How did Aussie start-ups become a massive magnet for cash?

Adam: [00:02:37] Hello and welcome to Comedian vs. Economist. 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. 

Thomas: [00:02:50] Yeah, g'day Adam. How you going? 

Adam: [00:02:52] Oh, I'm doing pretty well. Thank you. 

Thomas: [00:02:53] How about you? Yeah, pretty good. Pretty good. Think I might have Covid? But other than that? 

Adam: [00:02:57] So everyone's got Covid these days.

Thomas: [00:03:02] I know it's not special. 

Adam: [00:03:03] Any other big deal anymore. It's not a thing I don't even 

Thomas: [00:03:05] get time off work for. 

Adam: [00:03:09] Hey, big shout out to you. Thank you for all your emails and messages. Keep them coming at CVE@Equity Mates dot com or on Facebook and Instagram at CVE Podcast. Matt sent us a message just to say that he enjoys the show and that he listens to it with his partner every week, which Thomas. I've never thought of CVE as a couples experience, but each to their own, I guess whatever gets you in the mood, right? Well, I like to frame 

Thomas: [00:03:31] my voice to be couples friendly 

Adam: [00:03:36] voice like melted chocolate. Uh, right. Well, thank you, Matt, for tuning in. Anyway, we do appreciate both of you listening. And next week, Thomas, we're actually going to be on a break. You and I are not together, but separately on going camping. It's also my daughter's birthday, so we're going to be away. But good news, filling that curvy sized hole in your lives will be a special run of a new podcast here at Equity Mates. Media called The Dive, featuring none other than Sasha, who does amazing work each and every week producing this show. She's bringing you a new show called The Dive. It's coming to year is three times a week, breaking down one big story in the world of business and finance with the classic Equity Mates flavour. Because who says business news needs to be old business? Not me, that's for sure. Super excited about this podcast. So we're going to drop drop the first episode into our feed next week, so we hope you'll enjoy that one, and we hope that you go and subscribe to that podcast. It is available right now, but let's get started. Thomas Nobody likes an upstart, but turns out people love start ups. We'll see why money is pouring into Aussie start-ups, and if it looks like a recession, walks like a recession and quacks like a recession, is China in a recession? We'll take a look at that a little bit later. Australia's housing market is flat out bananas when it's compared to the rest of the world, and not just recently. It's been bananas for quite some time. In fact, fun fact the big banana was built in honour of Australia's housing market, the Thomas. Also, we've got inflation deflation, stagflation and now shrink foundation. We'll be answering the question Are economists seriously now just taking the piss? But first, it's time to check in on the ASX share market game. We hope you're playing along at home or wherever you're listening. The good news is that you're probably beating all of us here at Equity Mates Media. If you are, you're almost certainly beating Thomas, that's for sure. Tell. Would you care to regardless with your performance so far? 

Thomas: [00:05:42] had a rough couple of weeks. Now is 6700 people in the game on ranked five thousand nine hundred and sixty seven. So in the top 6000, which is about where I wanted to be at this stage of the game. 

Adam: [00:05:55] And if you play, I mean, you're a macro guy, you're big picture, you're really you're playing the game as if it's going for another hundred years, which I love. I just don't think you're going to win. No, no, no. 

Thomas: [00:06:08] So look, I'm playing macro themes, but I'm playing tail risks. So like so in long oil with the bearish is oil index on the outside chance that I thought the war in Ukraine could could go really pear shaped, then oil prices would spike higher. That was a tail risk is not, you know, it was No. One central scenario. But I thought it could happen. It didn't happen. So no, I lost lost out on that one. 

Adam: [00:06:34] I mean, that's one way of thinking about it. I would also say, perhaps that you're just overthinking it and that's what's got you anyway. Silly? So you talk about tail risks and we all go, Oh, I've got no idea what he's talking about. And guess what? We all make up the market. So you're you're providing some some pretty solid analysis. The rest of us are bull baby bunting. And it's up because because babies get born in March, that was my only my one thing I did, I thought we should just take a look at the Equity Mates League this week and Mr Diddy, which I like the name Mr Diddy, is killing it. He's leading on $60000 at the moment. So if you're if you're not familiar with the game, you start with a cash balance of $50000 or pretend money, but it's good fun. $50000 he has. He has gone up to $60000 and is leading the Equity Mates Media League, Mr Diddy's. 

Thomas: [00:07:36] Number four, overall, he's crushing it really 

Adam: [00:07:39] is ripping the leg, carrying the leg you want to lift. What was interesting, though, is that I mentioned Sasha before host of the soon to be number one rated podcast The Dive. Sasha is leading the way from what I can say amongst amongst Equity Mates people. So she's sitting in 64th and 74th Thomas. Yours truly. Oh, with $50000, I'm in profit. I couldn't help but notice that our our so-called experts here at Equity Mates Media, Alik Bryce and you all under the $50000 starting point say you've all made a loss. Which begs the question why would you take any advice from any of your clients?

Thomas: [00:08:22] Yeah. I mean, it's the nature of the game. You're looking for stocks that have that potential to pop, which means you're sort of playing, you know, you're playing in territory where things you're taking, you're taking gambles. You know, the people have people have got 20 percent in a month or so. They've they've taken a gamble and it's paid off. We've taken some gambles and they haven't paid off. 

Adam: [00:08:43] So hang on, we're all gambling. It's just sort of better at gambling. Is that the takeaway? Uh, yeah. 

Thomas: [00:08:49] Yeah, I don't. I mean, like, not a few good theses for like sectors to play in. So like, you know, I went for city chic as a, you know, urban reopening kind of story. I went for the battery ETF on the bay and the back of that crucial minerals story we covered. Last week, I went for Nearmap and zero on the back of the government's investment in small business, you know, like a cashback scheme on small business investment. That's the thesis I'm working with. And then within that, I'm trying to pick winners without knowing an awful lot about these companies or having much time to research them. So I'm just, you know, having a stab, but it hasn't worked for 

Adam: [00:09:31] me, something like, you know. So you said you've got a good thesis. I would argue that's terrible because it's resulted in in you making significant losses. Really, you're not you're not giving this the attention that it deserves. I would point out, though, that it's not too late to join the game. And in fact, you might Thomas. You might even want to just cancel yours and register again and make a quick $4000. Not too late to register. I mean, because sitting in one hundred and fiftieth is the last place, and I don't want to bring focus to you, Frenchie Ninety, but forty four thousand three hundred ninety five dollars in one hundred fiftieth. So if you started right now, you are. You're literally like five and a half thousand dollars ahead of last place. So as long as you make some trades because if you haven't done any action yet, then you're actually ranked even lower than that, even though you might have 50000. So not too late to join registrations open until the 28th of April. Game runs through to the middle of June, so plenty of time to make some sweet virtual cash. Take home some bragging rights. I thought you had something to say. No, no, sorry. No, no, I wouldn't say any more, either. All right, Thomas. Apparently, Aussie start ups are rolling in the money. What's going on there? 

Thomas: [00:10:45] Yeah. So we've got some data put together by a character called Chris Gillings at Cut Through Venture, and it's just tracks the amount of venture capital funding that's been announced. And we've got started for the March quarter. So the first three months of the year and it was it was talking $3.6 billion. So that three three months is more than all of 2020 combined to, all of 2020 combined had $3.1 billion. Wow. Yeah. Yeah. So we've had more than a whole year in. I mean, that was the Covid year, to be fair. But nonetheless, that was a bit going back. But pre-COVID, that's a fairly typical year, 3.3 billion and then one was massive. So a jump from three point one billion all the way to ten point one billion. And then we're on we're on track again with three point six in this quarter. So, yeah, Aussie start up companies are just landing a whole bunch of venture capital and they're laughing. 

Adam: [00:11:39] Wow. So these are not public companies. You can't buy into these companies yet. These are all private companies and venture capitalists are just kind of just loading up. 

Thomas: [00:11:48] Yeah. Gimme, gimme gimme. Yeah, I'm just going to say one billion for fintech and almost a billion for enterprise software. So that's where the bulk of it's going. But yeah, the question it. 

Adam: [00:11:59] So the big question then, is why? I mean, why? Why so much and why now?

Thomas: [00:12:03] I think the answer is cheap money and money printing is so forward of what it seems to be. So saying, yeah, so there's like there's a lot of money still coming through the system. Yes. So gillings is the gillings are saying there's considerable local VC dry powder. So dry powder, apparently is the term for venture to venture capital funding that hasn't found a home yet. So like will be 

Adam: [00:12:29] the only pad of going around in venture capital circles while I reckon. 

Thomas: [00:12:42] A lot of dry powder still there, which needs deploying and international funds. Appetites for Aussie start ups appears to be holding up, so expects it to continue. There's a quote in this article from partner Justin Lipman, and he's saying it's never been a better time to be a founder. The weight of dry powder, literally hundreds of billions of dollars that has been raised globally is Dollars that's committed and has to be deployed under almost fixed term deployment schedules, right? This, I find super interesting. So what he's saying is that that the venture capitalists have raised the capital firm venture capital firms. They've raised money already. So they've they've gone out, they've got this money flowing in and they need to do something with it. And and so now they sort of they actually have to roll it out. And that's why it's a great time to be a founder because you have all these money, these firms that have to put money somewhere. And so then the bit of a bidding war as to who gets to buy the business or get it sounds like 

Adam: [00:13:36] it sounds like an ad for a rug say, Oh, this is like, this is like, we've gone crazy. We've all we've got too much money, the bosses said. It's all going to go. We've got to spend it now. Who wants cash like it can't be that? I don't know. It seems a bit reckless. 

Thomas: [00:13:53] This is what the critics of of quantitative easing and money printing was saying is you distort the market incentives because there's so much money flowing around and it all goes looking for a home that it bids up assets. It bids up profitable investments like like a start up. In a way that, you know, is a bit disconnected from reality because there's just so much money in the system. And so I think that's what you can see. So all the money printing that happened in 2020 and 2021, it's still going on. But now the Fed this week is has been saying they're going to look to unwind, move to quantitative tightening. So they're not really going to stop. They're actually going to start sucking some of that liquidity back out of the system. Hmm. But that doesn't matter for this story because all it's all that money that came through in 2020 and 2021 that has made its way into venture capital firms and is now coming through into Aussie start ups. So it's sort of calming down stream, if you can, if you can track it. Yeah, like at the top of the stream is the Fed and the RBA with money printing, and then it moves through into the big investment firms and now is coming down to the venture capital firms. 

Adam: [00:14:53] It sounds a lot like the dot com boom of the early 2000s, where any like twenty one year old with a Windows PC in a garage, in his parents basement or whatever was like started, you know, making a start up of some kind saying, Yeah, I'm computing now, and people were buying these companies. Isn't that how the dotcom boom came unstuck? So there was no way that none of these things were actually worth anything.

Thomas: [00:15:18] Yeah, I mean, it's a different story in the sense there was there was hype around the dotcom bubble itself, and that's where that's what pulled that money in story is more of like, there's so much money it's getting pushed through. That now it's looking for a home. Right? And you look at the companies involved, they're pretty, you know, their names you heard of, like scale of pay was the biggest with the 692 million dollar round in the quarter. Immutable employment hero Link Tree and Zillow all getting over 100 million says this sort of names that I've heard of and I think are good companies. They're not like pets. 

Adam: [00:15:54] Yeah, yeah. 

Thomas: [00:15:55] Kind of thing. So isn't that

Adam: [00:15:57] comforting to know that like if you're looking for a rental property and you're struggling to make ends meet with the budget and inflation that there's just money wandering around looking for a home that's being sunk into something to start up because we literally can't think of anything better to do with the money than just, I guess, what they're trying to make money. I get it the whole business model, but it's the kind of depressing thought. Yeah. 

Thomas: [00:16:23] Now the venture capitalists are saying there's a housing crisis, too. We don't know where 

Adam: [00:16:26] that housing money. All right, Thomas. Speaking of housing prices, Alan Cola was out this week saying house prices represent the biggest failure of policy in 50 years. What's he talking about? 

Thomas: [00:16:40] Yeah, this is a ripper of an article he wrote for the new daily, which is a. Org that he's got involved in since he left the Australian. Mm-Hmm. Yeah, it's so he's gone to town on housing and housing prices in Australia and saying it's a massive like. We talk about how house prices go up and everyone says that's a great thing. But he's saying it's a total failure. It's a real tragedy that house prices have gone up as much as they have. So he's saying in 1980, the median house price in Australia was $70000. By the end of last year, it was $750000. So they've gone up nine hundred and sixty percent in those 40 years. So that's massive. He's also saying that unlike a lot of other countries, income just hasn't kept pace with house prices. So while you've had a strong house price growth and a lot of other countries, income has tended to keep up, that hasn't been the case. Here in Australia, the house prices have become massively detached from income. 

Adam: [00:17:36] So how did it happen? How, how, how is because I saw a chart that showed Australia's house prices compared to the rest of the world more. Share that to Instagram and Facebook. So how how did we get so far away from the rest of the world? The rest of the world is tracking more or less flat and Australia's dislikes and house prices. It's true that euro against house prices are through the roof. So how did it happen? 

Thomas: [00:18:03] I think that chart is a bit funny, and I don't imagine it's GDP weighted because I think Australia's story is pretty similar to most developed countries, most advanced economies, and I think the story 

Adam: [00:18:13] is so maybe we shouldn't share the one shot. I was going to share you like that. I'd say that that's 

Thomas: [00:18:20] where I mean, it was an interesting one, but I haven't seen like when I was like, Whoa, that doesn't look right. Because, you know, look, we have debt to GDP. We have a lot of debt in Australia. It's the highest in the world, the US and New Zealand up there. We also have financialization story. So it's like lower interest rates have just come down and down and down. And these things, you know, pretty advanced economy story and that's what's sent house prices through the roof, right? That and the sort of the tax settings as well, which Alan Kohler has a dig at. The thing I really like about this, I mean, it's interesting because Alan Koehler is one of the grey beards of Australian economics like he hosts the ABC News. He was the maybe like chief economic correspondent for the Australian for a long time.

Adam: [00:19:07] We've got a good podcast, too. The money came with Alan Collar. Yeah. Not to be confused with the other money cafe that he separated from that was run by the Australian. Yeah. But yeah, it's good fundraising. 

Thomas: [00:19:17] Yes, yes. So he's as well respected an economist as there is in the country, and he's really just gone to town with this one. And I think he's reached a stage in his career where he's like not afraid to break some eggs and he's gone for it. And so he's saying house prices are not wealth. And he calls them destructive wealth, saying rising house prices don't create wealth. They redistribute it, saying like it's meaningless and destructive to talk about house rising house prices being a good thing. Because if you sell your house, you have to buy another one or your children do so. It's only rising. House prices only benefit those with extra properties, right? And he's saying it's changed society in a massive way because those now generate generations of young Australians are being impoverished by the cost of shelter. Australia is no longer an egalitarian, egalitarian meritocracy material. Success is a function of geography and class, not accomplishment. 

Adam: [00:20:10] Oh man. Finally, I find a dollar for every time I'd said to someone, Australia is not an egalitarian meritocracy. 

Thomas: [00:20:18] Our Bryce, I just heard your voice.

Adam: [00:20:29] Um, right. So yes, I was trying. The wealth up in families, and they're just kind of continually getting richer and richer, and the higher they go, the more that's locking out anyone else from getting into it. Is this how dynasties started like queens and kings in Game of Thrones time? Yes. 

Thomas: [00:20:48] Yeah. I mean, the Bank of Davos was obviously involved 

Thomas: [00:20:59] real estate, right? The real in real estate isn't that it's a real thing as opposed to an unreal thing. It's real as in like regal is like a derivative of. So it's like the royal estates. A land was always controlled, controlled by the crown and then got distributed out from there. Yeah. I think he's his focus is a little narrower than that because you look go back to 1980, it was very rare for people to retire without owning their own home. Hmm. And that's that's becoming more and more common that people are renting their entire lives and going into retirement and old age without owning a home. Hmm. That's a real problem for them. But it's also a problem for their children because a lot of wealth gets accumulated in the house, in the House and gets passed on, passed on to the kids. Mm-Hmm. And that's what you're saying. Like for a lot of people, like if their parents were renters, that really diminishes their chance of being able to buy or buy a house. That's a crap outcome, but that's not that's not an outcome society should look at and go. Yet we nailed that.

Adam: [00:22:01] Does it affect? Does it hurt the government, too, because the government then like if you if you retire and you have a house and you've got super and stuff like that, then you don't necessarily need the government support. So. So. If we have more and more of people coming out of, you know, or going into retirement without wealth, without property and the other things that go with it then is that just putting more pressure on the government, so won't the government need to do something about this? Yeah. 

Thomas: [00:22:28] To an extent. I mean, you know, like politics is always weighing up voting blocs and Saul that Saul Eslake is another great Aussie economist makes his point, saying, like in any given year, there's 100000 people trying to buy a house and 10 million people who own a house who don't want to see house prices fall. So the pressure in any given year for house prices to fall is really stacked against that equation, and the pressure to keep house prices afloat is is really important, and any government that oversaw a sizeable fall in house prices wouldn't survive the next election. Right? So yeah, it is a failure of public policy, but it's also kind of the nature of democracy and just the Australian value system that we prefer to eat our children than have equal outcomes for everyone. 

Adam: [00:23:21] Right. So what's the solution, then? What's the where do we go from here? 

Thomas: [00:23:25] I'm yeah, I don't. I mean, this is the like there isn't. The government just concluded another enquiry, which was a massive waste of time again, like there's been dozens since the 1970s because no one norm. This is a thing. No one, no one wants to fix it. Like in a political economy. Sixth Sense there isn't a problem because the vast majority of homeowners in Australia actually like the fact that house prices are high and that house prices keep going up. It's only a problem for the young and for the people who don't have houses. So at some point, you know, you've got to wait for that, that equation to change for the for for renters to become a large and powerful enough of a voting block or for enough people to care about this problem. But it's also very hard because, you know, like if you bought a house in the last few years, you might be sympathetic to this idea that, you know, expensive house prices are a massive problem. But if your house price falls and you go into negative equity, that's a big problem for you personally. Mm-Hmm. There isn't there isn't an easy answer that deals with all of those things. But what would be good is if the government stop making it worse, like by coming up with policies that sort of amplify these things, that would be a start.

Adam: [00:24:39] It's just that we can't bring house prices down. So or what maybe wages them and we just we just boost wages is that they go, 

Thomas: [00:24:48] Yeah, there's a lot of businesses that will try and block you on that one. 

Adam: [00:24:52] Yeah, I'm getting blocked everywhere these days is difficult, you know? All right. Well, why don't we? Why don't we take some time to mull that over? We have a short break. Take a word from our sponsors and be back with more comedian versus economist right after this. 

Adam: [00:27:29] Thomas Is China in a recession? 

Thomas: [00:27:32] Yeah, this is what a few few analysts are saying that they think that China might already be in recession. Yeah, well, definitely looking at a slow growth outcome for the current quarter. And there's the Chinese economy is facing some pretty major headwinds. And this is this is a bit of a story like we've been pretty focussed on the war in Ukraine and the energy crisis and the commodity price boom that's followed that. But when you look sort of down the road a bit sort of into the second half of the year, this could be the number one news story potentially. Is China sort of having a something of a hard landing? 

Adam: [00:28:04] Is this still the evergrande situation or what is that? The name, the Chinese, their name from evergreen to used to be grand, I think still kind of grand. Still kind of grand. Yeah. 

Thomas: [00:28:17] Yeah, yeah, yeah. They struggle. I mean, they're surviving like I. They haven't wound up this struggling along with a lot of the big developers are functionally bankrupt. It seems I have defaulted on loans. The interesting thing that has flowed out of that is it's causing a bit of havoc in credit markets in China. But the other thing that's sort of done is is no one is buying properties anymore. No one's buying new properties because even even if you go to a good developer, if you think you're talking to a good developer, the whole development space is in so much trouble that you've got no confidence that the developer isn't going to collapse and you've going to take all its money with it. That's a yes, and no one's buying anything so new. New property transactions are down 46 per cent on 2021 levels and down about 80 per cent on normal levels, where house sales have totally frozen up and houses. The property sector is a big part of the Chinese economy that's hit the skids, and that's that's then obviously taking down good developers, you know, so trying to introduce their three red lines policy, which a whole bunch of limits on leverage and things like that. And that's where Evergrande got caught because they were way over the lines and to sort of back-pedal and get on the right side of those lines meant massive deleveraging and just a whole bunch of pain. But there was a bunch of good developers on the right side of those lines, but now they can't sell to anyone because no one, no one has any faith in the market until a property sales have tanked. 

Adam: [00:29:42] I'm seeing I'm seeing an opportunity here, Thomas. People can't buy a house in Australia. People can't sell a house in China. There's, you know, there's a union there that we could work with win, win, win. 

Thomas: [00:29:55] The interesting thing with this is normally when property sales would crash like they have, the People's Bank of China would step in and cut interest rates, and they could they could actually quite they can direct lending to certain regions and they would try to spark things up, but they're not doing that. Instead, they're they've established a financial stability protection fund to be able to deal with major financial crisis, and they're setting up a comprehensive cross agency mechanism for risk detection and disposal. So they're just sort of gone. Yeah, this looks like it's going to get ugly. We better get ready for it. 

Adam: [00:30:32] So, yeah, they're falling out of the sky. They've gone and bought some parachutes. Yeah, they're just going to soften the landing a bit. Yeah. 

Thomas: [00:30:40] I mean, this is this is this is what happens in a one-party state like we talk about, you know, what can the government do? This is the government doing something that like this has crashed the property market because it's getting out of control where there's rain in the rain in the leverage of the big developers. Let's let's get them under the under the thumb. And if that means a massive financial stability risk event, we'll just deal with it. That's what you can do in a one-party state. Well, it's a 

Adam: [00:31:07] known quantity then, isn't it? Is that thinking? So they're like, Well, we know we could try and stop it, which is probably going to fail. We'll pour in heaps of of resources, energy, money, effort to try and stop this thing failing. Or we could just this year was going to fail, stop trying and deal with whatever happens. Be ready for the next phase. 

Thomas: [00:31:26] I don't I don't think that's quite it. I think I think the question they're looking at is, do we kick the can along? Do we flood some more liquidity into the property development sector and just let it let it limp along long? Or do we bring it down now before it gets more out of control? And so they're choosing short term pain over long term pain, and that's kind of the opposite you get in democracies like Australia, like we should really bring down house prices, for example, because it's creating massive wealth inequality. But there's no political will to do that because there's a lot of entrenched interests around higher property prices. And so every consecutive government, because they work into an election cycle, chooses long term pain over short term. 

Adam: [00:32:13] Pain there are side almost sounds like a better system, like in we're kind of shackled by the need for votes in Australia because no one is prepared to make any tough decisions because they will cost votes and then and therefore it'll cost government, they won't be running the country anymore.

Thomas: [00:32:29] It's tricky. I mean, I would still prefer democracy over not, but it is a problem. The short term political cycles, anchor interests in the short term and big problems like climate change, for example, just get pushed down the road as some it's someone else's problem. It's another government's problem. Mm-Hmm. And so you don't get sort of that long term action or your infrastructure spending is a classic example. You look in the latest budget, it's all pork barrelling. There's almost no long term vision driving. The infrastructure spend is all short term electoral cycles. That's the system we've got. That's the challenge we've got. Look, I don't know that a one party state is the answer to that problem, but it's worth acknowledging that it is a problem. 

Adam: [00:33:09] It could be a pretty radical idea in Australia, to be honest. 

Thomas: [00:33:14] And we'll see if you get Alan Koehler on board that one. So coming back to the China story, so so the property sector, which is a big part of the economy that's in a world of pain. At the same time, they're still going after a zero Covid policy. So even though the rest of the world kind of moved on from that, even Western Australia has moved on from that. They're still going hard at four zero Covid. And that means, like last week, Shanghai, you know, you've heard of that city, that's 26 million people that's been completely gone into complete lockdown last week in classic China style. They had drones patrolling the streets, making sure everyone was staying home. And that's not the only city. So yeah, COVID cases have spiked quite like they've gone through the roof recently in China. As a result, lockdowns are happening all over the place. But when you lock down a city and the like the major financial centre of your country that has a big impact on your economy, I 

Adam: [00:34:09] think they're relaxing that though now they're slowly kind of going, you know, I think this is we need money to change our approach here because from what I read, the low vaccination rates were big problems doing so. So they kind of haven't been able to let it rip as it were as a lot of other places have done, because the vaccination rates are still fairly low comparatively. So yeah, I think that's what they kind of they kind of wrestling with now, but 

Thomas: [00:34:34] it will be interesting to see. Yeah, but I mean, the damage is done. So you look at movement and tourism numbers, they're down to 39 per cent of normal levels. So they're through the floor and you have the PMI, which is the Purchasing Managers Index, which is a survey of Chinese business leaders. So both business activity and new orders are down to the lowest level since the first outbreak in twenty twenty. So the economic data in China is a little bit fuzzy, like the government seems to have a bit of a handle on it to print numbers that they want to print. But the PMI seems to be a pretty good index that's through the floor. So that's a there. So that's so it seems like the domestic economy, the rest of the economy, outside properties struggling a bit as well. And then at the same time, then you've got exports and exports. They're exporting into an economy that through inflation, through the war in Ukraine, through rising interest rates in America is looking at big stories, a bit of a shift away from goods. So we went we went like we spent a lot of money on goods through 2020 and 21 because we couldn't buy services that's looking to unwind in 2022. As we reopen, we've bought the houses are full of stuff. We're going to go out and get all the service stuff that we got. But China doesn't export services, they export goods. So while 2020 and 2021 were good for good export years for China because everyone was buying lots of goods, twenty two is not looking so strong. And so you have this situation where China's got a weakening export sector, a property sector hitting the skids and a domestic economy struggling under lockdown. And that's all looking like a pretty rough year for China.

Adam: [00:36:11] What does it mean for the rest of the world? I mean, is it is it likely it? It's not good.

Thomas: [00:36:17] Dollars when it's no good, I'm trying to. China's a very important player in the in the scheme of things like it's a it's a block. Effectively, you can kind of think of it alongside Europe and you imagine Europe going into recession. It's as it's as big as them, as Big B flow on impacts into Asia and particularly and into the global economy. Big, big impact on Australia as an iron ore exporter and commodity exporter. So yeah, it's going to create extra headwinds, given the 2022 is already looking at a number of headwinds for the Australian economy and for the developed market economies, there's that there's probably another big one coming through in China. Well, that's 

Adam: [00:36:56] a as a cheery, cheery outlook for us, and we're going to get excited about looking forward to Easter. And you know, it's time that by the time we get back, we will might have gone to shit. All right. Thomas Tik-tok. To me of a shrink inflation, what is shrink inflation? 

Thomas: [00:37:18] Yes, this came from an article written by Andrew Leigh, who's the shadow assistant minister for Treasury on the Labour side of politics. Tackling the big issues, you're saying that stuff is getting smaller, you're paying the same amount of money for less stuff. This is what we call chelation. So because I was going 

Adam: [00:37:35] to say, we've got shrink formation, but we already had deflation as a word that existed that we could have used. But they've gone with shrink flesh and instead. 

Thomas: [00:37:44] Yeah. I mean, inflation is just another form of inflation. I think the in the US economists, Piper Milgrom came up with that saying it's when manufacturers sell us less product for the same price. So rather than the same product for more price, they're selling this product for the same price. So you're paying more for the same amount of stuff, but you just don't notice it because you're actually getting less stuff 

Adam: [00:38:07] like what I did with tubes. I too used to be like, you know, those they're like a source, saucy flavoured cheese. All thing amazing. You should eat them. I don't even get them anymore, but they used. I remember that they shrunk the packet of tubes, probably on all chips. I think o chips, what used to be like 60 grams or something. And they went to 50 all of a sudden, now forty five grams. And they started adding a lot more air, though I noticed it was about the same time I start. I like, pardon the pun, they were inflating the chip packets to cope with to cope with shrink relation to or to at least make it look like they weren't getting smaller. 

Thomas: [00:38:44] So Andrew Leigh has a bunch of examples saying Freddo Frogs used to be 15 grams. They're now 12. Right? New variety of Tim Tams have nine biscuits in a pack, not the 11 you find in the originals. 

Adam: [00:38:57] Hmm. Multi-Sports just called Tim's now as well. Would you like a team on these team terms? No, they used to be. We lost the tangerine shrink flexion of the 2022 

Thomas: [00:39:12] grade inflation crisis. Yeah, and then Maltesers, down from 144 grams to 132. Pringles have right right size from one hundred and sixty five grams to 134. 

Adam: [00:39:24] This is cru like paper in lockdown. People are isolating because like our Covid and you're taking out Maltesers in symptoms like what? What if they were supposed to eat when they're sitting on the couch feeling sorry for themselves? I've got Covid. I can't go anywhere. I might have some, some Maltesers, or it doesn't feel like as many as it used to be. 

Thomas: [00:39:45] Yeah, well, what about the people panic buying toilet paper? The Kimberly-Clark reduced the length of the squares of toilet paper from 11 centimetres to 10. 

Speaker 3: [00:39:54] Really mm. 

Adam: [00:39:55] I thought I was having trouble. You need to supersize. Oh man, I did have a thought, though I thought, we've got so many inflation's narrow. We've got inflation, we've got deflation, stagflation, shrink flesh. And I thought maybe we could just bundle them all together and we could call them the United Nations or Oregon. That might do us for this week. Thank you so much for listening. We really do appreciate it. Don't forget, you can check out all the other great podcasts from Equity Mates Media Get Started Investing feed Equity Mates Investing podcast. You're in good company. Talk money to me. Crypto curious and of course, the brand new podcast from Equity Mates Media, The Deep Dive featuring none other than our super talented Sasha, who produces this show coming to us three times a week, breaking down one big story in the world of business and finance with the classic Equity Mates flavour. Because who says business news needs to be all business, so stick around next week. It will be dropping into your regular CVE feeds, so we hope you enjoy that. We're hope you'll subscribe, and we hope that you will join us again in two weeks time. For more comedian versus economist, we will talk to you then. Bye for now.