Is FMG the new Tesla?

Adam: [00:00:25] Hello and welcome to comedian versus 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: [00:00:40] G'day, Adam, how are you going? 

Speaker 1: [00:00:42] Nice changing it up. Keep me on my toes. Yeah. 

Adam: [00:00:47] OK, OK. Although COVID 19 has finally hit my house, so we're in isolation. Only my wife Anna has it, though, so the rest of us are doing our best to avoid catching it. And people call me crazy when I built the Covid dungeon last year, but now it's so silly that she she'll be out soon anyway. Big. Thank you to everyone out there for all your emails and messages. Keep them coming Covid Equity Mates dot com or get us on socials at a podcast. Now Thomas, we're recording this on Monday, the 28th of March. The federal budget is happening tomorrow, the 29th of March, and this episode will be reaching areas no earlier than Wednesday, the 30th of March. So rather than having to listen to a bunch of budget predictions that have already been proven wrong, we're going to completely ignore the budget this week and we'll provide some some I don't know what we call it. I don't want to say in-depth budget analysis because that's that's just over promising. We'll provide a cursory look at the budget next week, although keep your eyes peeled because we may have a little budget surprise in store. So that's all I can say at this point. I'm not giving anything else away anyway. Massive show coming up and Australia's answer to Elon Musk's dad, Andrew Twiggy Forrest has announced he's going to build a train using Formula One technology. We've got a rental crisis on our hands. We know it's hard these days for young people to be able to buy a house in case that wasn't bad enough news. Now it's just as hard to find one to rent and consumer versus business confidence. We've got some business confidence data. And despite the doom and gloom, businesses are up and about and feeling confident, all they need now is consumers to share their optimism and it'll be happy days. But first, it's time to check in on the ASX share market trading game. We hope you've been playing along at home still not too late to join. In fact, if you'd like to to jump on board, you can get 50 grand a virtual money to use in the ASX share market in any way you see fit. See if you can turn some sweet profit. Thomas and I have been at it for a while now. To be honest, it feels a lot like when I take one of the kids $2 coins and give them two $1 coins, and they're stoked because now they have two moneys. That's how I feel this week when my virtual portfolio finally made it back to even. I'm celebrating that I'm now in the green. Thomas, how are you tracking? 

Thomas: [00:03:28] Yeah, I'm not quite there yet. I'm still $500 in the red. Yeah, oh yeah. 

Adam: [00:03:34] Another way of phrasing that, perhaps, is that, Hey Adam, you're winning. Oh yeah, yeah. Because I'm green, baby. I am. I am three hundred and twenty six point twenty in the green on pure profit. Well, look at us. I think what's most disappointing about my portfolio is that I'm being easily outpaced by the ASX 200. So I there's a view there. There's a chart that they show you inside the game dashboard and the the ASX 200 is up over $52000 for the same time period. I am just scraping over the $50000 mark after, you know, putting some thought into it. 

Thomas: [00:04:18] It's good that it's called the game and it is a bit of a game like it is over short time horizons. You're not investing like you probably would if you're, you know, over the long horizon or playing with your own money, necessarily. And if you look at the top players, so Mogo 58, his resume that so he might be a shy I've got no idea then number one right now, their portfolio values is sixty two thousand three hundred dollars or so. Yeah, up of over 20 per cent. So they're they're crushing it. There's quite a few up around that mark. It's a little bit second here. We've got Juggernaut or Jake enought. I think that is sixty one thousand five hundred. So that's that's that's the running, that's where the Peloton is placed. 

Adam: [00:05:10] not a stock you can buy on the ASX. No. 

Thomas: [00:05:13] Yeah. Interesting that those two so the top ones there, the they've got sort of seem to be playing different strategies. More is more, it looks like maybe it's a bit of a. Day traders look may be playing, some is doing some technical analysis, he's in and out of a few stocks, got a few sort of resource stocks if you biopharma. So the small caps that are going to, you know, have that potential to pop. And he's picked a few winners in that and of or she's picked a few winners and they've popped pretty well, so they're doing pretty well. But Jake, you know, it's sort of just stuck with again. He's got a bit of diversity. Got some got some minerals and resources in there, but also some data and some fintech plays just buying and holding just gone all in. He's fully fully deployed. Yeah. Coming up trumps so well. So interesting. The two different strategies there that that are at the top of the top of the food chain at the moment. 

Adam: [00:06:06] Interesting, that didn't go with the. Neither of them have gone with the investing in sporting sponsorship strategy, which is working so well for me. Although I did branch out, I read some information the other day that suggested that that March was a very popular time for babies to be born. So I've bought up some baby bunting, which is $80 in the green. So I think that so I think that just shows you the value of doing your own research and analysis. Although that being said, Gold and My, which is a gold ETF and GDAX, which is another gold ETF up down heavily, you diversified. 

Thomas: [00:06:53] Then I got 

Adam: [00:06:54] to go 

Thomas: [00:06:55] ETFs, but it's because I didn't. I I knew I didn't understand what either of the fees, so I thought our maximum gold coverage, that's a plus. I hedged. I hedged gold with gold. 

Adam: [00:07:11] All right, Thomas, I heard Andrew Forrest of Fortescue Metals Group fame plans to build a train with an F1 motor in it immediately. I'm calling bullshit. What's going on? 

Thomas: [00:07:23] Yeah, it's not quite that. Um, is a little more nuance to the story there. Yes and no. He wants to build a train, and he's engaging Formula One engineering team to build the engine and the power system for the train. But the thing is, what's kind of interesting about this train? He's calling it the Infinity Train 

Thomas: [00:07:45] to, yeah, clock blousy to 

Adam: [00:07:49] infinity. And beyond that it's going, 

Thomas: [00:07:51] Yeah, now it's just gone down the road a bit from the from the mine. It's going to roll up down the hill. It's going to roll it out of here. Who knows? He's calling the Infinity Train because the idea is that he's going to load it up at the mine, load it full of iron ore. It's a three kilometre long train, so a big train loaded full of iron ore and then roll it down the hill to the port at Pilbara, right? And then on the way, all of the breaking energy that the that supplied to keep the train from going too fast that gets captured and put into a battery that once right, the train has unloaded at the port. The battery then drives the empty train back up the hill back to the mine. 

Adam: [00:08:36] Yeah, right. That makes more sense. So he's not ripping the motor out of out of an F1 car and trying to power a three kilometre long train. No. Well, that's good that he has. 

Thomas: [00:08:48] He has engaged Williams Advanced Engineering, so they're a British company based in Oxfordshire, especially the head engineers that he's actually a guy name someone, Williams said. Right? Nice. 

Adam: [00:08:59] And Frank Williams was the famous guy who Ren Williams F1, right? But they've been they've been stone motherless last for like three years. So that's who I'd be hitching a ride, trying to 

Thomas: [00:09:14] see what to do next. Daniel Ricciardo to drive it. So Williams advanced doing was behind Formula E, which was like a must be like a division of formula racing. Is it like that? Hell yeah, it is. 

Adam: [00:09:27] So I'm glad that we brought you in for the expert view on this story. Formula E is like the formula is the electric version. They use electric cars in Formula, so Formula One still runs on petrol and they're working on their on their blend. It's a special blend now of petrol. But yeah, Formula E is the fully electric version of Formula One racing cars. 

Thomas: [00:09:52] Yeah, right, right. Yeah. So anyway, so apparently those cars or even Formula City of Formula One introduced kinetic energy recovery systems occurs. But back in 2009, so Formula One's been doing that. That's not Formula E. That's Formula One. Yeah, that's 

Adam: [00:10:07] what Formula One started KERS. Yeah, I did write it. And so and and you say that that technology is in like a lot of cars now. I think a lot of the like the Toyota Priuses and electric cars have those motors already. 

Thomas: [00:10:23] Yeah, Nissan Leaf does it. Yeah. 

Adam: [00:10:25] Yeah. Do you ship iron ore with 

Thomas: [00:10:27] you with the Nissan Leaf, because that's what they suggesting. 

Adam: [00:10:34] Because like, I mean, because driving a Nissan Leaf around town in Mullumbimby is one thing, but shipping shipping tons of iron ore in a three kilometre long train seems like a whole nother thing altogether. Yeah. 

Thomas: [00:10:46] The boot space is surprisingly large in a leaf. 

Adam: [00:10:53] I saw that he reckons he's going to save 100 million litres of diesel per year, 100 million litres and and the energy that they're going to make from trying to slow this three kilometre long train down is going to be more than enough energy to power the train back up the hill. The reporter actually asked him, I said, like talking about Andrew Forrest. I said, Do you really think you could make something like that work? And Forrest was quoted as saying, I think I can. I think I can. 

Thomas: [00:11:24] I think I can. 

Adam: [00:11:29] You got to love this guy, though. He's the he's the closest thing I said, the closest thing we've got to Australia, to Elon Musk's dad just because of the age difference. He's got a bit of Elon Musk going for him now. Like he's he's he's in his position. Yeah, yeah, he's got Fortescue Future Industries, where he's like trying to sort out green hydrogen. He's buying F1 teams to build trains for him. I think yes or something. The other day partnered up with one of the big airline manufacturers as well. 

Thomas: [00:11:58] He's got a lot of green in net zero transport plays happening. Yeah, trucks. Yeah, planes and trains. Yeah, he's got his. He's going for it. It's interesting because for Fortescue investors, because they're like going like, Oh my God, this is going to get into everything like these are all going to play like, so let's save the planet. That's awesome. But like, can just sort of throw money around willy nilly and get all these things going. But hmm. You know, Tesla's kind of proved that model a bit like he's got a lot of cash on hand to work with. You know, some of these players start to come off and he starts getting a bit of momentum. I think it does start to pull in. A lot of cool factor is that, you know, is going to support. That's one thing I was thinking about this, like, does it really need to be an F1 team engineering team to build this train? Like, surely there are other engineering teams, but like, why not an F1 team? That sounds really cool. Like it's got that? Yeah, yeah. So look, I can't I could kind of see Fortescue and Twiggy being kind of, yeah, being the next Tesla or like the Aussie battler version of Tesla and Elon Musk. 

Adam: [00:13:00] You got to wonder, though, where where R.M. Williams boots fits into 

Thomas: [00:13:04] because he because he he bought it for that as well. 

Adam: [00:13:09] Just just prior to launching into some next gen electric trains, he bought a leather boot making company. So maybe this is the just the hedge in cases. In case his future Future Industries company doesn't go so well, we just resort to boots back to the boots on the ground. All right, we'll pause there. We'll take a quick word from our sponsors and be back with more comedian versus economist right after this. Welcome back here on comedian vs. economist, don't forget, you can send us an email CV at Equity Mates dot com or get us on Facebook and Instagram at CV Podcast. Thomas are we now officially in a rental crisis? 

Thomas: [00:13:55] Yeah, I think I think we are. I think we can definitely say that nationally we are in a rental crisis, right? There's no official definition of rental crisis, but it's pretty clear, pretty clear. We're there, I think. Yeah. So the key thing is there's sort of two parts of this. One is that the national vacancy rate has fallen to just one point two per. So what that means is all of the available rental stock right now, only 1.2 percent is available for rent. What does 

Adam: [00:14:22] it normally see that 

Thomas: [00:14:23] it fluctuates a bit. The rule of thumb that I work with is three percent, so a balanced market is three percent at a three percent vacancy rate. That sort of just captures natural churn in the rental market. And you don't have price pressures, you don't have increases in rents at three percent. So one point two percent is very low. And then it might get up to, you know, in Perth, back in 2016, it was up around five, five and a half percent. That's reasonably high. And that was that was connected with falling rental prices. Then yes, at one point two per cent is is crazy tight. But when you break it down, you've got Sydney and Melbourne at to Sydney, to Melbourne at 2.3 per cent, largely around their high rise sector. But then all of the other capitals were under one per cent Brisbane's at 0.9 Perth 2.6 Adelaide 0.4 Canberra 0.5, down 0.7 Hobart 0.3. So like they export? Yeah, just got you there. I'm lucky. 

Adam: [00:15:23] So I'm in Adelaide on this day and it's the greatest city in Australia. People are finally realising that. Yeah, and also the more we get the message out there than the more chance my house rises in value. Yeah. 

Thomas: [00:15:34] So they're crazy numbers. Yeah, this super tired. And that's just the capital cities. I mean, we're down to some of the regions. It's just as tight. And that then translates into when you have a rental market that tight, you get increases in rents. You have that sort of grinded it competitive pressure and that's pushing up. Rents and rents are growing at like, I think, 8.7 per cent annually now. It's like a strong almost 12 per cent higher than they were pre-COVID. So that's a that's a strong gain. It's SQM research is expecting 10 per cent this year. So they reckon we're looking at the largest increases in rents since 1970. 

Adam: [00:16:13] So I've got a question on that. Mm-Hmm. Is that in line with the growth of house prices? 

Thomas: [00:16:21] Yes and no. 

Adam: [00:16:23] Like the reason. The reason I ask, I'll give you a little bit of time to answer. So the reason I ask is is rugby has sent us an email CV at Equity Mates dot com and says, Great show. I have a question once upon a time. Thomas said, That's you. Thomas said that high rents caused house prices to go up, but higher house prices does not convert into high rents. That driven by supply and demand. Has this theory been proven in real world or written by some random amateur economists sitting in his or her man cave woman cave? Because what he's seeing is rents are following the same trajectory of growth as house prices. So, Thomas, are you some amateur economists sitting in your man cave? Yes. 

Thomas: [00:17:07] Yes. But in this case, they they're they're accurate. I think it was a key that you may recall yesterday. Rather, it was. Thank you for your email. I rather really appreciate it. 

Adam: [00:17:23] So, yeah, so are they. Are they tracking the same or are they? And if they are, then are they? Is it related? 

Thomas: [00:17:29] Well, I mean, yes and no. Yes, they're moving in the same direction, which is up, but that's a binary question. No, they're not moving by the same quantum. So house prices are growing like close to 20 per cent. We're probably looking at about 20 to 25 per cent up on pre-COVID levels across the country now. We're talking about 12 percent for rent, so it's a different, different scale there. But the point the point he sort of highlights is right that rents will push house prices higher because it's the return on an asset. And as the return goes up, the price of the asset goes up, people are willing to pay more to own it. That's one factor that drives house prices. Interest rates and credit is the other big factor that drives house prices and with lower interest rates, which we saw three Covid that's that really sparked a lift in house prices. And that's sort of the big separation between rents and houses is that you you don't take out a mortgage to pay the rent. 

Adam: [00:18:24] Now people might have to now, though they might, as prices keep going the way they are.

Thomas: [00:18:28] Yeah. Forget it. Forget home ownership. That house vacuum has sale. Now you people have young people to be taking out a mortgage just to pay their weekly rent. The credit doesn't affect what people are able to pay in rent, but what does what has contributed seemingly is is government spending programmes that funnelled money into household pockets. And that seems to have created a bit of competitive pressure in the rental market and that's pushed up house rental prices. And it was kind of interesting that one of the first thoughts that a lot of analysts had when COVID hit and the borders closed is that immigration was down, and that's going to result in a smaller population than otherwise would have been the case. And that would create downward pressure on rents, but we didn't see that at all. And in fact, rents exploded. 

Adam: [00:19:19] Were these the same idiots that said that house prices were going to drop by 30 per cent as well, and they all took up took off over 50 percent? 

Thomas: [00:19:26] Hmm. Yes. Yeah, yeah. Yeah, I was one of those idiots to be. I rest my case. Yeah, I mean, I think no one, no one anticipated the scale of the government response to Covid and how effective it would be. But yeah, but it's too interesting that we have had such a boom in house prices, and it seems to be the case that we just expanded we had. We just spread out more and we had fewer people in the same number of dwellings. And that created upward pressure on rents. And then you had to move the flow of people into the regions, which created huge booms in rental prices in the regions. 

Adam: [00:20:04] Right. So it's not it's not that there's more people looking to to buy houses, to rent houses, it's that there's fewer people per house because everyone like people are spreading out. And I made the point once before, like after Covid and after lockdowns, everyone was like, I'm so sick of you, I'm leaving and going, you know, there's probably relationship breakdowns all over the place, people just splitting up and going different ways and doing different things, whether that's a marriage or a friendship or whatever. Yeah. And now they also changing where they're they're renting. Is that what you're saying? So there wasn't there's not as much supply in the remote or rural areas where people might, might be moving to now. 

Thomas: [00:20:42] But yeah, yeah, I mean, we did see populations growing in the regions. Yeah, that's what I mean. That's why I sort of Melbourne and Sydney, a high relative to the other capitals, but still like two percent is not that high in the scheme of things. And particularly given it's concentrated in the high rise sector, when you get down to the suburbs, it's probably, yeah, getting below one percent. So yes, it's still a bit of a puzzle. Why people don't want to live together, why share houses on starting up or something? You know, I don't know. 

Thomas: [00:21:07] It's it's curious, is it a puzzle 

Adam: [00:21:12] where people don't want to gather together 

Thomas: [00:21:14] inside inside confined spaces Dollars during a pandemic? Is that a puzzle? Well, it is. It is. When the alternative is paying 12 per cent more on rent dinner. I mean, like normally when rents rise, that sort of that brings people closer together. They don't want to, you know, they want to find ways to cut rent. They sort of pack more people into into a house or something. So it's kind of like seems to be interesting. The people are going like whatever. I'm just going to pay the extra extra 10 percent and get away from you, bozos. 

Adam: [00:21:48] All right, Thomas. Finally, business confidence is sky high. What's going on? 

Thomas: [00:21:52] Yeah. Business confidence picked up up 19 points in the Roy Morgan Business Survey. It's the biggest jump since the pandemic started. Businesses, yeah, pretty bullish overall, back to pre-Obama current levels and they were very high. Yeah. So things are looking pretty good. Over three fifths of the businesses, so sixty two point three percent say they expect good times for the Australian economy over the next year, while the majority fifty three point one say that the next 12 months will be a good time to invest in growing the business. 

Adam: [00:22:23] So this has got this got me all confused this one, which I fucking hate it towards the end of the show. That's not unusual for me to be all sorts of confused, but the business confidence is up, but consumer confidence is down. 

Thomas: [00:22:38] That's collapsed now to the lowest level since October 2020. It's taken a few few legs down. Yeah, it's actually, yeah. 

Adam: [00:22:46] So these businesses that are selling products and services to people, how can they be so confident when the people they're selling things to like now have no confidence? I'm not ready to buy. I don't want to buy. There was like, this is a be a good year for business. 

Thomas: [00:23:01] This is going to boom. I think I think there's a couple of things. One is that not all businesses retail facing. So you got like B2C business to consumer and B2B business to business. I don't know what they break down, but not all of them are facing consumers, and not all of them swing on how happy consumers are, right? So that that might be part of the reason. But I think the other reason is that these household surveys of consumer confidence tend to be pretty connected to the flow of news. So it's been pretty grim. We've gone straight out of straight out of Covid into war made. A war in the Ukraine, followed by floods, followed by petrol prices on a breakaway, so consumers would be really feeling the pinch. Petrol prices are up about 50 per cent since the start of the year, so there's a lot of bad news for consumers like they're really they're hurting their budgets. Some of those are sort of temporary factors, and you look at the war in the Ukraine in particular. Like while it's sort of grim news and it's a terrible human story for the Australian economy is actually pretty decent news like there's been a broad based commodity price boom, which is good for Australia. Wheat prices are up like 60 or 70 per cent, which is good for Aussie wheat exporters. So the war has has these terrible headlines. The actual economic impact on Australia isn't necessarily negative and may actually be positive. So maybe the case that the businesses are responding to that and I think the other thing is that the people, when you're asking the businesses these surveys, you're talking to people with hard data to hand, they're watching their sales come in. They know how much cash is on hand in the business. They know what the food orders book looks like. They're talking to other businesses which have the same handle and the daughters. I think it's a different perspective. They're looking at the sort of numbers within their business and then taking their cue from that, whereas consumers are just looking at the headlines and swinging on that.

Adam: [00:25:03] Yeah, right. So businesses are dealing with the data and consumers are more just going off the fields. They're just like, Wow, I'm not feeling great. Whereas businesses like are about how I'm feeling, I'm looking at the data and the Dollars telling me this story. 

Thomas: [00:25:17] Yeah, I reckon it's interesting.

Adam: [00:25:18] You talk about the economy doing well and you hear this a lot you hear about, you know, in the news you hear this would be good news for the Australian economy and always. I can never translate what that means into what that means for me. Generally, like, you keep hearing, Oh great, we sold. We're going to sell heaps of wheat. Awesome. That's going to be good for the Australian economy. But then, you know, I hear about inflation, fuel prices through the roof. Everything's kind of pointing towards me having less money. How does the how does a strong economy help people who are living in it are the feeling. 

Thomas: [00:25:55] We talked a little bit about this in our first season with the economic dashboard, and 

Adam: [00:26:01] I was not in a state to be taking on information. At that time 

Thomas: [00:26:09] I was hosting a podcast. I was like, Oh, I was really trying to wrap my head around 

Adam: [00:26:15] microphones and all sorts of things. Now we might have done, but that was a long time ago, over a year ago.

Thomas: [00:26:21] Yeah. Now is it basically like the economy is a proxy for something? So it's sort of representative of stuff that we're interested in, even though it's self, it's not particularly interesting when we mean the economy. We're talking typically about GDP, which is how much stuff we're producing. We'd like that for two reasons. One. If we have more stuff or better quality stuff, we kind of think that means there's a better improvement in our standard of living. So we'd like that. But also, if we're producing stuff to produce stuff, we need jobs, we need people working and some more. Economic activity translates into more employment, which translates into more jobs and higher wage growth, and those things tend to be positive. And so when you say, Oh, the economy's doing good kind of the what's hidden in parentheses behind that, which is never stated, is a which is good for households and jobs and wages generally, right? That's sort of like the implicit. 

Adam: [00:27:21] So no, Adam, there's nothing here 

Thomas: [00:27:27] for Adam if he's looking. But it is true. It's a very blunt measure and particularly like when you're talking about like a resource boom or something that might that's good for certain sectors of the economy, but might not be good for the economy overall or for everyone in the economy. It's yeah, it is. There's nuance there that is lost. 

Adam: [00:27:45] Alright, let's leave it there. Thank you so much for tuning into the show. Once again, we really do appreciate it. Don't forget, you can check out all the other great shows from Equity Mates Media Get Started Investing feed Equity Mates Investing podcast. You're in good company. Talk money to me. Crypto Curious and Thomas massive news Equity Mates are just about to launch their eighth podcast three times a week. Super producer Sasha is going to be bringing you a new show called The Dive, bringing you the stories that matter, including broader perspective and leaving the jargon at the door, which is what Equity Mates is, is now, I think famous for is talking to you straight. So, yeah, it's going to be lots of fun. It should be in your podcast feeds now, so go and subscribe. Have a listen to the trailer, but that's it for us for another week. We look forward to talking to you again next week after the budget on Tuesday. Have an. Amazing budget, not if that's your thing. Thomas, budget night plans 

Thomas: [00:28:43] now be glued to the television and wanted

Adam: [00:28:47] to. All right, thanks again. We will talk to you soon. Bye for now.