Is the sub-prime monster back?

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 is Adam and we're joined, as always, by my little older brother and real life economist Thomas. Hi, Thomas.

Thomas: [00:00:39] G'day Adam 

Adam: [00:00:40] Doing super. Thanks to big news, Thomas Equity Mates has a new community on the Internet that you can get involved in. Head over to community. Dot Equity Mates dot com. You might be a member of the Equity Mates Facebook chat group at the moment. That's all moving online where it's much bigger. It's much better. There's a whole section just for us, Thomas, which is exciting. So you can go there. There's a comedian versus economist, I don't know what you call it, a channel group chat room, subreddit, subreddit, where I understand these things. But you can go there. You can leave us a message, comment on the shows, any of the feedback we'd love to get coming in through there and start to build out that community. B Really exciting. But as always, a big show coming up, so let's get stuck into it. The Perth Mint is no longer the gold standard in, well, gold. Turns out they might not have many standards at all, actually. The head of Nikola, as in Tesla, but not Tesla, is in trouble for wanting to be Tesla, but not actually being Tesla. And you've got to give Goldman Sachs credit. Now, hang on. Goldman Sachs has to stop giving you credit. It looks like they might have a subprime problem again. But first, inflation in the US has hit and the price of butter, eggs, milk and honey has skyrocketed. Good luck if you're trying to make a yellow biscuit any time soon. I have to actually announce. [00:02:16][95.6]

Adam: [00:02:17] Going to pivot to just eco biscuits as a cost cutting measure. Shrinkflation is what's going on with the US inflation side. Yes. At rock markets last week when it came out Wednesday. 

Thomas: [00:02:36] Shook markets came in higher than expected. The S&P 500 dropped four and a half per cent on the day. Big drop. ASX followed suit ended up closing the week down two and a half per cent. So it was the big news of the week in terms of the share markets. Yeah, and just inflation is worse than expected is sort of the basic story. Say CPI came in at 8.3% in the month of August. That was down slightly from 8.5% in July. But the key number that everyone's looking at is core CPI. So that's what the central banks are interested in. That's what they're watching. And that was up from 5.9% in July to 6.3%. So pretty decent step up and a lot worse than people were expecting, right? Sure, fuel was down. So that was the only good news story in the print. So yeah. Petrol prices are easing, but groceries, shelter, medical care is all up. Household electricity bills are up 16% on the year, which is the biggest jump since 1981. Yes. So inflation pressures in the system and not going anywhere. By the looks of things. 

Adam: [00:03:43] So you mentioned that it was slightly lower than July. Is that a good thing? Like that says it's heading the right way. Is it just that we missed expectations? Is that the word expectations? 

Thomas: [00:03:55] Nano Yeah. So it's headline CPI was down, right? But headline includes volatile items that can jump around a bit. Right. So the central banks look to do your core CPI measures which try to lock in. We look at the TRYMAINE in in in Australia. So we're just trying to like sort of cull some of that noise and get a get the essential CPI. And yeah. [00:04:18][23.4]

Adam: [00:04:19] This is why this really does pay to read beyond the headlines. Like normally I just read the headlines and I feel like I'm informed. But classic example, you've got a rating and get the core of the the article. In this case, the inflation. Yeah, right. So that's so that's is this is this finally the end of the idea of transitory inflation? Can we now say that it's it's here. It's here to stay. [00:04:48][28.8]

Speaker 1: [00:04:48] Really are. [00:04:49][1.2]

Thomas: [00:04:50] Yeah, it's it's sort of looking like and I think that's what that's what markets reacted to. So I think there was a bit of hope that yeah, based on the previous month that inflation might be starting to ease. We knew it was driven largely by some electricity prices and some sort of one off shocks. There was some hope that that might not bleed through the economy into into the other production sectors. That sort of seems to be put to bed now that, yeah, inflation is in the system, it is moving through the system is not going to pass quickly, you know, like it's sort of. Nine months ago, he was saying, yeah, inflation's coming, but it'll be six months in an hour and we'll be back to back to normal. That's, you know, that's not happening. And yet worse, worse than expected. Market economists in the US are locked in a third consecutive 75 basis points hike at the meeting this week. Yep. So that's three big hikes in a row. [00:05:46][56.1]

Adam: [00:05:47] Is that largely because Jerome Powell has said we're going to rise by another 75 points? [00:05:52][5.8]

Speaker 1: [00:05:55] Did he say. [00:05:55][0.2]

Adam: [00:05:55] Why they so confidently locking it in? [00:05:57][1.6]

Thomas: [00:05:58] You can't bank on that vote. [00:05:59][1.1]

Speaker 4: [00:06:03] You got to read between the lines when you say something like. [00:06:05][2.4]

Speaker 1: [00:06:06] The nuance in. [00:06:07][1.2]

Adam: [00:06:07] His statement, which said, yeah, we're probably going to rise another 75 points. Yeah, but I might have added timing on that. I might have imagined that I read that somewhere. [00:06:16][9.1]

Thomas: [00:06:17] But I didn't I didn't read that. But yeah, but maybe maybe he did. 

Adam: [00:06:21] Well, I do. I must I have my is much closer to the ground. I think we've established that. Yeah. Right. So I guess this may this is bad for interest rates that it is going to keep going up. 

Thomas: [00:06:31] Yeah. So that sort of that hope that we might see some smaller hikes. Same story in Australia there was sort of some hope, some talk in the markets that the next rate hike might only be 25 basis points. Markets are now locking in 50 at the next meeting as well because inflation, yeah, it doesn't seem to be going anywhere. So looks like we got another 50 on the cards. Hmm. ECB The European Central Bank moved last week as well. They hiked by 75 basis points. Another big hike that's on the back of 50 basis points in the previous meeting in July. Guess where their interest rates are now? Oh

Adam: [00:07:11] This is why I never play games with economists. 

Speaker 1: [00:07:16] I want to play a fun game. Guess where England's guess where Europe's interest rates are? I want to play, I don't know. 

Speaker 4: [00:07:26] 70, 75 basis points. 

Adam: [00:07:28] Well Tony asked me to guess where their interest rates were. [00:07:31][2.8]

Speaker 4: [00:07:31] Yeah, yeah, yeah. So they've hiked. [00:07:33][1.5]

Thomas: [00:07:34] To 75 basis points to 75 basis oh. [00:07:37][2.8]

Speaker 1: [00:07:39] Oh. [00:07:39][0.0]

Adam: [00:07:40] That's what's fun. [00:07:40][0.7]

Speaker 1: [00:07:41] Yeah. Yeah. So yeah. [00:07:47][6.2]

Speaker 4: [00:07:48] So in July they were zero flat zero. [00:07:52][3.9]

Thomas: [00:07:52] In June they were -0.5%. So rates in Europe were still negative up to a couple of months ago. That's with inflation running at 9.1%. They still don't trust that transitory. Transitory. Yeah, it's going to keep. [00:08:07][14.6]

Adam: [00:08:08] Why were they saying negative, why didn't they? [00:08:09][1.9]

Thomas: [00:08:10] I mean, I think this is this is the thing. So the central banks have been waiting for a long time for inflation to show its head and inflation consistently disappointed. And it just seemed to inflation just seemed to grind lower and lower and lower. And central banks were undershooting their targets for most of the 2000 and tens. Hmm. This and so this is sort of the idea of secular disinflation. So the disinflation is when the inflation rate goes down from, say, 2 to 1 and you still got inflation, but it's lower inflation. So that's disinflation, secular disinflation in the sense that it's disconnected from the market cycle. It's just driven by a longer term structural factors, megatrends, if you will, and no one has a clear grasp on on what that's about. Like some of it's about trade. It's about the on lining of massive production sectors in Asia, which brings the costs of things down. The idea that I kind of I like how I sort of think about it is that in a mature economy, our ability to produce things more efficiently, massively outpaces our desire to buy more stuff. And so you have this expansion of productive capacity, which pushes down the price of everything because you're just doing it more, cheaper with less resources. But consumers are sort of tapped out once you're like, you know, in a mature economy like Australia, like there isn't that much more that you need really. Like, you know, you need your basics and then your discretionary stuff is like, well, yeah, how much do you really need? [00:09:43][92.4]

Adam: [00:09:43] You just bought a 20 metre Ethernet cable. [00:09:45][1.5]

Speaker 1: [00:09:48] Just before we went on air. So I guess that's something. [00:09:52][3.8]

Thomas: [00:09:55] Like my consumption. You know, if you look at the pace of growth in efficiency versus the pace of my consumption growth, you know, efficiency is much, much bigger. And so, yeah, so price of stuff is coming down faster than demand. Pressures are pushing prices up if you think about it that way. And so in a mature economy that you have this this disinflation dynamic and then as globally, the entire global economy is maturing that this dynamic this played out in the. The advanced Western world is now playing out in developing Asia and India and in other decade in Africa. And so disinflation is sort of the is the that's that's the long run trend. And I think central banks are looking at this this spike in inflation and say, I'm like, okay, maybe it's not temporary in the sense that it's in and out of the system in six months or something. But is it a secular turn? Are we just looking at a brief spike in inflation? But before we return to this disinflationary dynamic and then we going back to having negative interest rates and you know, in that scenario, everyone goes Europe, everyone, the whole world follows Europe into negative interest rates. And that's that's just where we're at. [00:11:08][73.0]

Adam: [00:11:09] This secular concept's an interesting one because I heard about watching a video the other day and there was this guy who said, we're in a secular bull market, which is like similar to what you're saying. It's such a long term thing. Like we're still in a bull, a secular bull market. And the interviewer even was like, Shut up, what? [00:11:27][18.5]

Speaker 1: [00:11:27] He's doing you that. And he was like. [00:11:32][4.4]

Adam: [00:11:32] No, no, this is like this is just a down period. But in a secular bull market, he didn't he did about as good a job as I just did explaining it. No, that was. [00:11:42][10.1]

Speaker 1: [00:11:42] His problem. [00:11:42][0.1]

Adam: [00:11:43] I kind of understand it a bit more now, I guess what you're saying, which is there's a really long term thing at play, which is inflation's going down and this spike in inflation could be a relatively short term story. [00:11:56][12.3]

Thomas: [00:11:56] Yeah, that's right. That's right. I mean, even if it's three years, four years, you know, like we're talking about the downtrend in inflation's like 20, 25 years really since I mean, since the nineties, it's become in effect, you know, with a few ups and downs. But the trend line from 1995 to now is down. [00:12:14][17.6]

Adam: [00:12:15] Right? So what do they do? What do they how do you manage this as a as like an economist or as a, I don't know, Fed Chair Powell or whoever, you know. Well, Philip Lowe. [00:12:25][10.2]

Thomas: [00:12:25] I mean, I think this is this is the one thing that the central banks are sort of saying, like, we've got one we've got one lever to lean on, which is interest rates. And it's just not an interest rate problem. Like if it's secular display disinflation that's driven by a maturing global economies and you know, the changes in the geopolitical economic makeup of the entire globe, that's not something any one nation can change with their interest rates. Hmm. And the best you can do is sort of tinker at the edges than that. And so that's what what we've seen, I think, over the past 20 years is central banks chasing their tail. They keep lowering rates and run and boosting asset markets in the process. But for all that, you know, they're pumping asset markets, but it's not feeding through into to inflation and they keep undershooting. Hmm. So there isn't some isn't anything that the that the the central banks can really do. Right. But the bit their mandate, they sort of their hands are tied because their mandate says if if inflation is lower than your target, then you should cut rates. Right? And so that's what and so that's what there's a bit of talk at the moment about whether that coming into this this period of inflation, there was a lot of talk about whether the targets were set too high. So in Australia as to 2 to 3%, that's the obvious target band. People are saying well maybe it should be half a per cent to one and a half percent. Right. [00:13:47][81.7]

Speaker 1: [00:13:48] Or else said. [00:13:49][0.8]

Thomas: [00:13:50] Mm yeah. Like 2 to 3%. Just an arbitrary figure. There's not, there's not really an economic logic. [00:13:55][5.5]

Speaker 1: [00:13:58] I'm not sure if that gives me comfort living that or just like it's, it's totally even more disillusioned with. [00:14:05][7.3]

Adam: [00:14:06] With policymakers makers. We find out that 2 to 3% was just like a number that seemed like it felt good. So it is like, yeah, I think that's where we want to be. [00:14:15][9.2]

Speaker 4: [00:14:16] Yeah. [00:14:16][0.0]

Adam: [00:14:17] But as good. Like at least we could change it. [00:14:18][1.7]

Thomas: [00:14:19] Yeah, yeah, we can. [00:14:20][0.8]

Adam: [00:14:20] Has it always been 2 to 3% or has it been. [00:14:22][2.0]

Thomas: [00:14:23] Year since the target came in? But the idea of inflation targeting central banks isn't that old. Like, that's that's not like 1990, know three or four or something that came in for Australia. Oh right. Yeah. So it's, it's not like a forever thing. [00:14:37][14.3]

Adam: [00:14:38] What did we do before we targeted inflation? We just had it. We know what we were doing. [00:14:43][4.9]

Speaker 1: [00:14:46] It just. We were just a rudderless ship adrift on the ocean. [00:14:51][4.8]

Thomas: [00:14:52] No, no, we were we used we used interest rates and money supply, the two tools of monetary policy. We use those to target growth. Right. And to target GDP growth. And that was part of the mix of of working with GDP training and full employment. Those were the objectives. And then there was the sort of the the paradigm shift that happened in the eighties and nineties where we went like, you know, it's just better if the central banks ditch kind of everything else and only look at inflation and just go like, we don't care about anything but inflation, right? It's a bit like. In, you get a really done fullback too, just to tag the full forward and just take him out of the game. Right. [00:15:31][39.3]

Adam: [00:15:31] Gotcha. [00:15:31][0.0]

Thomas: [00:15:32] It's a bit like that. They just went like, let's just take inflation off the table. We'll get the central banks. Just take that that that means that central banks can't do anything else in terms of growth or whatever. But at least then inflation's out of the game. Right. That was that was the idea. [00:15:46][13.7]

Adam: [00:15:46] Yeah. We had to tackle inflation by kicking him in the shins. [00:15:49][2.3]

Speaker 1: [00:15:49] Yeah. [00:15:49][0.0]

Adam: [00:15:53] Tommaso, what's going on with the Perth Mint? Why are we. Why are we talking about this Perth Mint? [00:15:59][5.4]

Thomas: [00:15:59] In a bit of trouble, actually. Yeah. AUSTRAC, which is the Australian Financial Crimes Authority. Hmm. They're investigating them and they've ordered an audit of the Perth Mint. Hmm. [00:16:11][12.1]

Adam: [00:16:12] Yeah. What does the Perth Mint do? [00:16:13][1.0]

Thomas: [00:16:14] Well, quite a lot, as it turns out. [00:16:16][2.3]

Speaker 1: [00:16:17] Really? Yeah. [00:16:17][0.7]

Speaker 4: [00:16:19] I mean, I thought it was just. Just a. [00:16:21][1.9]

Thomas: [00:16:21] Glorified museum, but it's a thing in a process. It is the world's largest producer of freshly minted gold anywhere in the world. [00:16:32][11.8]

Adam: [00:16:33] Wow. The world's largest. Yeah. [00:16:35][2.0]

Speaker 4: [00:16:36] Yeah. [00:16:36][0.0]

Thomas: [00:16:36] All right. Yeah. It means more gold than anything. Any other mint in the world? Hmm. Yeah. 10% of annual global gold production comes out of Perth Mint. Yeah, right. Yeah. So it's massive. And then. Yeah, so they turned over $26 billion worth of gold last year. [00:16:52][15.6]

Adam: [00:16:52] Why is Aussies track why they are after the mint. All the gold obviously. [00:16:56][4.1]

Speaker 1: [00:16:58] Yeah. That's just like. [00:16:59][1.9]

Adam: [00:17:00] After that worked out about. [00:17:01][1.2]

Speaker 1: [00:17:01] $20 billion worth of gold. But Jesus said, you guys like a what? [00:17:08][6.2]

Thomas: [00:17:10] So not only do they mint all this gold. [00:17:12][1.7]

Speaker 4: [00:17:12] But they also. [00:17:13][0.4]

Thomas: [00:17:14] They hold $6 billion worth of gold on behalf of its clients. Hmm. Yes. It's like a custodian of gold. Okay. Yeah. And central banks, sovereign wealth funds and individuals from 130 different countries have gold stored with the Perth Mint. They even have their own app to facilitate trading of gold. [00:17:36][21.4]

Adam: [00:17:36] Is it cool? Is it choc mint or something like that? Right. So it's a cool name. [00:17:41][4.6]

Speaker 1: [00:17:42] That would be shock as well. I mean. [00:17:44][1.6]

Thomas: [00:17:45] With gold passports name gold. [00:17:47][2.3]

Adam: [00:17:48] Cards is pointing. [00:17:49][1.0]

Speaker 4: [00:17:50] Past the mint. [00:17:50][0.5]

Speaker 1: [00:17:56] I do not want to go it out to dinner mints. Yeah, it was stuff of that. [00:18:07][11.5]

Speaker 4: [00:18:08] It's gold. Yeah. So, yes. [00:18:11][3.4]

Thomas: [00:18:12] So they so they manage this all this gold on behalf of clients. But apparently their practises for sort of the counter-terrorism and anti-money laundering practises were a bit lax austrac's come after them. So AUSTRAC. Probably the last time we heard of them they went after CBA and Westpac. Hmm. Because their anti-money laundering practises wasn't up to scratch and CBA Westpac end up settling with them I think for improving their practises. But yes. So now, now they're now they're coming after the Perth Mint. [00:18:45][33.0]

Adam: [00:18:46] Who owns the Mint? Is it a is it a government thing or is it a. [00:18:49][3.0]

Thomas: [00:18:49] This is the thing. It's is a it's owned by the West Australian Government. [00:18:52][3.1]

Adam: [00:18:53] Oh yeah. That's good news and bad news. [00:18:55][2.8]

Speaker 1: [00:18:56] Yeah. Yeah. [00:18:57][0.6]

Thomas: [00:18:58] It's bad news in the sense of like if you know, George Clooney and Brad Pitt orchestrate a complex heist and steal money from the gold from the from the Perth Mint, the West Australian people via the government are on the hook for any losses. [00:19:12][14.4]

Adam: [00:19:14] Right. That's a. [00:19:15][0.8]

Thomas: [00:19:15] Problem. Yeah. And is and I think it's one of these things where it was set up, it was it was running as a government mint, doing the stuff that mints are supposed to do. And then became it started working like a vault, like safe deposit box for around the world. And then that business just grew and grew and grew and there was no sort of conscious decision where the West Australian government went, you know, we should get into like working as a, as a bank for international. Yeah. National markets is just sort of like just evolved that way, you know Queensland's not going to get, you know it's set up, let's set up a mint and let's store gold for it. [00:19:53][38.2]

Adam: [00:19:53] Wasn't the intention just that happened this thing, one thing led to another. [00:19:58][5.0]

Speaker 1: [00:20:01] And. [00:20:01][0.0]

Adam: [00:20:02] Before you know we're holding 26 billion worth of gold. [00:20:05][3.4]

Speaker 1: [00:20:06] For people and we've got an app like. [00:20:13][7.5]

Adam: [00:20:14] These things have a habit of escalating quite quickly. So. So if if fines come, then that means the taxpayers on the hook, right? [00:20:20][6.5]

Thomas: [00:20:21] Yeah. They've got a bit of time. They've got 18 months. So they got to. Appoint an auditor. The auditor then has 18 months to report, and then they've got to tidy up, tidy up shop. So they've got a bit they've got a bit of time there. But yeah, but there's one guy like one analyst who's saying like if it's come to this, it means it's pretty, pretty sloppy. You know, normally I'll try. We'll go in and go like, oh okay. Look in this spreadsheet needs updating. Just do that. Mhm. But like if it's come to this they're pointing auditor. He's saying this implies there's a whole buffet of failure right at the minute. [00:20:54][33.8]

Speaker 1: [00:20:55] Smorgasbord. [00:20:55][0.0]

Adam: [00:20:56] Of, of failure. Hmm. It's hard to do like some clever accounting as well. You know, you can sort of hide numbers and stuff in complex spreadsheets. You try to do that with gold bullion and it's very difficult. You could a lot just place things. Uh, yeah. Here and there. All right. Why don't we take a quick break here, grab a word from this week's sponsor and be back with more Canadian versus economist right after this. Welcome back here on Canadian versus Economist. You can, of course, send us an email if you like CV at Equity Mates dot com or via the website Equity Mates dot com forward slash CV. You'll also find us on Instagram and Facebook at CV podcast and a reminder community dot Equity Mates dot com for the online forum featuring us along with the whole Equity Mates Media Gang and get involved there. But Thomas, Goldman Sachs has another subprime problem. What's going on? Didn't they learn their lesson. [00:21:55][58.6]

Speaker 4: [00:21:57] On our way to another one. [00:21:59][1.1]

Adam: [00:21:59] Well the GFC. [00:22:00][0.3]

Thomas: [00:22:01] Yeah, right. Okay. Yeah. Well that wasn't specifically a Goldman's problem but. [00:22:04][3.6]

Speaker 1: [00:22:05] Well I think, I think you thought it was a pretty big problem for them, right? [00:22:10][4.8]

Thomas: [00:22:12] Yeah. Fair enough. Yeah. Yeah, no they're they're got a, they got a subprime problem. That was, that was the headline that CNBC was running during the week. Yeah. It turns out that the credit card business is the worst in the industry, so it's a bit of a bit of a new thing. So Goldman Sachs is traditionally like an investment bank and typically they're only dealing with institutional players. You know, your mum and dad retail sector is not something they ever catered to, but they've been trying to get into that. And so a couple of years ago they launched the credit card business and we learnt during the week from a note from Jp morgan that yeah, that their delinquency rate, their loss rate on credit cards is at just under 3%. That's twice what it is at Bank of America for example. And it's even worse than Capital One, which is the largest subprime player amongst the big banks. So they're at 2.2.2. So it's considerably worse than than even like the subprime players. So subprime is sort of an American thing. We don't have this so much, but you have your, you have credit scores. [00:23:24][71.8]

Speaker 4: [00:23:25] Um. [00:23:25][0.0]

Thomas: [00:23:26] In America and this is sort of an algorithm that sort of pulls together a bunch of things to give you a credit score. You get a score between 350 and 850, and then it sort of says anything below 60, 60. It's not a firm definition with that sort of the benchmark. Anything below 6060 is subprime, right? So why not? [00:23:47][21.3]

Adam: [00:23:48] And how did this and how did subprime? Because that's the term that resonates with me with the GFC. How did this how did subprime cause the GFC? [00:23:56][8.7]

Thomas: [00:23:57] Yeah. So what you had in the GFC, you had subprime mortgages. So there was a sort of explosion in subprime mortgages where anyone, regardless of their credit score, could get a mortgage, which was itself problematic. But then those subprime mortgages were bundled up into mortgage backed securities, which sort of concentrated and leveraged them. And then those mortgage backed securities were sort of bought and sold, and some banks took on really high exposures to those mortgage backed securities. And then when the mortgages beneath them collapsed, then the sub the mortgage backed securities collapsed, and then that's when Bear Stearns and some others hit the wall and went bust. And that caused. So yeah, so initially in the global the global financial crisis was I think kind of an Australian thing that we started calling it the GFC. I don't know if you know, certainly like a while ago, maybe, maybe less, I know. But you know, Americans didn't have a GFC. It's a bit like the World Series. Baseball was like right now, like everything's in America is global. Yeah, it was called the subprime crisis for a long time. [00:25:02][65.3]

Adam: [00:25:03] Why does Goldman's have so many subprime borrowers like it? So they they just started targeting. [00:25:08][4.9]

Thomas: [00:25:08] Well, the interesting thing is that so they they paired up with Apple. Apple wanted to launch an Apple card. [00:25:13][5.0]

Adam: [00:25:14] Yeah. [00:25:14][0.0]

Thomas: [00:25:15] So they wanted to launch a credit card to they got 100 million iPhone users in in America. And they wanted to to target that market with a credit offering. [00:25:23][8.6]

Speaker 1: [00:25:24] And. [00:25:24][0.0]

Thomas: [00:25:25] They wanted to. So they're looking for a banking partner to do that. A whole bunch of banks went not that is too risky. We don't want to get involved. So normally Apple works with Barclays, but Barclays said no. Credit Suisse said no. A couple of others went not we're not doing it. But then Goldman Sachs went, Yep, we're going to have a crack. We're going to do this right. We'll be the banking partner behind Apple Card. And so they launched Apple Card in 2019 right in. And it kind of sounds like Apple was really like the sort of the play for Apple here is that it's more about locking people into the Apple ecosystem and making credit part of that ecosystem. And so they were keen to push that out to as many as 100 million as possible. But if you're talking if you're talking iPhone user, it's probably is not much of a screen. So so it's like your Bank of America, which has a better credit, like a better delinquency rate, then, you know, they're much more selective in who they're offering credit to. [00:26:21][56.3]

Adam: [00:26:22] I would. Think that there wouldn't be a lot of subprime borrowers that could afford an iPhone. [00:26:26][4.5]

Speaker 1: [00:26:28] Also. [00:26:28][0.0]

Thomas: [00:26:29] I don't think I don't think subprime is like, you know, poor subprime, but prime is like quality, right? Subprime is like not not great quality. Right. It's unfair. [00:26:40][11.4]

Adam: [00:26:41] Yeah. [00:26:41][0.0]

Thomas: [00:26:41] So it's okay. [00:26:42][0.9]

Adam: [00:26:43] IPhone essay type. [00:26:44][1.0]

Thomas: [00:26:44] User. [00:26:44][0.0]

Speaker 4: [00:26:49] You know, it's not it's not. It's not we're not talking when we're talking subprime. [00:26:51][2.6]

Thomas: [00:26:52] We're not talking people without jobs and with with 20 credit cards and a drug addiction or something. [00:26:58][6.6]

Adam: [00:26:58] I thought subprime in my mind, I was like that. They're just high risk, like really bad. [00:27:04][5.6]

Thomas: [00:27:05] Borrowers. Yeah. Yeah. And I don't think I don't think that's true. I mean, that was that was sort of how it was presented in the big short movie where it was like women working at strip clubs with no dependable income, getting more getting multiple mortgages for investment properties. That's how they sort of sold subprime. And there was that was an element of that. But subprime, you know, isn't it's a higher bar than what you think. [00:27:26][21.6]

Adam: [00:27:27] Right. Okay. [00:27:27][0.4]

Thomas: [00:27:28] Yeah. Fair enough. [00:27:28][0.5]

Adam: [00:27:29] Right. So that's how they got into it. [00:27:30][1.0]

Thomas: [00:27:30] Mm. Yeah. Yeah. So that's how they got into it. And then I mean sort of the interesting thing is with like this report we learnt about this from a report from JPMorgan which is a bit like Cole's writing, a report about how Woolworths food isn't that fresh. [00:27:45][14.9]

Speaker 1: [00:27:49] Yeah. [00:27:49][0.0]

Thomas: [00:27:49] And it may just be the play here is that the Goldman Sachs has gone like we have no retail offering. We don't have, you know, like say, you know, Westpac here has a retail customer and then they can go, hey, you do you got a savings account with us? Do you want a credit card? And so it's it's an easy. Goldman Sachs didn't have any of that. They had no customer contact. Right. And so Apple comes along and goes, here's 100 million customers. Yeah, you can you can pitch to them. And it might be the case that they just go like now we you know, it's a bit we take you have a riskier loan book than we otherwise would, but we got access to 100 million customers, so maybe it's worth it. [00:28:29][39.5]

Adam: [00:28:30] Yes, I guess that's the question is do they do they care? Like is who who cares about this number being so low or that or so high, as it were, of subprime borrowers? Does Goldman Sachs care? Are they like, man, that's fine. Well. [00:28:44][14.1]

Thomas: [00:28:45] Where yeah. I mean, I think that's and then they're not answering questions on it in the in the CNBC tried to contact them and then they didn't want to talk about it. But yeah, I mean, it's, it's, it's potentially a problem. Like if, you know, if we if America moves into recession and then like those subprime borrowers are the ones that are going to go under first, that could create a lot of large losses on the on Goldman Sachs books. But from memory, Goldman Sachs pockets are pretty, pretty tame. [00:29:15][30.0]

Speaker 1: [00:29:16] You know. [00:29:16][0.1]

Adam: [00:29:17] What about Apple, though? [00:29:18][0.8]

Speaker 1: [00:29:18] How's Apple? Yeah. Yeah. How much. [00:29:23][4.6]

Speaker 4: [00:29:23] Cash does Apple. [00:29:24][0.6]

Speaker 1: [00:29:24] Have on? Yeah, it's been a. [00:29:27][2.5]

Adam: [00:29:27] Rough it's been a rough couple of months in the market. F down to over the almost moment could almost be back to 3 trillion although yeah. [00:29:35][8.1]

Speaker 4: [00:29:36] Brand recognition is an issue for them. [00:29:38][1.7]

Speaker 1: [00:29:40] Yeah. [00:29:40][0.0]

Thomas: [00:29:41] They might. Yeah, that's right. They might just not care. And, and the other. [00:29:45][3.2]

Speaker 4: [00:29:45] Day there was a talk in the industry. [00:29:46][1.5]

Thomas: [00:29:47] That the Goldman Sachs isn't chasing debt as hard as some of the other players in the market. [00:29:51][4.4]

Adam: [00:29:52] Right. [00:29:52][0.0]

Thomas: [00:29:52] So like if someone stops repaying, they're not going hard after them. Yeah. Might not just have the systems in place, but because they're not chasing them hard, they're not showing up the the showing up in the delinquency data more than I would them would at other banks. [00:30:06][13.4]

Adam: [00:30:06] Hmm. Yeah. I guess if worst comes to worst, they can always just launch a buy. Now, pay later. Okay. All right, Thomas. First there was Nikola Tesla, the man who invented electricity. If I'm not mistaken, then there was Tesla. Now there's Nikola, the company. What's going on? It Nikola? [00:30:27][20.5]

Speaker 4: [00:30:28] Yeah. [00:30:28][0.0]

Thomas: [00:30:29] Yeah. So Nikola. Nikola followed Tesla. Nikola launched itself as an electronic truck. Mm. Manufacturer. So Tesla. Tesla first launched in 2003, Nikola launched in 2014. So like 11 years after. Yeah. And turns out it's not a great company, not a great product, not even a product. [00:30:51][23.0]

Adam: [00:30:52] Not. [00:30:52][0.0]

Speaker 1: [00:30:52] Huge and. [00:30:53][0.2]

Adam: [00:30:54] It's good. It's brought many a company unstuck in the past is when you don't have anything to sell. Yeah, that's always been a challenge when you don't offer any products or services, especially when you say you do. [00:31:08][14.2]

Speaker 1: [00:31:09] Yeah. [00:31:09][0.0]

Speaker 4: [00:31:11] I'm surprised they don't teach that in business school. [00:31:13][1.9]

Speaker 1: [00:31:15] Yeah. [00:31:15][0.0]

Adam: [00:31:16] Well, it does. It seems less and less important these days. It like it used to be that you should turn a profit with you be. And too. But that doesn't seem to be so much of a thing anymore. As long as you might turn a profit one day, people are pretty happy to buy it. [00:31:28][11.9]

Speaker 4: [00:31:28] Yeah, yeah, yeah, yeah. [00:31:29][1.3]

Thomas: [00:31:30] Now, that was the the management philosophy that the CEO founder Trevor Milton was following. He's now he's gone on trial. Last week, his jury was selected and he's the trial's starting this week. The US Attorney's Office is alleging that he lied about nearly all aspects of the business. [00:31:50][20.1]

Speaker 1: [00:31:51] NEELY Oh, yeah. [00:31:53][1.5]

Adam: [00:31:54] Nearly all aspects of the business. That's that's pretty damning. Yeah. Well, that says to me, there was some there was some highlights in there. There were some high points. It wasn't all bad. [00:32:03][8.5]

Speaker 1: [00:32:03] It wasn't all bad. Yeah. [00:32:05][2.2]

Speaker 4: [00:32:07] Yeah. What did he get? Right, like the address, postal address. [00:32:10][3.3]

Speaker 1: [00:32:11] Business registry. He got a navy and. [00:32:13][2.0]

Adam: [00:32:14] Anything he could get for free business related. Mark, that's from car parks. [00:32:18][4.4]

Speaker 4: [00:32:19] Yeah. So he's he's. [00:32:20][1.2]

Thomas: [00:32:21] Facing two counts of securities fraud and two counts of wire fraud and facing up to 25 years in prison. Basically saying he just he just talked up the company way too much and lied. Is the allegation right? Just lied about a whole bunch of stuff. The allegations are pretty pretty damning slash funny. He said that the allegation is that he Milton said this first semi-truck prototype the Nikola one was fully functional but it wasn't I don't think it even existed. [00:32:55][34.3]

Adam: [00:32:56] Just missed. [00:32:56][0.3]

Speaker 1: [00:32:57] His. Yeah. [00:32:58][0.4]

Speaker 4: [00:33:00] Not quite. And not enough to have anything. The grey area. [00:33:02][2.1]

Speaker 1: [00:33:05] He had a truck? Yes. Do you really have a truck? No, I don't have any trucks. [00:33:10][5.5]

Speaker 4: [00:33:11] I got an idea. [00:33:12][1.1]

Adam: [00:33:13] I got an idea for it. I got some drawings of trucks. Would you like some drawings of trucks? [00:33:16][3.6]

Speaker 1: [00:33:17] Yeah. [00:33:17][0.0]

Thomas: [00:33:18] Yeah, yeah. He said that? Yeah, he said that. He also had said that Nikola had engineered and built an electric pickup truck called the Badger. He said that he did that entirely on his own, but prosecutors saying he had little more than concept sketches and. [00:33:32][14.4]

Speaker 1: [00:33:32] Renderings. [00:33:32][0.0]

Speaker 4: [00:33:34] At the time he made those statements. [00:33:35][1.2]

Speaker 1: [00:33:36] And it was just a picture of very animal. Here it is. He's the fat badger. [00:33:42][5.2]

Adam: [00:33:44] He sounds a bit he sounds mad. [00:33:45][1.2]

Speaker 4: [00:33:45] Yeah. And then when he did eventually. [00:33:46][1.0]

Thomas: [00:33:48] Create a prototype of the Badger, the truck was, in fact, built by a third party vendor. And not by. [00:33:53][5.4]

Speaker 4: [00:33:54] Not by Nikola. [00:33:54][0.5]

Thomas: [00:33:55] Her name was based on designs from another automaker. [00:33:57][2.4]

Adam: [00:33:58] It was a very bad badger. [00:33:59][0.9]

Speaker 4: [00:34:00] And then he also he showed investors a video. [00:34:05][5.0]

Thomas: [00:34:06] Of a prototype truck driving along a road. Turns out he just took the truck to a top of a hill and. [00:34:12][6.5]

Speaker 4: [00:34:13] Rolled it down and filmed it. [00:34:17][4.3]

Adam: [00:34:19] It was we might have just been presuming we had to stop the truck at some point out of this speed, demonstrating the braking, compact capabilities of the truck. [00:34:27][7.5]

Speaker 1: [00:34:28] Stopping power, having you ignore. [00:34:32][4.7]

Adam: [00:34:33] The fact that driving down the hill, watch the brake. [00:34:34][1.9]

Speaker 1: [00:34:36] There. [00:34:36][0.0]

Speaker 4: [00:34:39] Uh, yeah. Then Milton also told. [00:34:43][4.0]

Thomas: [00:34:43] Investors that Nikola was producing hydrogen gas, which wasn't had developed electric vehicle batteries in house, which it hadn't, and it had binding orders representing $1,000,000,000 in revenue, which it hadn't either. [00:34:58][15.0]

Adam: [00:34:59] It didn't. [00:34:59][0.3]

Speaker 1: [00:35:01] Yeah. [00:35:01][0.0]

Speaker 4: [00:35:02] So yes. And nearly all aspects of the business. [00:35:05][3.2]

Adam: [00:35:06] Is hard to pinpoint exactly what it was at which point it came unstuck. Yeah, there's so many places where it could have. [00:35:14][7.6]

Thomas: [00:35:14] I mean, this is the thing. So launched in 2013. By 2020, before it had come undone, the share price was up to $90. A share is now crash. It's now $5 a share. [00:35:26][11.7]

Adam: [00:35:26] Right. I think this is the same guy. He's actually under investigation or there's a case pending or was pending because he he bought a farm. [00:35:34][7.8]

Thomas: [00:35:35] With a ranch in Texas. [00:35:37][1.3]

Speaker 1: [00:35:38] A Red Bull with stocks with Nicholas. [00:35:42][4.8]

Adam: [00:35:43] Stocks that were valued at like, I don't know, something silly. I think that was $16 or something at the time that are discounted stocks or whatever. [00:35:52][8.8]

Thomas: [00:35:52] Yes, he got undone by a short seller. So Seidenberg Research all right. Yeah. Uncovered the sort of fraud allegations and then that's when the share price crashed. And then and then I mean, interesting, like talking about the role of short sellers in the market. But I think the the attorney's office got it got involved after the short sellers released all the research and it kind of came embarrassing them like, okay, I guess we better charge this guy with something. [00:36:17][24.8]

Adam: [00:36:20] Just looking here. Even their logo, it looks like. They've just rearranged the Nokia logo. [00:36:24][4.3]

Speaker 1: [00:36:25] The letters added. Now. [00:36:31][5.8]

Thomas: [00:36:33] I would have thought, you know, if someone launches Tesla and then someone launches Nikola, I'm like, that's a that's a bit of a red flag. [00:36:40][7.3]

Adam: [00:36:41] Yeah, I. [00:36:41][0.6]

Thomas: [00:36:42] Kind of like that's not a that's not an innovative, vision driven company. 

Adam: [00:36:47] It's like expecting Panasonic quality when you're buying Panasonic. It came out in the nineties like. 

Adam: [00:36:54] Alright, that does it for this week on Comedian versus Economist. Thank you so much for listening. We'd love it if you left us a review. Wherever you get your podcasts, we'd really appreciate that. And don't forget Film Fest happening October 15th head to Equity Mates dot com forward slash finn fest for all the details but for us it's bye for now.