. Tell you what. First person to send us an email. Correctly naming all the voices. Well, I don't know. We had a hat. It was. It won't bea CVE hat. We don't have any merch, but it'll be a hat of some kind. So if you can correctly identify all of the voices in the new intro and send us an email cv@equitymates.com or via the website equitymates.com/cve. You will win a hat to be determined after z. What hats I've got. Have you got any hats? Oh, yeah. You're not a hat guy. 

Thomas: [00:02:00] No, I got too much here for hats. Really?

Adam: [00:02:03] Yeah, it's a problem. 

Thomas: [00:02:05] But I do like to be sun smart. 

Adam: [00:02:09] I still you. It got to the centre of it. It's like. Yeah, it's a ring. It's like a during a doughnut on your head instead of a hat. Hey, shout out to Alex, George, Aakash and D.W. for sending us messages to during the break saying, When are you guys coming back? Nice to be missed. So thank you for those messages by Thomas Massive show. Coming up, we're going to find out what's up with the housing market, not prices, that's for sure. We'll see what your prospects are for buying a house looked like in 2023. Fun fact, everyone's using tech jobs at the moment, right? And I asked ChatGPT for a housing market ton and it gave me the housing market is on the rise. It's finally starting to roof again so I'm not sure sure pans are ChatGPT A strong point. We've got some population data out of China. My understanding is there's still heaps of people there. We'll see if we can perhaps uncover some more nuance in the data. And could 2023 be the year of mega threats? I sure hope so. Remember the nineties anti terrorism at be alert but not alarmed. Pretty pretty hard to not be alarmed when you're hearing about mega threats. So we'll see what they are and if they're as scary as they sound. But Thomas nine Reasons for optimism from Dr. Shane Oliver. Perhaps they didn't get the memo on mega threats. Let's start there. Let's start with some positivity for the new year. A bit of optimism. What are we looking at here? 

Thomas: [00:03:39] Yeah, so Shane Oliver from AMP, he's been around for ages, one of the most well known and best economists in the country. He's a report at the start of the year just outlining what he thought was going to happen. But it had the nine it did he did outline some risk but overall he was he was pretty optimistic about the prospects for things. He gave us nine reasons. I thought that's a good way to just get our feet in 2023 and see where we're at. So number one is that long term inflation expectations remain low. So think about inflation. Inflation's high came in a bit higher. December quarter surprise. So the upside is a little bit of a shock there. But kind of the key thing is the don't want to happen is for inflation expectations. They get anchored in because once people start expecting inflation, then that feeds into their their decisions and that kind of becomes a bit of a self-fulfilling prophecy. And so we have these we have these measures of expectations. So I just ask people, what do you think inflation is going to be next year, the year after? Even though inflation has been quite high, inflation expectations haven't really ratcheted up. 

Adam: [00:04:45] Right? Why not?

Thomas: [00:04:47] Denial, maybe denial, maybe an inability to understand basic economic concepts. 

Adam: [00:04:56] I'm going to go with denial.

Thomas: [00:05:00] Maybe people aren't listening to enough of the Popular Economics podcast I did. 

Adam: [00:05:07] I read the article. You said that investors are now bombarded with irrelevant, low quality and conflicting information, which confuses and adds to the uncertainty. Oh, that's not the best review of ever had. 

Thomas: [00:05:20] Not I mean, I think I think, you know, you've had one year of of quite high inflation and it sort of follows about 20 years of really low inflation. And so it's I think people are just discounting one year it's like, well, and inflation's been low my entire adult life. Hmm. I'm not going to I'm not going to just shift expectations just on the back of one year's worth of data. 

Adam: [00:05:42] They might also be thinking it's transitory. 

Thomas: [00:05:44] They could. 

Adam: [00:05:45] Yeah, they might be. They might be like, on the transitory side still. Mm hmm. Because. Because they listen to what people said six months ago. Yeah. Yeah.

Thomas: [00:05:56] Well, and there is this comes into to all of his second point is inflate. He reckons inflation has likely peaked. Right. We did get some services inflation in the December quarter in the latest read but still largely a good story so it's still largely a supply bottlenecks story. AMP published the pipeline inflation indicator which mashes together energy, agriculture, agricultural commodities, semiconductor prices, shipping rates and some other things. I realise I'm bombarding you with this. 

Adam: [00:06:33] Irrelevant low quality. 

Thomas: [00:06:36] So they have a pipeline indicator which does track headline inflation woe and tends to lead it by a couple of quarters. And that's coming off pretty quickly. They're heading back towards zero even so. 

Adam: [00:06:51] So this is good news. Inflation's coming down. 

Thomas: [00:06:53] Yeah. Yeah, you'd say that like. No, No one likes inflation. No, too much. So. So that's good news then. That means that people's. Inflation expectations. Yeah. Are probably right that they're not ratcheting them up. The other point which comes into all of his point three is that he reckons the major central banks are close to done. So we might get another hike or two out of most of them, but we're pretty much done. 

Adam: [00:07:18] I feel like he's stretched one point across three points. This is his gun. He's going for like a power number with nine. We decided to break up point one into three, three points. Yeah. 

Thomas: [00:07:30] Yeah. We can't bombard people with two points. Doesn't feel like a bombardment. This is just to.

Adam: [00:07:39] That's what people want. I don't want to be bombarded. 

Thomas: [00:07:42] So that Yes, I mean they're all related but that's, that's Yep. That's the reality that he's pointing to. And as I think he's probably right, I think we might get one more out of the RBA in February. March is maybe 5050 at this stage would be my guess right. Yeah. Out of the RBA and yet a few a few of the big, big central banks went on pause like Japan I think just decided not to hike right to the last meeting and that was a bit of surprise. And there's a few, there's a few doing that. 

Adam: [00:08:11] Feel like they may be trying too hard if they're thinking about just manage the money or I like manage the interest rates, manage inflation, don't try and manage people's expectations as well. Like you kind of going, well, we need to control what people are thinking about it. And it seems like a misdirected effort maybe to be trying to do that. But people just doing what I think when they. 

Thomas: [00:08:40] I mean, this one, it definitely feeds into it. It's part of the reality. I mean, the whole reason we have independent central banks that we gave them statutory independence was to try to anchor expectations so that people could trust monetary policy, could trust that it was going to do the right thing at the right time, wasn't going to have political interference. And then because you could trust that, you could anchor your inflation expectations around the target, that the 3% target or whatever the central bank is working with. That was the whole idea of having that was was to anchor people's expectations, because if you can do that, then it becomes the rest is easy. You almost don't need to do anything more than that and you don't need to mess with interest rates is once you mess with interest rates, it does have these other consequences, like when you when you're slight, when you when they cut, when you cut them to the floor, that jacks up asset prices. When you raise them, that sort of increases borrowing costs firms. So yeah, ideally you don't want to mess with interest rates too much. And if you can just anchor expectations and that gives you a bit of a free kick. 

Adam: [00:09:40] That's probably also why most other governors didn't predict interest rates in three years time. Like when Phil, I said there won't be any interest rate rises till 2024, any kind of diversion from the managing expectations playbook. Anyway, I digress. What's point for. 

Thomas: [00:10:01] Point for China's reopening? Is that good? Yeah. Because of the low interest rates and the angry inflation expectations. 

Adam: [00:10:12] Yeah. No, no. 

Thomas: [00:10:14] China is moving away from zero COVID. So they're not they're not locking down their economy anymore. And then that should, you know, is one of the key pistons of the global economy. So that should help things out. 

Adam: [00:10:23] Last I checked, they had moved from zero Covid to Max Covid. Max. It's a bounce as part of the reopening, I guess it sounds like. And I think because we just had Chinese New Year. Oh, linear. And they're saying that yeah, maybe there's going to be an explosion of Covid as a result, but only one way is through it. 

Thomas: [00:10:45] So 5.5 The US dollar looks like it's peaked against emerging economies, so the resurgent US dollar in the second half of last year was creating a lot of headaches for emerging economies. We talked about this with Sri Lanka and Turkey a bit last year. Yeah, because their debts denominated in US dollars that create some headaches, but it looks like it's peaked. It looks like those debt crises are kind of stabilising. So maybe we're okay on that front or it's not going to get any worse. So that's why I wisely seen that one. Okay. Number six is Erections reckons the worst of COVID is behind us in Australia. And that seems like again, again. 

Adam: [00:11:30] We're out of the woods again. So we don't run into any more woods, let's say, you know, they did. I mean, no, I. 

Thomas: [00:11:38] Well, not, but I think I mean I think it's. 

Adam: [00:11:40] Probably going to be definitely. 

Thomas: [00:11:42] Does feel that way. And I mean I'd have to be a central scenario B surprising to get a resurgent Covid but you know now and I could get another variant. Mm hmm. Number seven is we should avoid recession. We should we should keep the unemployment rate low, rather. 

Adam: [00:11:58] So I thought he was giving advice. You should recession. Yeah. Okay. My professional advice. No financial advice. Avoid recessions. Four out of five economists recommend.

Thomas: [00:12:14] Number eight is that the geopolitics might not be as threatening as it was yet. The strongmen authoritarians are on the nose a bit, so yet democracies can be more back in favour. And the war in Ukraine feels like it's still a tragedy. But it's is not. So it's not so unpredictable. 

Adam: [00:12:34] Right. 

Thomas: [00:12:35] So that sort of that less uncertainty is a good thing. And then number nine is that we're in a US midterm election year. And there's this weird thing with us that was last year. Yeah, yeah. I'm sorry we're in a post us midterm election year. 

Adam: [00:12:56] Low quality information. It looks bad. Lots of it. 

Thomas: [00:13:04] Yeah, but there's this weird there's this weird thing where where the middle years of a presidency the US share market consistently outperforms other the at the shoulder years of a US presidency. Right? Yeah. There's no economic reason for it. So everyone sort of talks about it in the market as being a bit weird, but it just tends to play out that way.

Adam: [00:13:25] Like the Santa rally? 

Thomas: [00:13:26] Yeah. Yeah, a bit like that. A bit like that. No good reason for it, but it just tends to happen. 

Adam: [00:13:31] Yeah. Or not happen as it was last Christmas. Yeah, yeah, yeah. 

Thomas: [00:13:35] But given 2022 was, you know, a bear market for most of it. That sets us up for, you know, potentially a good year in the US market and where the US market goes, the Aussie should follow. So that's reason to be optimistic. 

Adam: [00:13:51] Terrific. And how are you feeling? You're feeling optimistic, are you? 

Thomas: [00:13:53] Um, yeah, I am. I think. I mean, I've been reading a little too much about the air apocalypse and the potential of that potential collapse of the ecosystem. 

Adam: [00:14:08] A bit like, yeah, whatever I'm going to say is one of the mega threats, though. Yeah, you're right, Thomas. We've had the good news. Give me the bad news. Give it to me straight. You take it. 

Thomas: [00:14:22] Yes. Yeah. Well, yeah. I mean, there's a lot of bears out there that you could go to, but I think our go to bear is Dr. Doom. 

Adam: [00:14:30] He's back. He's back. We talked about him earlier in the podcast. Like, maybe I must be, like, maybe only ten episodes or something, I reckon. Doctor. Doctor Doom, first of all. Yeah, yeah, yeah.

Thomas: [00:14:41] Yeah. He gets a lot of press because he's like just the notorious bear. Mhm. Yeah. Nouriel Roubini is the professor somewhere. Some stern business school or something like that. He's just written a book Mega Threats ten Dangerous Trends that Imperil Our Future and How to Survive Them. 

Adam: [00:14:57] Who? Some book. 

Thomas: [00:15:01] Yeah. 

Adam: [00:15:03] Can you read it? Yeah. Nah, nah, nah.

Thomas: [00:15:06] Nah. 

Adam: [00:15:06] No time for that. I probably won't. 

Thomas: [00:15:08] I read a blog about it. 

Adam: [00:15:10] Oh yeah. Get ready for some lower quality data. Okay, so what do we got? 

Thomas: [00:15:20] Yeah, Yeah. So, number one, he reckons that low inflation is now giving way to high inflation, and that's getting entrenched. That that's not going anywhere. 

Adam: [00:15:29] Hang on. So he's saying inflation is here to stay. Yeah. Yeah. The other guy was Dr. Shane Oliver was saying it's going to come down like it's already peaked. 

Thomas: [00:15:37] Yes, Yeah, yeah, yeah, yeah, yeah. And this could, this could happen. Like. Yeah, you could, you could double peaks, you could get a double double peak like in the stagflation three seventies you had this in Australia, inflation peaked and then started to come off and central banks took it easy a bit and then it bounced back and you had a double peak. But yeah, so he reckons it's sort of more, a bit more structural and that it's that it's not going away anytime soon. 

Adam: [00:16:02] Right. Okay.

Thomas: [00:16:04] Yeah. Number two is we're looking at secular stagnation. So yeah. So we're going to look at a period of perpetually low growth owing to weak aggregate demand, that weak demand. And the idea here is like we've just built everything we need to build and consumers have consumed everything they need to consume. And going forward, we just need less stuff as households, as society. You know, like in the post-war years, sixties and seventies, there was a lot to build. We had to rebuild infrastructure in this new stuff to build. We sort of passed that and the sort of let's talk about this stagnation. There's just not as much stuff that needs to happen, which is why inflation's come down and interest rates have come down because there's actually a surplus of money and people just don't need to invest so much. That's one of the ideas. But he's saying it and that's because we've got inflation in that story. Then we're looking at stagflation and so we're looking at an extended period of stagflation. 

Adam: [00:17:02] But I mean, I always find things to buy. Like I bought a new TV over the break because my old one was needed to be replaced. Yeah, so, and I needed I needed Q deolared. So so yeah, Yeah. 

Thomas: [00:17:18] But did you sell on your old one?

Adam: [00:17:19] Not put outside.

Thomas: [00:17:21] Oh, okay. Did you sell the one that was outside. 

Adam: [00:17:24] I gave it to a friend. 

Thomas: [00:17:25] Okay. Right, right. So he a he didn't need to buy one.

Adam: [00:17:28] No that's true. He does if he wants sound though, because that one, the sound didn't work. Oh that was the that was the start of the house of cards of that new TV purchase in the loungeroom. Right. Right. So. 

Thomas: [00:17:44] Yeah. Mm hmm.

Adam: [00:17:45] Anyway, I feel like we're bombarding people, maybe not hitting the exact mark where Nouriel Roubini was is thinking. Yeah, yeah, yeah, yeah.

Thomas: [00:17:55] Well, num number three is a glut of televisions. 

Adam: [00:18:01] And we've reached peak, peak television. Television. 

Thomas: [00:18:04] And now number three is rising interest rates. And he reckons that risks sparking a debt crisis is that we're so leveraged now that we very soon. Sensitive, too, to lifting interest rates. And if we have to fight, you know, stagflation with higher interest rates, that risks triggering a debt crisis. Hmm. And, you know, and each we could have a like this cascading debt crisis. And it's a real fear. Like, I think we talked about this with the U.K. bond market. Like, if one if the U.K. bond market went over. There's so many sectors of the global economy that are exposed to that that it risks cascading, bringing down everything. He reckons that rising interest rates are a much scarier prospect than people are factoring in. 

Adam: [00:18:52] But that's kind of predicated on inflation staying high, like banks who keep raising interest rates. If inflation stays high, which he's relying on, he's saying, yeah, that's going to happen. Yeah, but the other guy was like, Now that'll come off and then therefore interest rates will come down. So it's kind of a bit like cumulative, aren't they. Like they're sort of this level together so.

Thomas: [00:19:15] Yeah. 

Adam: [00:19:15] Yeah. It's easy to have, it's easy to kind of make a prediction of, of rising interest rates if you're also saying that inflation is going to stay on. 

Thomas: [00:19:21] Yeah. I mean, this is this is the game, right? This is what economists are trying to do. They're trying to paint a consistent story like you couldn't go out. You couldn't go out and say, I see inflation remaining low, but central banks are going to jack up. Interest rates. 

Adam: [00:19:35] Up.

Thomas: [00:19:36] Doesn't make sense. 

Adam: [00:19:37] Yeah, I guess. Yeah. 

Thomas: [00:19:39] Yeah. So is it? Yeah. He's just breaking down his picture, helping us see it. Yeah. Like, yeah, he did. Does not agree with Shane Oliver. 

Adam: [00:19:45] Yeah. Yeah.

Thomas: [00:19:47] Point four is that the age of hyper globalisation is giving way to the globalisation. So we're moving towards protectionism, reassuring friend shoring. 

Adam: [00:19:57] Oh yeah, we talked about that last year. 

Thomas: [00:19:59] Mm hmm. Yeah. Yeah. Moving away from just in time supply chains is saying all of that is that it slows down trade but is also inflationary because all of the cost benefits that came with globalisation are going to be reversed. Right. Yes. That feeds into our inflation story. 

Adam: [00:20:16] Right. So as long as companies move their manufacturing to more expensive places, that's all we're going to that's going to create inflation because they're going to put their prices up.

Thomas: [00:20:24] Yeah, exactly. Exactly. Mm hmm. Number five is he's more worried about geopolitical threats. Reckons there's more risks of cold and hot wars breaking out and more fracturing of the global economy. Right. Yeah. I don't know where you stand on that one. 

Adam: [00:20:40] I may. 

Thomas: [00:20:41] Not. I don't care what you think about that. But that's a pretty strong base If you if you go way. 

Adam: [00:20:52] And then tell us about the bulk rising of the global economy. Well, I think once it's that balkanised, I mean, it's it never ends well. Excerpt number six. 

Thomas: [00:21:10] Is that climate change is ramping up. The impacts are becoming more severe at a much faster pace than had been factored in. I think I think that's probably right. I'm probably agree with him on that one. I think the you know, look at the floods in New Zealand. This is a bit of a shock. You know, just count how many kind of extreme events we've had in the past 12, 18 months is kind of kind of insane. 

Adam: [00:21:32] Auckland got half of London's annual rainfall in 24 hours. Wow. Yeah. Ridiculous. Wow. London, Not exactly, you know, small fry when it comes to rain. It's kind of a specialist. .

Thomas: [00:21:51] It's frustrating because, like, you know, people have been predicting this for 20 years. It's finally here. Hmm. Okay. Number seven, he reckons that pandemics are becoming more frequent, virulent and costly. Again, not my area of expertise, but, you know, maybe you make that case. 

Adam: [00:22:06] We've had one. Well, sure. Yeah, I guess if we have another one, that becomes pretty frequent. But if we don't. Frequency is probably not the word I'd use to describe. Yeah. You need at least three.

Thomas: [00:22:21] Data points to establish. 

Adam: [00:22:22] Frequency, don't you?

Thomas: [00:22:23] But 1920s. 

Adam: [00:22:25] Spanish flu. Yeah, we had bird flu like we had some little mini ones and we go. 

Thomas: [00:22:34] Would you call them a pandemic? I don't know if you call them a pandemic. 

Adam: [00:22:37] I don't know. I haven't I don't know. The definition is what is that pandemic epidemic. Mhm.

Thomas: [00:22:43] Um, paramedic. 

Adam: [00:22:44] Paramedic. They make lots of lots of epics. Yeah. Djokovic So the most recent one that comes to Mind. 

Adam: [00:23:04] Is all right, Yeah. So number eight moving right along. 

Thomas: [00:23:09] Number eight is that artificial intelligence is going to just wipe out a whole bunch of jobs and, and that's going to create a lot of a lot more inequality. This is something I do worry about myself. I've been I was, you know, spent the first half of summer quite excited about A.I.. And then the more I look at it, the more concerned I am about where we're heading with. 

Adam: [00:23:29] Um, I did work out that through A.I., we could reproduce this podcast without us being involved at all. Like, we can have GPT write a script, and then there's a new A.I. which has not been released yet, which is able to reproduce anybody's voice with, I think, based on something stupid like 6 seconds of audio of that person. So we could literally have GPT write a podcast script and then automatically make an API call to this other voice generator, and you could be you and me having a conversation. We'll get some artwork not together by Dali or whatever it is. And we pretty much say this year's offer if you want. Early days. 

Thomas: [00:24:14] Early days it is and there's going to be a lot of good. There's a lot of bad but like what I've been looking at I'm just like, wow like and and it's just so quick. This is where I think like where we are going to be in five years. I think it'll destroy jobs much quicker, more quickly than it will create jobs. Is that the fear? I mean, I don't know. Know, it's a bit hard to sort of balance it all out, but I.

Adam: [00:24:33] Would think our parents had the same fear about computers, though, like personal computers would have been similar kind of odds, job losses. 

Thomas: [00:24:43] I think so. I mean, but I think that's the thing. Like, we've got the introduction of computers as a benchmark for speed. And I think AI is going to like ramp up exponentially faster than computers did. And we know that computers created a lot of disruption, it create a lot of unemployment, also create a lot of jobs. But it was at a time scale that was, I feel like much more manageable. 

Adam: [00:25:05] Right. This would just be quicker. 

Thomas: [00:25:07] Are going to be quicker. And I think that just gives us less time to adapt. You know, like someone who got laid off from the typing pool had time to like skill up in word processing and find a new job. Like I think it would just come for so many jobs so quickly. You won't even know where to skill up. You know your your skill up in another industry and then that will get automated. 

Adam: [00:25:27] The trick, though, there'll be this sweet spot in the middle where if you can act quickly enough and utilise AI and chat, GPT and all these things before your manager realises that you're utilising them. Yeah, but you could effectively outsource your own job to A.I. and pretty much just run like maybe a year or two of doing some pretty high quality work. With and with minimal to no effort. So make hay while the sun shines. It would be my advice. Mm. We got more in number nine.

Thomas: [00:26:01] Just the last one. Nice one there is. He reckons that democratic capitalism is on the ropes. There's the rise of populist and authoritarian militaristic extremes. 

Adam: [00:26:10] These guys, I get the same list. They got the same list tonight. And one of them went on to say, like, why all of these things are good? And the other one went, I'll just tell you why they're all bad and they've all named the same things, but they've had opposing views about them. 

Thomas: [00:26:26] Yeah, well, I mean, I mean, we are naming the big themes of the moment. So, yeah, Roubini is a bear, so he's taking a bearish view on all of them. Yeah. So, yeah, he's definitely disagreeing. Number ten is Shane Oliver's addicted. 

Adam: [00:26:45] Five words from Doctor Doom. Is Dr. Dre with a real doctor? That's the other question I've got. They get it straight. Let's take a moment to digest all the positivity and all the negativity and sound kind of come out somewhere in the middle. We'll take a short break here, grab a word from our sponsors and be back with more Canadian verses. Economist right after this. Welcome back here on Canadian versus Economist. Thank you for joining us again in 2023. If you do like the show, you're enjoying the show, please rate and review it wherever you get your podcasts. That would help us out enormously. Or send us an email if you like, cve@equitymates.com Or via the website equitymates.com/cve. Thomas won't talk about the housing market. Where's the housing market at? Any good news for people wanting to buy a house? Oh there. [00:27:39][54.4]

Thomas: [00:27:39] Really isn't. No, there's no no no. I hate to be Dr. Doom but. [00:27:44][5.0]

Adam: [00:27:46] Right. Yeah. No, I mean thanks for bringing it up. Good inclusion. Excellent choice of topic for this week's show. Yeah. [00:27:57][11.2]

Thomas: [00:27:57] Now, house prices. House prices are still falling and looks set to continue falling. Housing finance data has come off it pretty significant way, which tends to lead house prices. CoreLogic have a leading indicator based on different activity metrics. That's coming off pretty quickly. So we're probably I think we're down about 10% now. People are looking at sort of 15% total. I think that might stretch to sort of 20 depending on how the fixed rate reset happens. So maybe doing that, but that's we still up well on pre-COVID level. [00:28:31][33.8]

Adam: [00:28:32] So that is good news for people wanting to buy a house if houses are coming down. [00:28:35][3.2]

Thomas: [00:28:35] Where it is. But rents are exploding in a pretty crazy way. And I talked with Sascha about this on The Dive this week, so maybe jump over that for the full story. [00:28:47][11.2]

Adam: [00:28:47] You should subscribe to the dive. Anyway, it's an excellent podcast, award winning now The Dive. So if you haven't tuned in already, find out where wherever you get your podcast. [00:28:54][7.1]

Thomas: [00:28:55] MM Yeah, but, but the rental market is going ballistic so rents have re accelerated. They sort of, they're growing in, you know, close to 10% a year through pretty much all of 2020 to start to slow a little bit towards the end of the year. But they've since re accelerated. Yeah. It's just running, it's just going crazy hot. 

Adam: [00:29:15] Where did it come from? The rental crisis. Like is that was it a COVID thing or was it. Yeah. 

Thomas: [00:29:21] So I mean check out the dive for the full story. But yeah, just quickly like we had that explosion that picked up in average household size. So a fall in average household size, we needed more homes for the same number of people. Yep. Maybe it's home offices, that kind of story. So yeah, we just had more people than we had houses where there was a shortage already, but vacancy rates have fallen through the roof. The stat that really blows my mind is that the total number of homes for rent at the moment in Australia is down about 26% that the lowest levels since February 2003. So there were more homes available for rent in 2003 when the Australian population was like heaps smaller than there are right now.

Adam: [00:30:08] It's interesting. I wouldn't call it mind blowing. 

Thomas: [00:30:11] Blows my mind. 

Adam: [00:30:14] It's a Tidbit. Yeah, it's barbecue worthy, I'll give you that. 

Thomas: [00:30:19] The Daily Mail leaked an email from Meriton Property Management say they own and lease out a bunch of property. They sent an email to their property managers saying, As you are aware, the market is on fire and vacancy rates are extremely low. So please ensure you're pushing rents as hard as possible. 

Adam: [00:30:37] Oh, that's a lovely gesture. Yeah, isn't that nice? They even they even. 

Thomas: [00:30:43] Recommend signing six month leases if possible. So you can jack up rents in six months. 

Adam: [00:30:48] Time. 

Thomas: [00:30:49] When they come up for. Wow. Yeah. So it's great. 

Adam: [00:30:53] To see people coming together at a time of crisis. Yeah. 

Thomas: [00:30:56] Hard to know which side is Team Australia really when you look at it. 

Adam: [00:31:00] Also, is there any hope for renters? I mean, where do they go from here in New Zealand? I mean not flooded. 

Thomas: [00:31:08] Yeah. 

Adam: [00:31:09] No.

Thomas: [00:31:10] No, I think it's dire times. It's not, it's yeah, it's a tough time to be a renter and it's you know, we've reopened the borders. They're talking about record immigration inflows this year to try and catch up in quotation marks. So looking at the you know, Treasurer Chalmers is out there, as I think expects it to come in over 300,000 this year, you know, through the 2000s that it was around 100,000 a year, got jacked up to 180. Now 300,000 is a huge number. All of those people need homes. Yeah, we're already in a housing crisis, so it's a bit like it's kind of like, well, where do these people go? 

Adam: [00:31:45] So is the government not thinking like, this is sound? This is pretty serious stuff, right? Like this is they not thinking about where these people are going to land and live when they get here? Or are they? 

Thomas: [00:31:55] I think either they're not or B, that's kind of how the housing industrial complex works, right? Is you stuff the cities full of people and that pushes up prices and if you own properties and. All right, All right. But I think it really feels to me like we're put. Towards a breaking point like vacancy rates in the capital cities like 0.7%, like just just crazy tight. You see the queues outside rental homes at the moment, they're just nuts. And it's going to get worse. Like I think through the rest of the year, it's going to get worse and that hurts. So the rents go up. You know, if you're a first time buyer, you're getting hammered because you pay more in rent. Yeah. And borrowing costs are going up anyways. You can't even if prices are lower, you can't get into the market, you can't get out of renting.

Adam: [00:32:42] Well, when we say a reversal, then of that housing, whatever you call it, the housing dynamic of our structure, will there be more people sort of rejoining housing. 

Thomas: [00:32:51] I think that's I expect so. But I think if you've got a house like we're moving from work from home towards hybrid, that seems to be the the main thing. So people still need those home offices and those extra rooms. The other dynamic here is that you had this, this, this flow to the regions cut through COVID that's reversing now. So people are, you know, had the big influx into the regional centres that's now reversing. People are moving more towards the capitals. So you've got that you're an extra flow pushing back to the capital. So I think the regional markets won't fare as badly, but I think the capital city markets are really going to struggle.

Adam: [00:33:28] Can business help with this though? Like can business go? You know, we're not going to force people to come and work in the office two days a week, or if we fully embrace work from home and say, well, you know what, because we're going to abandon hybrid, because it's it's kind of unnecessary given how much people are working from home anyway. 

Thomas: [00:33:46] Yeah, I mean, I think they could, but I just that's not going to be in their decision making, you know, like to be like what's what's best for the business. And it seems to be the majority of businesses are saying like we're okay with some work from home, but we need some work in the office to make it work. So yeah, so I just don't see it reversing any time soon. But like it like I look, I look at it and it feels like it's pushing towards a breaking point because if, if there's just not enough rental properties available or even like anything in the, in a reasonable price range, then that's, that's starting to tip people who would never be at risk of homelessness towards homelessness, towards sleeping in cars. Once that starts to happen, then you start to get some very angry people. Yeah, yeah. But there's no easy solutions to it either. There's nothing you can you can really do to sort of knock it on the head. 

Adam: [00:34:33] But we use car prices are coming down. So that's something. 

Adam: [00:34:39] Sorry, I just shouldn't make light of that horrific situation. Just, you know, I only have very limited economic data in my head. That was one data point that I had that I thought was relevant to the conversation. All right, Thomas, finally, we got some population data out of China. What did we learn?

Thomas: [00:35:01] Yeah, China. China's in a bit of trouble, actually. Yeah, things aren't looking that great. So China's population actually fell 2022 versus 2021 for the first time in 61 years. So last time it happened was 1961, which is worth noting, that was in the middle of the famine was the last time the population fell, had the lowest, the lowest birth rate on record. So we can think about the replacement birth rate as like 2.1 births per per couple. So that's for a stable population. You need 2.1 births. But the birth rates in China's down to 1.1, which is which is way off replacement. And in the big cities where the majority of the population is, it's down to 0.7.

Adam: [00:35:47] Not even a whole child. No, sorry. 

Thomas: [00:35:50] Your birth rates tanked. Yeah. And for the first time, there were less than 10 million births for the first time since 1960. Right. 

Adam: [00:35:58] So I guess the big question is why that was and why people not having babies. 

Thomas: [00:36:03] So China had the one child policy for quite a long time and it got richer. So we know that as countries get richer, people have less kids. The economic opportunity cost of having children goes up. So if you're a subsistence farmer is there's good reason to have lots of children. But as you move to the cities and get higher pay jobs and things, children are actually expensive. Yeah. And so people just naturally tend to have less children. Oh, I didn't realise that. 

Adam: [00:36:32] Hmm. 

Thomas: [00:36:32] Yeah. Yeah. So you look at, look at all the UN population forecasts, they tie in with the economic prospects. So you look at Africa, for example, currently has very high birth rates. But as the UN expects Africa to become more wealthy, they expect the birth rate to go down and then the population. So population growth to slow. 

Adam: [00:36:51] Is it also to do with education facilities, birth control, like just planned pregnancies as opposed perhaps to more, you know, just improvised pregnancies? That's the Thing. Oh, do we go with accidental? But yeah, no. 

Thomas: [00:37:10] Yeah, it's a whole range. Effectors. We don't and we don't sort of know what contributes to what exactly, but we just know that those things are correlated as household income goes up, birth rates go down. So those two two factors coincided. So China was worried about overpopulation and so introduced the one child policy, but they were probably going to get, you know, moved towards something like that just through getting wealthier. But you had both of those things. And then the one child policy, you know, is saying that they want the birth rate to be one, you know, 2.1 as replacement. Birth rate should be one. So it was a mistake in hindsight, it was a big mistake. And it's creating this problems. And so, yeah, so you've got this really low birth rate, you've got rapid ageing in the population. So the Chinese, the Chinese population is ageing faster than any population in the world. 

Adam: [00:38:00] What does that mean? What do you mean they're ageing faster? 

Thomas: [00:38:03] So you look at, look at the mix of the population and you've got, you know, 10% people are on the five, 10% are on the 50 or whatever, the cohort that's over 65 will pass. Retirement age is getting bigger and bigger at a faster rate than any other country on earth. 

Adam: [00:38:19] Right. I thought maybe they just didn't have access to oil. Have. Okay. Yeah, yeah. They just. 

Thomas: [00:38:27] Look all. 

Adam: [00:38:30] Those out for the seven signs of ageing. 

Thomas: [00:38:33] While the population in total is falling. That's actually much better than what it's actually going on, because part of part of the reason why the population hasn't been falling is through increases in longevity. So people are getting older and not as many people are dying. And so the populace that holds the population up. But underneath the surface, what you've got is a shift towards a much older population. Right? And then in sort of 10 to 15 years, you'll have very few people in your working age cohort looking after lots of old men. And that's a real challenge for your economy. Yeah, right. And so and so this is sort of where China's at is that, yeah, they're facing a rapidly ageing population and we don't have an economic model for it. We don't have no, no country in history has ever faced, has ever seen massive population ageing the way China is facing, that it's the fastest ageing society in human history. No, no nation has been able to hold that and continue to grow economically. 

Adam: [00:39:37] So China is heading for like a massive recession. 

Thomas: [00:39:39] Yeah, yeah. Effectively like a bit like a bit like Japan, I think like, you know, Japan sort of just been going nowhere for decades. I think China is probably facing the same thing. So we've probably in terms of China's economic power, we're potentially close to the peak right now that, you know, there's gains to be made from changing the mix of the economy towards higher value. Production is going to struggle to grow from here. 

Adam: [00:40:04] Mm hmm. Is there a possibility that it becomes more efficient with less people like you kind of don't have to find jobs for everyone. You can kind of utilising AI, for example. We could start. Yeah, well, you know, we actually don't need that many people. And if we have lots of births, then we got to find jobs and homes and everything else for them. So maybe this is a good thing. 

Thomas: [00:40:27] And it's potentially true, but we're talking about a different model like and it's it's this is sort of the key, you know, the the Achilles heel of of global economics at the moment is that without growth, things start to unravel. And we that we start to create unemployment. And yeah not if you. 

Adam: [00:40:46] Don't have. 

Thomas: [00:40:46] Thomas Yeah true dream there could be a way through but we don't really know what that is. It's China is going to have to improvise and find their own way through this. Hmm. Interesting. But yeah, but it's a big challenge. 

Adam: [00:40:59] All right, well, I'm available for consulting. If anyone. If Chinese government officials would like to pick my brain on. The Best way through it, things saying is this is uncharted waters. I feel like everyone's voice should be heard. All right. That brings us to the end of the first year for 2023. Quite a long one, I think, in the end. So hopefully you enjoyed it. We love doing the show. Stoked to be back talking to you again. Yeah. In fact, we'd love to hear what you think. Equity Mates has launched the Community Survey, which helps us to understand who's engaging with Equity Mates media across not just this podcast, but all the podcasts from Equity Mates and assessing commercial packages, and more importantly, how we can continue to improve our content to help the audience on on your money and your investing journey. So there's a link on you, obviously, on the Equity Mates website. We'll also post a link in our link tree of our Instagram. There are two prize pools for community members who will be automatically entered if they submit answers to all questions and provide their email address. So the first prize for Thomas is one $500 cash. Cold, Hard cash. Second prize is three tickets to FinFest 2023. Yes, that's right, 2023. We're doing it again. If you were at FinFest last time, you know how much fun it was. So, yeah, Get your submissions in. Closes 22 February. Shouldn't take more than about 10 minutes to complete. So if it does, you're probably doing it wrong. Or maybe you just, like, really give these things, a lot of which we also appreciate. And speaking of Invest 2023, Early Bird registrations are in fact now live. So Invest is locked in again November the 11th, 2023 at the Carriageworks in Sydney. Ticket information, speakers, etc. will be announced later on. So yeah, head over to equitymates.com Or head over to our Instagram page CVEPodcast and you'll find the links to both of those. Both of those things there. So that does it for this week. Thank you so much for tuning in. Big thank you to Sascha for her work on the new intro and everything else that she does every week for this show. Much appreciated and we look forward to talking to you again next week. Bye for now.