EM Chat: Asset Bubbles – Is Everything In A Bubble?

15 April, 2021

This episode is all about asset bubbles… because lately it seems like everything is hitting all time highs. The S&P 500, NASDAQ, property prices, gold, and even some non-traditional assets, like Bitcoin, Baseball cards, and NFTs… In this episode we break down exactly why this is happening, and what it means for you – an investor.

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Bryce Leske: [00:00:56] Welcome to another episode of Equity, my it's a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? [00:01:13][17.3]

Alec Renehan: [00:01:14] I'm good. Bryce pumped for this show. You know, it's going to be a loose one when you really hit the mine. [00:01:19][5.2]

Bryce Leske: [00:01:21] A bit of fun and games in this one. [00:01:23][1.8]

Alec Renehan: [00:01:24] Speaking of fun and games, we're going to be doing a bit of live fun and games for the first time in a while. [00:01:30][6.2]

Bryce Leske: [00:01:30] And no, it's not an equity mate's talent show. [00:01:32][1.4]

Alec Renehan: [00:01:33] No, the equity mate's quiz show. [00:01:34][1.9]

Bryce Leske: [00:01:36] No, if you know new formats. But you're right, Ren. We are excited to announce that we will be doing a live show in Sydney and apologize to, I guess, everyone who are in many other cities around Australia. We hear your feedback that you would like to like us to get around and we will. We're just going to be kicking kicking this off here in Sydney. What are we going to be doing is an industry deep dove and industry night where we're going to be exploring the beverages and alcohol industry with a few key experts, both on the investing side and on, I guess, the producing side as well. So we're keen it's going to be an awesome night. It will be live streamed, tickets will be available, check out our social channels, our website, and also show notes for more information on all of that. April twenty ninth. We are super pumped. [00:02:26][50.2]

Alec Renehan: [00:02:26] Yeah, can't wait. Can't wait to get back to doing live shows on the point of people in other states wanting us to do live shows. One, thank you. It's very nice. Yes. You want to us to do a live show in your city too. And there's businesses out there that want to fund the equity markets. Australian tour. That's that's probably a key prerequisite to getting this off the ground. So but [00:02:53][26.3]

Bryce Leske: [00:02:53] yes. Well, I know [00:02:54][1.1]

Alec Renehan: [00:02:56] it would open a lot of doors. Look, it wouldn't shut any deal. Yes. So hit us up, slide into our dams, emailed us it, contacted equity mates, Dotcom. We're very happy to play. [00:03:10][13.9]

Bryce Leske: [00:03:10] We'll come to any city in Australia if a local business wants to offer that support. [00:03:15][5.0]

Alec Renehan: [00:03:16] Yeah, I'm putting [00:03:17][0.7]

Bryce Leske: [00:03:17] it out there. Any city in [00:03:18][1.1]

Alec Renehan: [00:03:18] Australia, if you fund all the travel and Brice's incredibly detailed right up, then then. Yeah. Any any city in Australia, we've put it out there. [00:03:29][10.7]

Bryce Leske: [00:03:30] We'll do that. Look, we're kicking off in Sydney late April. As I said, tickets will be available for for those that want to come and join us live. But we will be also live streaming it and recording it for those that want to join on the night but are unable to make it so. Yeah, keep your eyes peeled for more information. But Ren, today we're going to have a bit of fun and talk about asset bubbles. [00:03:52][22.4]

Alec Renehan: [00:03:53] Yeah, well, the state of the market is is interesting at the moment, I think. And we speak about a lot of asset classes in isolation, but you put it together and it paints a pretty interesting picture. Everything's hitting all time highs. Yeah, yeah. [00:04:10][17.5]

Bryce Leske: [00:04:11] Look, you pick an asset and it's likely to have hit an all-time high within the last few months, potentially the time scale. Obviously not everything is at all time highs right now. But I think the key the key message, your key takeaway is that it's not far off. [00:04:27][16.0]

Alec Renehan: [00:04:28] Well, yeah. And I mean, what we're going to try and do in this episode is talking about just put the narrative together around how everything's hitting all-time highs and then talk about some of the reasons why, what it might mean, how we should approach it as investors. But let's start with the long and the short of it, then what's going on in markets there at all time highs, [00:04:50][22.2]

Bryce Leske: [00:04:51] they just keep going up. [00:04:52][0.8]

Alec Renehan: [00:04:52] But I mean, specifically, the S&P 500 is at an all time high. Yeah, the Nasdaq hit an all time high in mid-February. Yes. It's softened a little bit recently. The ASX 200 is five percent of its all time high pre covid, but it's running in that direction quite hard. Yes, bond yields were at an all time low, which means that the face value of the bonds was at an all time high. Yes, that's softened a little bit, but still, like pretty recently, Australian property, like, you can just you can hear that running and like that's hitting all time highs everywhere. [00:05:33][40.7]

Bryce Leske: [00:05:33] It's everywhere in New Zealand. Absolutely firing. [00:05:36][2.4]

Alec Renehan: [00:05:37] Yeah. We fire the Canadian The Economist boys sent us a chart that we put up on our Instagram and Facebook recently or was it the Auckland property market? [00:05:46][9.7]

Bryce Leske: [00:05:47] I think it was just New Zealand in New Zealand with some specific examples of places. In New Zealand, up 40, 45 percent, and of course, you could draw parallels to places here in Australia. Byron Bay up 40 percent last year or over the last few months. But, yeah, look, it's it's just happening everywhere. [00:06:04][17.2]

Alec Renehan: [00:06:04] And even things like gold, like gold hit an all time high in twenty twenty. It is just an incredible moment in markets where everything is just running. [00:06:17][12.4]

Bryce Leske: [00:06:17] Yeah. Yeah. You can't you can't blame people who have started their investing journey within the last few years for getting onto the main thought that stocks, only gold stocks [00:06:30][12.4]

Alec Renehan: [00:06:30] only go off like just invest in anything, invest in bankrupt car rental places like Hertz, invest in brick and mortar games, retailers that have been disrupted like GameStop, things are just running. Yeah, it's an incredible time in markets. But I think the thing that has really caught my interest is it's not just these traditional investing asset classes that are hitting all time highs. Basically, anything that can be said to have value is hitting all time highs. Yes. [00:07:00][29.7]

Bryce Leske: [00:07:01] Let's start with, obviously, Bitcoin. [00:07:03][1.6]

Alec Renehan: [00:07:03] Yeah, well, we've just come off crypto week. We did a whole week where we tried not to talk about the price of crypto. We tried to talk about what it is, the used cases, what it means. I think we got through the week without mentioning price. I'm not going to I'm not going to put my hand on my heart and say that because we did for it may [00:07:21][18.2]

Bryce Leske: [00:07:21] have slipped in in the interviews. [00:07:22][0.7]

Alec Renehan: [00:07:23] Yeah, yeah, yeah. Do your own research. Go listen to those episodes. And if you've already listened to them, listen to them again. We love every download we get, but yeah, now we'll talk about it. Bitcoin crashed through sixty K USA. It's now in the high 50s. Probably by the time we release this episode it will have another leg up. [00:07:44][21.7]

Bryce Leske: [00:07:45] Yeah. At time of recording, it's not quite all time highs, but it keeps pushing those pushing those ceilings and breaking through. [00:07:51][6.3]

Alec Renehan: [00:07:51] Yeah. And like just just to put it in context, it's almost three times as valuable as it was in the twenty. Seventeen. Yeah, yeah, yeah. The twenty seventeen bubble. It didn't quite hit twenty thousand US dollars and it crashed through sixty thousand earlier this month. Yeah. Oh well March. Yeah. [00:08:08][16.8]

Bryce Leske: [00:08:09] Yeah. Unbelievable. [00:08:09][0.4]

Alec Renehan: [00:08:10] Yeah. I love Bullrun and it's not just, it's not just bitcoin but like so many of the cryptos are hitting all time highs. Yeah. Cerium hit an all time high earlier this year. Like I don't really look at a lot of time but I'm sure. Yeah, yeah, yeah. There's just everything is [00:08:25][15.0]

Bryce Leske: [00:08:25] running but then you start getting into the I guess more Masche investible in inverted commas assets [00:08:33][7.9]

Alec Renehan: [00:08:34] speculate speculative. [00:08:35][0.9]

Bryce Leske: [00:08:36] OK, so if you take a look at baseball cards, Ren something that you would have thought by now would have fallen away a little bit. But look, smashing through all time highs, you know. [00:08:49][13.3]

Alec Renehan: [00:08:49] Um, Gary V. Yeah. The like fast-talking entrepreneur. Yeah. Yeah, yeah you do. You so he's like super into baseball cards at the moment and I had no idea people even considered these an investable asset, but he's all in on them. And the money pumping into baseball cards of all things is crazy. Um, January twenty twenty one there was a record sale for a Mickey Mantle baseball card. I was about to say, guess how much, but the notes are in front of you as well. [00:09:23][33.4]

Bryce Leske: [00:09:23] I'm going to guess within the range of five point two million, [00:09:26][2.5]

Alec Renehan: [00:09:27] five point two million dollars like that is unbelievable. [00:09:30][3.1]

Bryce Leske: [00:09:32] Yeah, yeah. Well, anyway, I think we'll discuss why in a second. But let's continue moving through some of the crazy, crazy assets. Can't go past NFTE. Yes. Hot right now. We did speak about them in crypto-crypto weak, non fungible tokens, essentially a way that you can sell digital assets for [00:09:52][20.6]

Alec Renehan: [00:09:52] people that don't understand what an NFA is. I mean, we've done crypto work, but we didn't go deep on it. I saw a tweet that was like not explained and it just had two boxes. One had JPEG written on it and the other had NFTE and the NFL. You had it like a little verified tick like that was NFTE explained. That's great. Yeah, I thought, I thought it summed it up quite well. Yeah. [00:10:15][22.4]

Bryce Leske: [00:10:15] They can assign who that jpeg belongs to. Yeah. Yeah, yeah. So look, NFTE just breaking record after record and if you want to jump on, there's a website called Open Seas at the moment which is hosting a lot of these auctions. And, you know, the price and dashboards of the world who have price [00:10:33][17.6]

Alec Renehan: [00:10:33] may have put some bids on price. Chandos like trading in it. [00:10:39][5.4]

Bryce Leske: [00:10:39] Yeah, but look, one recently got sold a script by a crypto artist, PayPal, and it was sixty nine million dollars million for [00:10:51][11.4]

Alec Renehan: [00:10:51] the crypto piece of crypto art sold at Christie's, which is one of the biggest auction houses in [00:10:57][6.1]

Bryce Leske: [00:10:57] respect to Chris Christie's for getting on this [00:11:00][2.7]

Alec Renehan: [00:11:00] quickly. Oh, my. They just want the commission [00:11:02][1.7]

Bryce Leske: [00:11:03] with respect for them getting on it and adapting to the I guess where the market is going could look good on you. Christie's. Can you invest in Christie's? I'm not sure, but maybe. But let's continue on that theme. NBA top shot [00:11:16][13.8]

Alec Renehan: [00:11:17] highlight. Yeah. Have you heard about those. Yeah. Yeah. [00:11:19][2.0]

Bryce Leske: [00:11:19] Going crazy. [00:11:20][0.3]

Alec Renehan: [00:11:20] I don't know. Explain them for people who haven't [00:11:22][1.2]

Bryce Leske: [00:11:22] or their hot shot highlights sold as this also does not sell. Doesn't have to. Yeah. So they take take clips of I guess some of the more famous basketball players who are taking top shots and so not [00:11:36][14.0]

Alec Renehan: [00:11:37] a lot of three-pointers. Hey, that was a top shot. Yeah. Yeah, right. Yeah. They're like yeah they're just like they like digital trading cards. I guess they're the highlight highlights. Yeah. Yeah. [00:11:52][15.0]

Bryce Leske: [00:11:53] I like some of the the best players NBA players. [00:11:56][3.0]

Alec Renehan: [00:11:56] Yeah. And the soldiers in NFTE. And so then you're like the verified owner of this highlight. Which I would love to know what the legalities of that are, because it's not like you can then charge that like ESPN or [00:12:10][13.7]

Bryce Leske: [00:12:10] this is what I talk [00:12:11][0.5]

Alec Renehan: [00:12:11] sports licensing fee every time they play that highlight. So I don't think you really like the owner from an IP perspective, but maybe I'm wrong. Maybe NBA slide into our dams so we might do equity, might top shots. [00:12:25][13.7]

Bryce Leske: [00:12:25] It doesn't make sense that you wouldn't be it, because from my understanding was that yeah. Anyway, probably need to do a bit more detail. Does doesn't make sense that you wouldn't be because at the same, in the same breath people like oh you can paint the Mona Lisa but it's not like you're owning the real thing. [00:12:40][15.2]

Alec Renehan: [00:12:41] But I hate that argument so much because it's not the same. You can print a reproduction of the Mona Lisa, but it's not like a painted artwork, whereas I can get a digital file that is exactly the same as a highlight. I'm just not the verified owner of it, you know what I mean? [00:12:59][18.2]

Bryce Leske: [00:12:59] Yeah, I get what you mean. But you could [00:13:01][1.5]

Alec Renehan: [00:13:02] and you say like, oh, you could go to a like a forgery expert and get them to like, recreate the Mona Lisa. And now I'm a bit more like, okay, [00:13:10][8.0]

Bryce Leske: [00:13:11] yeah, yeah, yeah. I mean, I think it conceptually makes sense. [00:13:14][2.9]

Alec Renehan: [00:13:15] I don't. But anyway. Yeah, fair. But look, just because I don't understand something doesn't mean it doesn't does or doesn't make sense. [00:13:21][5.6]

Bryce Leske: [00:13:21] Sneakers, Ren sneakers. [00:13:22][1.0]

Alec Renehan: [00:13:23] We didn't say so. Top shorts have sold over two hundred and fifty million in Aussie dollar since launching like six months ago. [00:13:30][6.6]

Bryce Leske: [00:13:30] Huge revenue stream. [00:13:31][0.9]

Alec Renehan: [00:13:32] Huge. Will other sports leagues follow like AFL top shots you'd hope. [00:13:38][5.5]

Bryce Leske: [00:13:38] Well they'd be silly. Not silly [00:13:40][1.6]

Alec Renehan: [00:13:40] not to. Yeah. Yeah. I don't know if I'd hope so. Yeah. I actually think we should do it. Equity makes type shots like best moments from the podcast. Sure. Like First Specky Hot Line, the launch of Comedian, The Economist, the launch of your in good company Mapei loves best episode. [00:13:55][15.1]

Bryce Leske: [00:13:56] You always should do some I guess content that is just for stays true like NFTE original content. [00:14:04][8.0]

Alec Renehan: [00:14:05] I've actually I've got a photo of Brize from a photoshoot we did recently and I could sell. That isn't enough to your model shot clock. All right, let's move on. If people want to say it, slide into [00:14:21][16.1]

Bryce Leske: [00:14:22] sneakers and sneakers are also hitting all time highs. It is now a two billion dollar market in North America alone. Ren absolutely smashing it out. We do a live show last year that looked at the sneaker market and I was blown away by the trading that is going on there. The platforms that people are trading on now, it's just an entire world of its own. The Nike Air Jordan one, the shoes that obviously MJ wore during his eighty five exhibition. I think it [00:14:52][29.9]

Alec Renehan: [00:14:52] was the specific shoe that he wore. Yeah, yeah, yeah. [00:14:54][2.2]

Bryce Leske: [00:14:54] The actual shoe sold for a cool six hundred and fifteen thousand us. And if you compare that to the sixty nine million, I was [00:15:03][8.5]

Alec Renehan: [00:15:03] just thinking that like it's, it's crazy. [00:15:05][1.8]

Bryce Leske: [00:15:05] He, you've got Michael Jordan's shoe not even hitting a million, but look still six hundred and fifteen thousand. [00:15:11][5.6]

Alec Renehan: [00:15:11] Or if we get into the ah the relative economics of the speculative economy, that's going to be my thesis paper. I'm not sure. Ah six oh sorry. Ten pairs of Jordan sneakers equate to one Mickey Mantle baseball card. Yeah. Crazy, crazy, [00:15:30][18.3]

Bryce Leske: [00:15:30] crazy crazy art look. Continuing to continuing to hit all time highs. [00:15:38][7.5]

Alec Renehan: [00:15:38] Yes. [00:15:38][0.0]

Bryce Leske: [00:15:39] January 2000. Twenty one DaVinci artwork up for sale. [00:15:42][3.2]

Alec Renehan: [00:15:43] Yeah. Salvador Mundi. Do you know you're pretty. [00:15:46][2.5]

Bryce Leske: [00:15:46] I actually don't know at Salvator Mundi but anyway I do know the price that it sold for four hundred and fifty million buys 450 million for a piece of art done by DaVinci. Pretty unbelievable. [00:15:59][13.2]

Alec Renehan: [00:16:00] Four hundred and fifty million a.k.a. ninety Mickey Mantle baseball cards. [00:16:04][4.2]

Bryce Leske: [00:16:06] Yeah. I'd take the definition, I [00:16:07][2.0]

Alec Renehan: [00:16:08] would take The Da Vinci as well. Yeah. [00:16:09][1.2]

Bryce Leske: [00:16:13] Then we've got Geoff's. [00:16:13][0.7]

Alec Renehan: [00:16:14] Hold on, hold on. Before you say what it is and the price on screen right now if you're watching on YouTube, we've got this gif playing for people listening on the podcast, it's like a digitally drawn cart with a rainbow flying out behind it. Yeah, people watching on YouTube. Have a guess in your head about how much it sold for. [00:16:32][18.2]

Bryce Leske: [00:16:34] It sold for three hundred a Ethereum, [00:16:35][1.6]

Alec Renehan: [00:16:36] which, well, [00:16:36][0.4]

Bryce Leske: [00:16:37] which is six hundred twenty four thousand six [00:16:39][2.1]

Alec Renehan: [00:16:40] hundred twenty four thousand dollars for NFTE of a gif of a cat with a rainbow. Yeah, yeah. [00:16:46][6.7]

Bryce Leske: [00:16:47] Unbelievable what is going on here. But look, it didn't. That's pretty much what is going on within the last sort of, you know, year or so. And it's been pretty crazy. [00:16:58][10.6]

Alec Renehan: [00:16:59] Yeah. So I think let's let's pause there. What the hell is going on? Like this market is so hot it feels like all these other like traditional asset classes, gold, equities, property bonds hit all-time highs and money was just looking for places to go and went into baseball cards and gifts and sneakers. [00:17:23][24.9]

Bryce Leske: [00:17:25] Before we jump into what is going on, we will take a very short break to hear from our sponsors and then we'll get stuck into it. Ren, you are all about getting fit. You've bought the and you bought the golf membership. You bought the gym membership and you're on the My Master Chef. And even in lock down last year, you bought those resistance bands of Instagram that from memory didn't even come. [00:17:47][21.7]

Alec Renehan: [00:17:48] No, look, they didn't come. But all of that effort really was canceled out by the numerous menu log orders that were a real staple of my lockdown experience. [00:17:57][9.5]

Bryce Leske: [00:17:58] Well, we've just headed into a new financial year, so I think it's time you get money fit with Virgin Money, our latest sponsor. [00:18:05][7.0]

Alec Renehan: [00:18:06] That's right, Bryce, with a high interest savings account bundled with a seriously rewarding everyday transaction account, you can manage your money easily on the go smash your savings goals and be rewarded for it. [00:18:18][11.9]

Bryce Leske: [00:18:18] And with the Virgin Money Go transaction account, you can earn rewards on your everyday spending with zero monthly fees. Sounds like just what you need. Ren. [00:18:28][9.3]

Alec Renehan: [00:18:28] Yeah, the FBI. Twenty one get Ren. It didn't quite work, but if my twenty to get Ren money it might be to go [00:18:37][8.4]

Bryce Leske: [00:18:37] back to your own bait. Virgin money terms and conditions and monthly criteria apply. Now let's get back to the show. So Ren look, a lot of money out there, a lot of people looking for places to put their money. And before we jump into what is going on with these asset prices, equity markets are always looking for a bit of support. And if you [00:19:00][22.6]

Alec Renehan: [00:19:00] want to say that's a cycle, that [00:19:02][2.2]

Bryce Leske: [00:19:03] is a Segway, if if you're looking to support equity markets, we would really appreciate it. You can head to equity markets, dot com forward, slash support, and if you like what we're doing and value our content and would like to continue to, I guess, be part of the equity rights community as we grow, then we would certainly value you heading over to equitymates.com/support and I guess giving whatever you can or perhaps buying one of our NFTE that we got on right now. [00:19:30][27.3]

Alec Renehan: [00:19:31] Awesome merch event, [00:19:32][0.8]

Bryce Leske: [00:19:32] awesome MURGIA remerge will come naturally [00:19:34][1.7]

Alec Renehan: [00:19:34] upon us. So we've spoken about just the unbelievable asset inflation. I guess we said at the beginning, asset bubbles. I'm sure some of those are bubbles, but everything is hitting all-time highs and that is unusual. What what do we attribute it to? [00:19:53][19.0]

Bryce Leske: [00:19:54] There is there are three sort of key things for us that is going on at the moment that could be leading to this sort of, I guess, inflation in a lot of these assets. Let's start with money. Money in the system Ren a lot of money that needs to go somewhere. Money is being printed at extraordinary rates at the moment by central banks. And this is having a flow-on effect around the world on where people are deciding to put money. [00:20:27][32.9]

Alec Renehan: [00:20:27] Yeah, well, I mean, just before, like, people probably think here, like, you know, there's so much money in the system and like it sometimes it's a bit confusing. But the Federal Reserve, they print a lot of money that's then used to buy like bonds and debt. To give you an idea of how much they pre-covered in twenty nineteen, they had about four trillion dollars of debt on their balance sheet. They've printed and bought printed money and bought debt and almost doubled that. They have about seven point six trillion dollars. On their balance sheet now and that's that's, you know, just in terms of what the Fed balance sheet has, that's an extra three point six trillion that's been released into the economy, that's gone to banks, that's gone to, you know, people, companies selling bonds, that's gone to government to then fund different programs. And that money has to go somewhere. And, you know, if you're an investor or if you're an investment bank or if you're a company like you don't want money sitting in cash. And so you got to find somewhere to put it. Yeah. So the flow on effect of so much money in the system is the I word that has been thrown a lot around recently. We did an osbey show a couple of weeks ago. We were talking about how inflation, which is the word, has hit its highest Google search, like Google trend since like 2004, like PayPal. There's a lot of chat about inflation in financial circles at the moment, which is a natural. Outcome of increasing the money supply so much if inflation happens, you don't want to be holding cash, you don't want to be holding dollars, and you want to buy assets that will increase in price with inflation. And I think what we're seeing with a lot of these assets are hitting all time highs is that people want to own something that will hold its value and potentially increase in value, like they don't want to be sitting in dollars. [00:22:28][120.8]

Bryce Leske: [00:22:29] Well, yeah, your traditional methods of fighting inflation are to buy real assets. Housing. Yeah, infrastructure, infrastructure rates, all those stocks [00:22:36][7.5]

Alec Renehan: [00:22:37] with pricing power companies, with pricing power, all that stuff. [00:22:39][2.4]

Bryce Leske: [00:22:40] What is I guess, you know, and potentially you could put, I guess, artwork and those sorts of things that, you know, there's so much money out there now that people are turning to these sorts of assets to hold the value that is going to be able to, I guess, keep up with inflation. [00:22:58][18.0]

Alec Renehan: [00:22:58] But this is the thing like no one's tested whether a Mickey Mantle baseball card holds value. Well, actually, maybe they've probably been around for a while, like there's probably enough data that it has. [00:23:08][10.1]

Bryce Leske: [00:23:09] I feel like the big ones might [00:23:10][1.0]

Alec Renehan: [00:23:10] have, but. Yeah, but like no one's no one's tested if an NFTE holds its value, not or like the volatility. No one's I mean, snake is they maybe are probably haven't been around long enough. But I think I think the point is that there's just a heap of money in the system. The US Fed used to publish this chart is called the M2 money supply. And it's just basically like how much money is in the system. And they've stopped publishing it. They stopped publishing it at the start of this year or like February of this year. But you can just see from covid from like early March, twenty. It's just, you know, it's like a trend line up that then just goes vertical and yet money, money everywhere and not an asset to buy [00:23:57][47.2]

Bryce Leske: [00:23:58] or there are more and more assets coming, but they're pushing [00:24:01][2.8]

Alec Renehan: [00:24:01] more risk. So that's number one, money printing leading to inflation, leading to the devaluation of the dollar. You don't want to be sitting in currency. So people are floor flooding into whatever asset they can find. That's reason one reason to interest rates. [00:24:18][16.3]

Bryce Leske: [00:24:18] Yes, investing is all about relative returns. And we know that interest rates around the world are continuing to push record lows. We speak about record highs where interest rates are at record lows, some countries even in the negative regions for their interest rates. Now, of course, you know, 20, 30 years ago when interest rates were in the 70s, 15 per cent wherever, whatever it may be, it made sense to hold a bit of cash and make a pretty decent return on having cash in the bank. With interest rates so low at the moment, two things are happening. A, it doesn't make sense to have cash sitting in a bank account because the returns on that are pretty negligible, given the opportunity that you could put that money to work in other assets that are going to generate a greater return. But also, secondly, low interest rates means that it is easier and cheaper to or cheaper to borrow money. And we know that when people can borrow money and it's cheap to service, they're likely to leverage themselves and buy into assets, i.e. house prices, housing. So if you look at what's happening in Australia here, you look at what's happening in New Zealand. And I'm sure there are many examples around the world of I know what's happening in America. There's a house price, I guess, inflation period going on at the moment. And that is primarily driven by the fact that money is so cheap because interest rates are so low. [00:25:50][91.8]

Alec Renehan: [00:25:51] Yeah, yeah. I mean, we had Thomas from committing The Economist on our Osborn's show, and he his line was when it comes to house prices, it's interest rates first, daylight's second. And I mean, maybe we can expand his comment to when it comes to any of these assets. It's interest rates first day like second. [00:26:12][21.2]

Bryce Leske: [00:26:13] Yeah. Yeah. So there's money in the system. People are looking to do something with it. Money is cheap. It's not good in the bank. [00:26:19][6.3]

Alec Renehan: [00:26:20] Yeah, it's just you said that investing is a relative game. If you want to just explain that for people who may not get the concept. [00:26:27][7.0]

Bryce Leske: [00:26:28] I mean, if I'm getting, say, a luxurious two percent in my interest account and I'm getting an eight percent return in the share market, that six percent outperformance or six per cent difference is the return that you're looking for, the relative return from where your money could be in either of those investment options. And then it comes down to inflation as well. So if the price or inflation is also two percent per year, you want to be outstripping inflation because that means the value of your money isn't. Deteriorating year on year. [00:27:06][38.1]

Alec Renehan: [00:27:07] Yeah, and then, like, you know, year two percent in the bank has zero risk. It's insured by the government. So like and then the six percent of the eight percent you get in equities has a certain amount of risk. And then if that savings in the bank, you suddenly get four percent, then on a risk adjusted basis, people might prefer that or they might allocate more of their portfolio to that. When interest rates are so low, when bonds are yielding so low, when stocks are at all time highs, people start looking at other asset classes because they think that, you know, the return over the next five or 10 years isn't going to be that high, may not beat inflation, especially for the risk that isn't contained. And so they decide that Mickey Mantle baseball cards might have a better risk adjusted return. [00:27:53][46.3]

Bryce Leske: [00:27:54] Yes. So Ren, the third and final sort of reason that we consider this to be happening is the technical term in psychology. The non technical term is flomo. [00:28:05][11.3]

Alec Renehan: [00:28:06] Yeah. Yeah. Mania. [00:28:07][1.3]

Bryce Leske: [00:28:08] Mania, yeah. Look, there's no doubt when people say friends, family, people on the Internet making extraordinary amounts of money easily will supposedly easily that they often feel like they should be involved and that they can do it too. And I guess it's within human nature somewhat to have that fear of missing out and and want to jump in on the next best thing and try and make a quick buck or two. And there's no doubt that in some of these asset classes that we've spoken about, there's a lot of mania and foamer going on. But it's also, you know, in some of the more traditional asset classes, such as housing, there's elements of fear of missing out as well and even stocks. So, yeah, [00:28:50][41.7]

Alec Renehan: [00:28:51] I think I definitely think you're right. Like, Flomo is probably number one with a bullet to appropriate Thomas from committing the Economist phrase, it's Flomo one and then daylight second. But I also think there's some psychology in terms of. Like the collective belief around what is investible is changing and we're not here to say what people are right or wrong, like the fact of the matter is these US alternative assets are getting these valuations. And, you know, by virtue of getting these valuations, they are investable. If that makes sense, whether they're a good, good investment or not is another discussion. But I think people have changed their mind about like what is an asset, what can store value. And we saw it with things like sneakers. Gary has been pushing things like baseball cards and Pokemon cards. Were saying it with Nettie's. It's just like. There's a psychological shift in terms of. The array of assets you can put your money into like this isn't your grandparents 60 percent stocks, 40 percent bonds economy anymore, and I reckon some of these will get shaken out over time and they won't hold value. But, um, it's just like if enough people believe that something will hold value and that it is an asset class, that's good enough, it almost becomes an asset. [00:30:20][88.8]

Bryce Leske: [00:30:20] Yeah. Yeah. All right. So let's close this out with what does that actually mean for investors? You know, there are many ways that you could look at this. It can become overwhelming to think about where to be putting your money, how to play the game with all of these new assets coming to market. You know, should you turn a blind eye and not worry about it? It's you know, I can understand that there'd be a lot of anxious investors out there and people just really concerned and and unsure. As we spoke about on our Osbey show a couple of weeks ago, it feels like there has never been a moment in our investing lifetime that there has been such a clear divide between what is going on in markets. There is inflation, there's no inflation. We're in a bubble. We're not in a bubble. [00:31:05][45.3]

Alec Renehan: [00:31:06] The economy is strong. The economy. [00:31:07][1.0]

Bryce Leske: [00:31:08] Yeah, yeah. So wading through all of that can be very difficult. So we want to just cover off a few ways in which we're approaching this and ways in which some of the experts are also. [00:31:18][10.2]

Alec Renehan: [00:31:18] Well, I was going to say that in our notes for this section, we've both written the name of a world renowned expert investor. So why don't you start with yours and then I'll get onto mine. [00:31:29][10.6]

Bryce Leske: [00:31:29] Sure. So Howard Marks, founder of Oaktree Capital, he released a memo in which he sort of spoke about the divergence in markets at the moment and how you can see that certainly potentially characteristics of being in a bubble. But then on the same side, you know, there's reasons for for that to be occurring. So it might not be as, I guess, treacherous as some people have thought. But he's overwhelming. I guess comment was to just proceed with caution, don't go putting in everything all at once, but also sitting on the sidelines might be the worst thing you could be doing because you're going to lose out. You know, he's not here to pick the top. He's he said he's had moments in time where he's been much more confident and say that, yes, we're nearing the top of a market, nearing the top, not picking the top. But he feels there are many, I guess, reasons to to say that it's not unusual to see what we're seeing now and just to absolutely proceed with caution. [00:32:31][61.4]

Alec Renehan: [00:32:31] Yeah. So Mark in his memo was very aware of the inflation risk. He was sort of like proceed with caution and be most cautious about inflation. And we touched on the reasons why inflation is a risk. Um, what were some of the things he suggested people do and investors do and don't do? [00:32:49][17.5]

Bryce Leske: [00:32:49] Well with inflation as the as the context, he was pretty clear to steer away from long dated fixed income investments. [00:32:59][9.7]

Alec Renehan: [00:33:00] Explain. Like I'm five like [00:33:01][1.0]

Bryce Leske: [00:33:01] bonds, anything that is going to be locking in an interest rate now over a long period of time. [00:33:08][6.2]

Alec Renehan: [00:33:08] Yeah, turn to deposit bonds with a fixed rate. [00:33:11][3.4]

Bryce Leske: [00:33:12] On the flip side of that, he suggested that floating rate debt might be an option. Again, I guess debt investments aren't fixed in terms of their interest rate. And as interest rates move or inflation moves, then it will move accordingly. Yeah. So your return is adjusted accordingly and you're not going to be locked into the return there. Now, the [00:33:34][22.2]

Alec Renehan: [00:33:35] one of the most popular asset classes of the last little while have been trit tips, Treasury Insurance, protected securities or something like that. But it's basically like you get inflation plus two percent or whatever in floating four percent. So as inflation goes up, it adjusted accordingly. Close up. [00:33:53][18.6]

Bryce Leske: [00:33:54] Yeah. And as we mentioned as well, Howard Marx made note that real assets and assets that have pricing power that can adjust with inflation. So real assets, housing rates, which we mentioned earlier in this episode, and also if you're thinking about what stocks to buy, you want to be looking at companies that have pricing power and are able to adjust their prices in line with inflation without suffering too much consequence on their business. [00:34:21][27.0]

Alec Renehan: [00:34:22] The proverbial toll bridge, that's the only entrance into town. Yes. And just keep raising its prices. [00:34:27][5.6]

Bryce Leske: [00:34:28] So that's one way to think about it. Proceed with caution. Think about inflation and what assets you could be investing in. Ren. Do you want to speak about Seth Klarman? [00:34:36][7.8]

Alec Renehan: [00:34:36] Yeah, Seth Klarman. I'm a bit of a fanboy of Seth Kleinman in his book. He writes about us in his book Margin of Safety. He writes about who? He asked the question, are you investing or are you speculating? And for me, that has never been a more relevant question to ask. So basically. The way he thinks about it is you're investing if you're buying something that is a productive asset, a company that makes something, generates revenue, you know, a property that can generate rental income, you know, a machine that creates widgets that you can sell like you're investing in you're putting money into a productive asset that will make that would generate cash flow. You're speculating if you're putting your money into something with the expectation that someone will pay a higher price in future. You're speculating if you're buying Leonardo da Vinci painting for four hundred and fifty million dollars with the expectation that someone will pay 600 million dollars in 10 years. You're speculating if you're buying a Mickey Mantle baseball card for five million with the expectation that someone will pay seven million in two years. And for me. That has that is the most relevant question now, and I think, like I love reading about this stuff, I'm baffled by some of it, but I'm not going to be putting my money in it. Um, with like there are two exceptions in my mind where I've strayed from that path. I have some gold in my portfolio and I have some crypto in my portfolio, both small percentages of my portfolio. And I'm aware that I've strayed. But everything else, it is this a productive asset or is and will generate cash flow, or am I just expecting someone to pay more for the same thing in future? [00:36:24][107.2]

Bryce Leske: [00:36:24] Yeah, it's definitely a good way to think about it. And I guess if you think about it in that way, you're going to rule yourself out of many of these [00:36:33][8.4]

Alec Renehan: [00:36:33] crazy, crazy situations [00:36:34][1.1]

Bryce Leske: [00:36:35] that is going on. And then, [00:36:36][1.2]

Alec Renehan: [00:36:36] you know, we were talking about the NBA top shot, and like, do SBN pay the owners of the NSA, NFTE, a licensing fee every time? If over time, that is that's the ecosystem that develops all, you know, like we do acclimates top shots. And then every time an ad plays on the equity episode that you own, you get that income or maybe we split it, you [00:37:00][23.8]

Bryce Leske: [00:37:01] know, so we definitely split. [00:37:02][1.0]

Alec Renehan: [00:37:02] But then that conversation is different because then it's an asset that generates cash flow and then a question of it. Then it becomes a question of valuation and like how much what are the future cash flows of that asset? And like, what's it worth today? Um, but if you're just buying a digital highlight that doesn't generate cash flow, then you're speculating that someone will pay more for it in the future. Yeah. And so I think that's a really important distinction. And for me, it's never been a more relevant question. [00:37:33][31.4]

Bryce Leske: [00:37:35] Nice Ren. Well, I think a closing comment for me as well is just to stick to your strategy here. It's so easy to go off. It's so easy to go off strategy and get carried away with the hype. If you think about the big picture here and you look at what markets have done over the last hundred years, you look at the way that they certainly crash. There's no denying it. They get in bubbles. There's no denying it. But inevitably they recover and continue to grind up. If you just stick to your strategy of putting money into assets or into investments that you generally believe are going to grow in value and compound over a long period of time, and think about, you know, particularly if you're young doing so at a consistent rate, then, you know, you don't need to worry about what's going on in the market right now and getting carried away with the hype and euphoria and feeling like you need to make a million bucks overnight. You can do that over forty years and still be as happy, probably happier, probably happier. [00:38:33][58.1]

Alec Renehan: [00:38:34] Probably sleep a lot better. Yeah, a lot less chance of it all going to zero. Yes. Now that they were the three key points we wanted to hit. What does it mean for investors? I want to add a fourth, not so much for investors, but for investment product producers. So this is a shout out to beta shares, then State Street, BlackRock and Vanguard in Australia or an ETF Securities. Who's going to be first to make the like the hype alternative assets ETF that holds sneakers, baseball card Pokemon cards are not days and maybe like some art or something like that, maybe equity market, maybe some dogecoin and somewhat was the what was the cryptocurrency. That may not know but Bonnano Bonanos. Yeah, yeah, yeah. There's got to be, there's got to be some, some money that wants to flow into that space surely. [00:39:28][54.6]

Bryce Leske: [00:39:30] Let's see what comes. I'm not saying [00:39:31][1.3]

Alec Renehan: [00:39:31] that I would put any money in but God I'd love to make some content around that [00:39:35][3.8]

Bryce Leske: [00:39:36] or Ren. That brings us to the end of our asset bubbles. Hopefully, you guys have been able to take something from that that will help you on your investing journey. There's certainly a lot going on, a lot to keep up with. I guess my message would be don't feel like you need to be across it all or, you know, just stay calm, stay cool and collected. Well, and think about the bigger picture. [00:39:55][18.8]

Alec Renehan: [00:39:56] I think that's really important. And we didn't touch on it. But you know how we always say, like, cut out the noise and like, what's important, like this is the example of like, is this important? Did we just spend an hour on an episode? Did everyone just listen to this? And our concluding thought [00:40:11][15.2]

Bryce Leske: [00:40:11] was, well, you should not be thinking about potentially, but anyway, work, you live and you learn just a reminder that if you do enjoy what we do and want us to continue, please write and review the show. We it does help us on the charts. It helps people who are discovering our podcast as well. So please go and write and review equity, make a solid five stars. If it's not going to be five, then please email us at Contact Equity Match.com with your feedback and we can take it up personally. That is fine. Also a reminder that we have plenty of other podcasts in the Equity Markets Media Network. We've got your in good company. Hosted by Maddie and Sophie, we've got Mapei Love, hosted by Zoe and Cosmo comedian Vé Economists', which we've referenced a few times here, hosted by Thomas and Adam. And also they get started investing podcast with Ren and myself. Plenty going on in the community. Yeah. So I love that you're supporting us and listening us and Ren. It's always good to chat. Yeah. Pick it up next week. [00:41:11][59.6]

Alec Renehan: [00:41:11] Sounds good. [00:41:11][0.0]


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