“Just hours from collapse” – Trussonomics takes UK to the brink

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: [00:00:38] Yeah. Good. Adam, how are you going? 

Adam: [00:00:39] I'm excellent. We are coming to you today from the Equity Mates studios here in Sydney as we gear up for FinFest this weekend, which somewhat anticlimactic will have already happened by the time you're listening to this. But we're very much looking forward to it. And as you know, we love having guests on our podcast, and we're lucky enough today to be joined by none other than the CEO of Equity Mates, Alec Renehan. Ren, welcome. 

Alec: [00:01:04] Thanks for is great to be here. Don't tell Brice that you called me the CEO he'd like to claim that title, but it's great to be here. I'm a big fan and I feel like I get a front row seat to just watch you guys. 

Adam: [00:01:16] Sit back and watch the magic. 

Alec: [00:01:17] Yeah. 

Adam: [00:01:19] You're in for a treat. This is actually the first time that we've ever recorded live Ren. But it's also actually the first time, Thomas, that I have ever recorded in the same room together. So we're normally on other sides of the country. So, um. [00:01:31][12.5]

Thomas: [00:01:32] You're nothing. What I thought you'd look like. 

Alec: [00:01:36] Guys is funny when you're on the same stage. That's the question.

Adam: [00:01:39] All I had was the pictures of you from. From when you were 12. 

Alec: [00:01:42] Yeah. 

Adam: [00:01:43] All right. Big show. Coming up, we're going to be taking a look at what's going on with Aussie house prices. Are the early Covid predictions of a 30% drop finally coming true? We're going to be chatting some stocks with Rant and saying what company results can tell us about the big picture. And a pub in Ireland is battling the energy crisis by offering a 20% kill count. I think they tried to make a clever play on the word discount there. I think if we're just making up words, I would have gone with that count because all you need to know is it's 20% off. It doesn't matter if it's a discount or debt count. But first fears the Bank of England could be losing customers, which is pretty bad because it only has four. Thomas What's going on at the Bank of England? 

Alec: [00:02:27] Well, the Bank of England customers. England, Ireland, Scotland and Wales. Clever, clever. Right. So you realise they're only really running fine margins. 

Adam: [00:02:35] When it comes to customers. 

Alec: [00:02:36] Yeah. 

Adam: [00:02:37] And they haven't, they haven't gotten any new customers in years. 

Alec: [00:02:41] Yeah. 

Adam: [00:02:41] Yeah. You need to work on their customer acquisition. 

Thomas: [00:02:44] Customer acquisition costs going up a lot since you went off colonialism. 

Alec: [00:02:51] Yeah. 

Thomas: [00:02:51] I mean, this is another one of these cases where we take two weeks off and things go to PW World exploded. 

Alec: [00:02:58] You guys missed a big, too. 

Alec: [00:03:00] Yeah. Two weeks. Yeah. Yeah. 

Thomas: [00:03:02] Well, the financial system almost collapsed is sort of how how The Economist magazine was sort of saying it's I mean, it's interesting they saying it's a high stakes game of financial stability, chicken that the Bank of England's playing because a lot of pieces of this puzzle and it's kind of hard to sort of know where to start. So. But basically, the pension funds really got into trouble. The Bank of England had to step in and bail them out as we speak. They're still bailing them out. But Governor Bailey has announced that they're not going to they're going to stop bailing them out tomorrow. 

Adam: [00:03:32] I think that's a mouthful in itself. Governor Bailey's doing the bailout stuff. Why are the Bank of England bailing them out? Like, why can't what happens if the pension funds go under or. 

Thomas: [00:03:43] Yeah, no, that's that's not good. 

Adam: [00:03:45] That's the financial crisis we're trying to avoid. 

Alec: [00:03:47] Yeah. What happens if your superannuation fund goes under? 

Adam: [00:03:50] Yeah. Could be back in the black, at least. 

Alec: [00:03:53] I've got to say, though, the whole financial system almost collapsed. I feel like we've lived through like four almost collapses in the last decade. JF Say almost collapse covered, probably almost collapsed. China you remember last year the property market. Was there a contagion there was going to almost collapse? I don't think it's a daily occurrence. 

Adam: [00:04:09] Now that story hasn't even finished, has it? The China story? No, it's still going. 

Thomas: [00:04:13] Yeah, there's always something. I mean, my entire career as an economist, there's always been something that happens and it's sort of like and then you sort of navigate around it and things are okay. And then the next crisis hits and but we live it like a highly leveraged financial system, which means that it's risky and stuff goes wrong. 

Alec: [00:04:30] Plenty for us to talk about, I guess. Yeah. 

Adam: [00:04:32] It's a it's a great time to be running a macroeconomics podcast. 

Alec: [00:04:35] Yeah. 

Adam: [00:04:37] So so what was happening with the pensions, the hedging operations didn't quite go as well as they planned. 

Thomas: [00:04:42] So let's just step back a bit. So the context here is that through COVID, we had quantitative easing where the Bank of England's printing money and pumping into this into the system. The mechanism for that is that they're buying bonds from the government. The government gives them bonds, the Bank of England gives them cash. The cash goes into the system and that's how you print money. They then announced that as inflation got out of control, that they were going to go to quantitative tightening, so that that means the reverse. So rather than buying the bonds are going to be selling the bonds. And at this point, the bond market sort of is on high alert because, like, we haven't ever successfully navigated quantitative tightening really? Like, you remember, like the taper tantrum. In 20 1314 was about when the Fed was going to scale back its bond purchases. So to like just dial back quantitative easing a little and markets freaked out. We're now talking about quantitative tightening. And so bond markets are on edge. So that's going on. That's the context. The British government then comes in and says, we're going to cut taxes and we're going to increase spending and we're going to take on £65 billion of debt and we're not got no real plan to fund it other than selling bonds. So the bond markets, like looking at the Bank of England's going, oh, they're going to start selling bonds is how is this going to go? And then from the sidelines, the government comes and goes, Oh, we're going to sell a crapload of bonds, too. 

Adam: [00:06:08] So this is one guy inside the Bank of England just buying and selling his own bonds. Like, it's just. 

Alec: [00:06:13] Like he's a one computer. 

Adam: [00:06:15] Like sell, sell and then move to the next line, like, bye bye. 

Alec: [00:06:19] But yeah, that was that was the thing about.

Thomas: [00:06:21] Like why the the the government's plan seemed a little ridiculous was because the Bank of England was trying to tighten. And then they got a policy which asked them to sort of buy bonds or well, not not necessary. The Bank of England had to, had to buy the bonds the government was selling. But there the government was selling bonds into a market that was all worried, already worried. If there's too much selling pressure, which push that pushes down prices, pushes up yields. So that's happening. So that sort of created a and then the pound collapsed and all that stuff. We talked about that last time. And then you've got the pension funds. And the pension funds have been worried about the low interest rate environment. So they've got these liabilities coming up so long, long down the future, like all the pensions that they've got to pay. So they have these long, long duration liabilities that they're sitting on, but they're in a low interest rate world. And so. So they've been worried. How do we how do we come up with the money to to cover our liabilities? And one of the things they did is they then hedged against those long term liabilities, and they set up these liability driven investments, which did that through gilts, through through the government bonds. But then they did that in a in a really leveraged way. So that would buy the bonds, like I have $100, buy $100 worth of bonds that have the bond that then take it to another party, like take it to you and go like, can I give you this bond? And a promise is a repo, so I promise to buy it back later. You go. You're sure? Here's $100. They then took that $100 and then bought another bond. Oh, right. And then did the then repo Ponzi scheme. 

Alec: [00:07:54] Yeah, one little bit. Little bit. Little bit. Okay. So this is what's.

Thomas: [00:08:01] What they're sort of realising. And so and that's how they were hedging their, their long term liabilities by leveraging bonds in the here and now. 

Alec: [00:08:10] Right. 

Thomas: [00:08:11] But then the bond prices like blew out of the water when when the government stepped in the pension fund set up these elders, the liability driven organisations too, and their sole function. There were something like £2 trillion. It's a big industry, but they're so function is to manage this hedging through. And so they. 

Alec: [00:08:29] Had one job and so. 

Thomas: [00:08:35] Their holdings there, the values of the bonds that they held which were highly leveraged. 

Alec: [00:08:39] Halved. 

Thomas: [00:08:39] In four days. Right now with this blow-out. Yeah and and because their leverage they're on margin calls. So the people that they've repaid to were like, oh, you need to come up with more cash because you now you're overleveraged. And so they've got to sell into a market that's collapsing. 

Adam: [00:08:56] Yeah, right. 

Thomas: [00:08:57] And so that created this, this dynamic and the what the Bank of England called it a self reinforcing fire sale dynamic in the bond market. 

Alec: [00:09:06] Oh, okay. Well, because they they had to sell at discounted prices and then that created more selling. More selling draw prices more. Yeah, right. If there's one player in the financial system, I don't want doing these things. It's my retirement fund. Yeah. How are they? The only ones doing this? This is the. 

Thomas: [00:09:23] Things like it is, though. They talk about the hedging. Did the hedging work? The hedging worked because the liability, their long term liability, shifted as interest rates went up so that their problem in the long run disappeared because interest rates are going up so big. But because it's assets matching liabilities as their liabilities fell, their assets fell in the short term as well. So the hedging worked mathematically, the hedging work. 

Alec: [00:09:48] Of course, it didn't just be these economists in the area. 

Adam: [00:09:52] I'm telling you, it worked.

Alec: [00:09:54] Exactly as we. Why is the government giving us three days to fix it then? If it works. 

Thomas: [00:10:03] Then net position was okay over the long run, but their short term position, their gross leverage in the short run was a total mess. And so like the hedging did what it was supposed to do, but gross leverage was what mattered, not net leverage. And that's where they got into trouble. And that's worked. And that's what Jeremy Nock was saying, is saying like this is actually kind of scary because like a lot of people who thought they were. Covid. Yeah. Now I realise that actually massively exposed. 

Adam: [00:10:27] Hmm. So is it fixed now? Like, is the financial system okay? Or where where are we at right now? So this is Friday, the 14th of October. 

Thomas: [00:10:37] Like a couple of days ago, the Bank of England, they said they pulled an all nighter. They put two all nighters in a row to try to come up with a plan. 

Alec: [00:10:45] What are they going to start up? We tell them when we finally grow into a proper banks. We're looking back on this time where we put all this stuff together and put it all in order. They just bought into the pieces. Yeah, but then that's for. 

Thomas: [00:11:07] Two nights in a row. And then all they could come up with is like, where we. We just need to buy some bonds. Right. And so they started buying bonds, which is probably the fairly obvious solution. But they've been buying 5 billion a day worth of bonds. So like not it's not pocket change. 

Adam: [00:11:21] Yeah. 

Thomas: [00:11:21] I mean, doing that for three days and that seemed to settle the market. But then the Governor Bailey saying we're out like you've got three days take to the pension funds, you got three days to tidy house and then we're out. We're not buying any more. So you need to sort this out. And so everyone's like, Ooh, what happens when those three days and like, well, and then there's conflicting reports because like he's had staff, a briefing, government minister saying now, now we're going to keep we're going to keep going. 

Adam: [00:11:44] And can't I just can't the pension funds just call the bluff anyway? Just go. Well, what are you going to do if we don't if we don't fix it in three days, we'll pay you bailed out last time because you can't afford, you can't afford us to go under. Mhm. So maybe we just wait. 

Alec: [00:11:58] Yeah. And your problem is your, your new government could be done for another. Another. Yeah. Well this is, this is the. 

Thomas: [00:12:10] Hard spot that is in that it's, it's a moral hazard dynamic that gets created if you just keep bailing them out whenever they poorly manage leverage. And to be fair, like, I think they were doing industry best practise of how you should hedge liabilities. 

Alec: [00:12:24] In the industry. Nice to lift. So is it is today the day. Friday is the final of the three days. 

Thomas: [00:12:33] Yeah. I think you.

Adam: [00:12:34] Might be timezone. TimeZone. Yeah, yeah, yeah. Tonight right. 

Alec: [00:12:38] Yeah. So by the time this is released on Monday. Mhm. 

Thomas: [00:12:41] Mhm. Well now we go out on Women's Day.

Alec: [00:12:43] Oh this is out on Wednesday. Yeah. The England economy. 

Adam: [00:12:48] I think when England is on fire when you're listening. 

Alec: [00:12:49] To this. 

Adam: [00:12:50] Then it didn't go well. 

Alec: [00:12:51] It'll go on. Yeah, but sure. Surely it's like you're so far down the garden path, you're buying $5 billion worth of bonds a day. You keep buying. 

Thomas: [00:12:59] Yeah, but I mean, this is also the other thing is they're trying to tighten. So you've got inflation running at 10%, you've promised the market that you're going to tighten. You promised that you weren't going to be buying bonds. Yeah. But now you're being forced to buy bonds while you still trying to maintain a commitment to selling bonds to try to bring down inflation and raise interest rates. 

Alec: [00:13:21] And is this all because of the tax cut policy? 

Thomas: [00:13:25] I think probably you look at that tax cut policy like it was reasonably big and it did require a lot of debt which required selling bonds. So that was the sort of the shift that that through market. So they thought the government was going to try and bring down debt. The government turn around said not we're going to we're going to massively increase debt. We're going to have to sell a lot more bonds in the account. Okay. Wasn't ready for that. Didn't think that was going to come. And that's what that's what threw everything into a tailspin. 

Alec: [00:13:51] So I feel like then maybe Liz Truss wins the award for worst start to a prime ministership ever. It would be hard pressed to come up with the worst. 

Adam: [00:14:01] Worst start and possibly also winning shortest term. 

Alec: [00:14:03] Yes, yes. 

Adam: [00:14:04] Like that. That's on the cards as well. Yeah. 

Thomas: [00:14:07] Kwasi Kwarteng is the chancellor came out and said acknowledge that it had caused a little turbulence. 

Alec: [00:14:16] Yeah. I mean. 

Adam: [00:14:17] Liz Truss is. 

Alec: [00:14:18] Not like. 

Thomas: [00:14:18] She campaigned for the leadership, promising to fight treasury orthodoxy and the department abacus economics. So I guess Abacus economics is where things actually add up. 

Alec: [00:14:29] Yeah. Yeah. 

Thomas: [00:14:30] Yet now. 

Alec: [00:14:30] She's fighting. She's got the New World Order, baby. 

Adam: [00:14:33] We're not adding anything up anymore. All right. So is Liz Truss and the government changing tack now. 

Thomas: [00:14:38] They were planning to cut the tax marginal tax rate that now that's now off the table, but everything else is still on there. I mean, the interesting thing is they took that they didn't get the the office. 

Adam: [00:14:48] Of on the tax cuts policy. They've revised now to not include tax cuts. Yep. Brilliant. 

Thomas: [00:14:54] Yeah, yeah, yeah. Good. Yeah. I mean, there's other there's. 

Adam: [00:14:56] Just a lot to this being called a policy that. 

Alec: [00:15:00] They were doing. They were also ending the cap on bankers bonuses because if there's one thing that we really need to tell bankers, they get bigger. 

Alec: [00:15:08] Bigger. Yeah, yeah, yeah, yeah. 

Adam: [00:15:11] That's still in there. 

Alec: [00:15:11] And I guess. 

Thomas: [00:15:12] That's I think that's still there yet. The cut to the basic tax rates there. The interesting thing is that cost cutting announced this without any detail. So it was like a budget. Without any of the numbers. It was just like, these are the headlines. This is what we're going to do with that. The numbers and everyone's like, We're the numbers. Sounds like a press release.

Alec: [00:15:31] Yeah, it was a press release. It was a press release. 

Adam: [00:15:34] He wasn't holding an abacus. 

Alec: [00:15:36] So it it's like we're. 

Adam: [00:15:37] Not using this right now. Yeah.

Thomas: [00:15:40] Yeah. And everyone's like, Well, where's the numbers? You're like, I'm going to give them to you in a in late November. And then the markets collapse and everyone's like, You should probably bring that forward. 

Alec: [00:15:49] So he's brought it forward to October 31st. 

Thomas: [00:15:54] Which if you're looking for an announcement that's not going to spook markets, Halloween probably.

Alec: [00:15:59] Isn't the day you want to be launching that. 

Adam: [00:16:04] Right. Tomas, house prices can Ren buy a house yet? 

Thomas: [00:16:09] Oof, not yet.

Alec: [00:16:10] Not yet, no. Yeah. Oh, come on, Peg. 

Adam: [00:16:13] So maybe once you become actual CEO.

Alec: [00:16:20] Bryce pretty settled. That could be a lot. Yeah. And I said, well. 

Thomas: [00:16:26] Be hiked rates another 25 bips in October that was against expectations of 50. So it does suggest that maybe we're coming to the end of the hiking cycle, perhaps a little earlier. But we have had the most aggressive hike cycle since 1994, about 2250 bips in six months. So that's fast and aggressive. Yeah. So now the cash rate 2.6 higher since July 2013, the average discount average mortgage, mortgage, mortgage rate. 

Alec: [00:16:53] Average discount. 

Adam: [00:16:54] Variable mortgage. 

Alec: [00:16:55] Rate. We get you gain 5.95%.

Thomas: [00:16:59] That's the highest since September 2012.

Adam: [00:17:01] I feel I get a letter, I feels like once a month now from the bank. Hey, your mortgage is going up. 

Thomas: [00:17:08] Yes. Like, you know, the RBA meets every month. Yeah. 

Adam: [00:17:10] Yeah, I know. But it just, it becomes really. 

Alec: [00:17:12] Real when the letter arrives. Like I believe in an. 

Adam: [00:17:15] Email and you sign up for email. 

Thomas: [00:17:20] So I mean this is having an impact. So on your average $500,000 mortgage every 25 basis points, add $75 a month to the mortgage bill. So 250 bips gives you 750 a month or 9000 a year. So the average household is now coming out with an extra 9000 a year on their mortgage. 

Alec: [00:17:36] Wow. Which is yeah. 

Thomas: [00:17:38] Yeah, yeah. That's that's that's going to have an impact and it lowers borrowing capacity. So Prop Trac came out and they reckon that the average home buyer can now borrow 21.6% less than they could pre the rate hike, the rate hikes kicking off. So if they could buy borrow 500,000 in April, they can now borrow 392,000, I thought. 

Adam: [00:17:57] You mean if they could buy a four bedroom house in April, they can now only buy three small study. 

Alec: [00:18:04] Well yeah, I guess it translates doesn't it. 

Thomas: [00:18:07] So yeah. So if you look at, if you include the deposit then you get 18%. So that should give us the ceiling of how far you'd expect rent prices to fall on the back of what we've seen already in terms of rate hikes. Yeah. 

Alec: [00:18:19] So you think house prices are going to fall 20%? No. Oh, okay. You know, it's good saying, oh, this is great. Probably not for you to want to shut up. 

Thomas: [00:18:34] House prices are now down 5.5%. They were down 1.6% in September, which is pretty hefty monthly fall, but we're only down 5.5% in total. That's off to 25.5% on the way up. So it's pretty.

Adam: [00:18:49] Yeah, it's going to take me long like it went up gangbusters, right? Yeah. Yeah. It's just going up like so it's going to come off a bit. 

Thomas: [00:18:54] Well, it kind of has to come off a bit, but the property market typically tends to ratchet. So you have these big increases and then a small decrease. And because what happens is that that's ratcheting. 

Adam: [00:19:05] Yeah, I heard the term never really seen it. 

Alec: [00:19:08] This is the benefit. 

Adam: [00:19:08] Of being lived together in the city is I can see your fist making the ratchet. 

Alec: [00:19:13] Move right. Yeah. 

Adam: [00:19:15] It hasn't translated at all well on a podcast. 

Alec: [00:19:20] To sort of describe it. They really get it and the listeners out there just feel rest assured that I now understand it slightly better based on movements. Oh yeah. 

Thomas: [00:19:33] Typically the property market ratchets and it's because people don't need to sell when prices start to fall. Most people just sort of hang on to it, but they don't. So and you don't. Its prices typically don't fall unless you get for sales. And that only happens in a deep recession once you got unemployment and people can't afford their mortgage repayments and you get for sales, that's when you get like significant declines. So if you're going to get like a 20%, you're going to have to see your unemployment get quite a way higher. And to get that for sale dynamic and if you actually look at the total property listings at the moment is flatlining. So it should typically be around now you get what they call the spring selling season and listings lift because it's spring and it's a good time to go to auction or whatever. But at the moment it's flatlining because people are not getting the prices at a one I'm just going to hold. And the other reason that the holding is that rents, particularly if you're looking at investing. Rents are growing at 10% a year. Vacant vacancies are at point 9%, which is the lowest level on record. Just crazily, you think about 3% being in the balance market. They're at 0.9% now. So it's like super tight is huge rental pressure. Rental prices are growing up. So if you're if you're a property investor and it's more of the investing class tends to sell first because they're more leveraged and they've got a home. So it's like it's just an asset. Whereas if you're selling the family home, that's a big story.

Adam: [00:20:48] So you don't panic selling your house.

Alec: [00:20:53] Trying to free up some liquidity to put it in the stock market. Which is also going down.

Thomas: [00:20:59] So for that investing class, the repayments are going up, but rents are going up as well and so they're not getting it. They're not feeling a lot of pain yet.

Alec: [00:21:08] I am looking for a rental at the moment and I can attest it is brutal out there. Yeah, 60 people lining up trying to look at an apartment. Yeah. It's not how you want to spend us out of it.

Adam: [00:21:18] Yeah. Now you've got to get up. Get out, get out of the studio. Make that the bed over there is looking for cheap.

Alec: [00:21:24] Is not a good look for.

Adam: [00:21:25] The rent company.

Alec: [00:21:26] The rent price charges is okay.

Adam: [00:21:31] All right. Why don't we take a short break here, grab a quick word from this week's sponsors and be back with more comedian versus economist right after this. Welcome back here on Canadian versus Economist. We would love it if you left us a perfectly glowing review wherever you get your podcast, that would help us out enormously. But we're joined by Ren from Equity Mates Media and Ren. You've been keeping your eye as you do across company results both here and abroad. Love to get your thoughts on on what that might tell us for the bigger picture, for the macro picture. 

Alec: [00:22:02] Yeah, well, I feel out of my depth here, I feel Thomas can probably do a better job, but hey, happy to sit in and give it a crack. 

Adam: [00:22:10] Talk to him, then talk to me and you'll. You'll quickly feel like an expert. 

Alec: [00:22:17] We're learning a lot from company results, but I think what I'm taking away most of all is that the numbers aren't really matching up with the words at this stage. And in Australia we get results every six months in general. So a few companies buck that trend. Qantas reported last week. As you listening this week as we're recording, so we'll talk about that in a sec. But if we go back to sort of August when all of the Australian companies were reporting, it really was a moment where everyone was saying things were getting bad or going to get bad, but the numbers were pretty okay. You know, and even the the sectors that were, I guess, most exposed to the consumer, you know, those discretionary retailers, the first things we stop by when inflation is high, our jobs at risk and money's tight. They were all doing well. You know, JB Hi-Fi reported, you know, like 4% revenue rise, 8% profit rise. They raised their dividend by 43% like that's not the actions of a discretionary retailer when things were bad, but they did warn us that things were going to get bad, but the numbers didn't really show it.

Adam: [00:23:20] Is this the war chest of savings that people have that I keep hearing about? Is that are we still just working through that? 

Alec: [00:23:25] That's probably a Thomas question.

Thomas: [00:23:27] Potentially. I mean, we we were hearing a lot about that. I mean, there's a big question about how evenly distributed it was across the population. But yeah, like you're saying, a lot of that a lot of that war chest was concentrated in high income earners. Maybe people are flush. 

Alec: [00:23:40] Yeah, but I think the big story was the commodity story and mining companies just had a absolute bumper reporting season. And you know, you guys have been talking about high commodity prices and that really flowed through to company results. BHP 30 billion, 31 billion, US billion in profit, second largest profit ever for them. Fortescue massive profit. You know, even all the coal companies, Whitehaven, their profit was up 450%. Yeah, so you know it was like iron ore coal. Yeah, yeah. Oil, they all had great halves. 

Adam: [00:24:16] And that, is that a war and Ukraine story. Is that like a energy crisis. Yeah. Top story. 

Alec: [00:24:21] Yeah, inflation, all of that. Yeah. 

Thomas: [00:24:23] Sure. The mining industry now accounts for more profits than the entire rest of the Australian economy. 

Alec: [00:24:29] Really? Wow. Wow. 

Adam: [00:24:31] Yeah. Not. Not a buy, hold sell recommendation. Looks pretty good. Place to put your money. 

Alec: [00:24:35] Yeah, maybe. Maybe we should have got into the mining industry as a career recommendation. 

Adam: [00:24:40] Yeah.

Alec: [00:24:42] But we're sort of in this wait and see period now in Australia. We'll get February next year, we'll get the first half of financial year 23 results and we'll really say what this period we're living through now has been like. But over in the States, they never stop reporting. They report every three months. So you get a constant stream of data from them. And again, what we're saying in and literally this week is we're recording. We started saying Q3 results. And again, what we're saying is a lot of talk about things being really bad, but the numbers actually being okay. All right. If we start with Pepsi, because I think Pepsi, it gives us a good indication, again, of like the consumer what they're spending. They beat expectations on revenue, they beat expectations on profit. Revenue was up 9%, which, you know, feels pretty good despite them actually selling less stuff. So I think Pepsi is a really good indication of the inflation story, right? Yeah. Yeah. 

Adam: [00:25:40] And is that because a lot of companies will blame inflation for price rises, but then tack on a little extra? So they're not just covering inflation. They're kind of like, you know, inflation plus a little bit because it's easy to easily justify, to charge, to increase your prices. So while we're increasing, we might as well just skim some off the top. 

Alec: [00:25:58] Yeah. Now I'm not sure if food's volume declined across everything, but yeah, there was a lot of volume decline, but revenue stayed strong and that's an inflation story. So yeah, I don't know if they're putting out a little extra or not or they're just passing on true costs. Yeah, yeah. But I think that is a clear example of inflation. But the two results that I think we should really focus on, because if I think about the last three months, it was that airlines are terrible, they're losing bags, cancelling flights, worse, you know, on time percentage or all of that, people who travel to Europe, unfortunately, I wasn't one of them. They had a terrible time. Well, I'm sure they had a great time once, like got that. But the airlines amongst it all. Amongst all the difficulties, amongst all the staffing shortages have looks like they've knocked it out of the park. So Qantas they announced a 1.3 billion pre-tax profit for the OR they expect to post a 1.3 billion pre-tax profit for the back six months of the year, a return to profitability. And that is from a oh, about a $2 billion loss last year. So a multibillion dollar turnaround for Qantas. Despite losing back. 

Adam: [00:27:09] They were able to cut costs by only handling every second bag. 

Alec: [00:27:14] Oh, but. 

Alec: [00:27:14] But they fired all the ground staff and then paid overs to get more people in. Yeah. Short term contracts. So yeah. Right. Yeah. Anyway, despite all of that, Qantas is having a pretty good financial time. 

Adam: [00:27:28] Presumably that presumably also they were under the pump though because people wanted to travel like. Yeah, so the whole reopening story like they obviously didn't have enough resources but at the same time like huge demand presumably. So I know everyone. Everyone I know is like going somewhere. I mean, we're in Sydney right now. Yeah. So yeah, I guess as long as they can kind of sort of keep up with it. 

Alec: [00:27:50] Yeah. 

Adam: [00:27:51] They're going to smash it. 

Alec: [00:27:52] Yeah. And I think the prices of flights have got pretty ridiculous. Yeah. Yeah. But the in over in the states delta they just broke they reported a record profit for the quarter, $14 billion, $700 million profit. But I think the really interesting thing is, you know, these numbers are higher than the same quarter in 2019. So COVID happened, everything shut down. Yeah. You know, they weren't flying. They were getting bailed out. Then the reopening happens. Everyone's travelling, they're losing bags that are cancelling flights. But despite all of the turmoil of the last three years, from a revenue point of view, higher than where they were in 2019. Wow. [00:28:33][41.6]

Adam: [00:28:34] Wow. That's amazing. [00:28:35][0.8]

Alec: [00:28:35] So I don't know what that tells us about the economy, but thought it's pretty interesting. [00:28:38][2.9]

Adam: [00:28:38] Maybe it's just the airline version of Karen's. Don, are you saying that, you know, where you just get terrible service and people somehow enjoy being yelled at and this and constantly disappointed with that service. 

Alec: [00:28:49] I guess so. 

Adam: [00:28:50] That is piggybacking on that go you know this is just the new paradigm.

Alec: [00:28:54] For there is a business. Opportunity in that way you really lean into it and it's. And it's like, well, treat you terribly, but it's part of the. 

Thomas: [00:29:03] Of it. 

Adam: [00:29:06] All right, Thomas. Finally on the show, a pub in Ireland has a novel approach to dealing with the energy crisis. What's going on there? 

Thomas: [00:29:14] Yeah. Doyle's Corner Pub in Ireland in Dublin, announcing a 20% discount on food. If you come in and just deal with the cold because they're not putting on the heat. 

Alec: [00:29:28] I don't think that's. 

Adam: [00:29:29] Quite how they phrased it. In their promotional material to deal. 

Alec: [00:29:32] Deal with the cold. They call it cooling. Yeah, you shut up and deal with it and.

Thomas: [00:29:40] I'm bringing your coat. They say Bring your coat. We're turning the heat down. Chill with us every Tuesday in October, bring your coat and get a 20% discount off food. 

Adam: [00:29:48] To bring your coat. Brilliant. I wonder if that extends to hoodies. 

Alec: [00:29:51] Here it is. So something tells me we. 

Adam: [00:29:55] Walked out to a traditional Irish pub wearing a. 

Alec: [00:29:57] Hoodie like a lot of early avocado pictures. So I reckon you'd last till you wouldn't get the discount. 

Adam: [00:30:08] You last long in the pub. 

Thomas: [00:30:09] Part of their story. The big spending is supporting the economy. The Irish government's doing the same. They've got a €1.25 billion temporary business energy support scheme. So each business you can get €10,000 a month of you to offset energy bills per business. Pretty massive. That said, energy prices were up 49% in October, according to comparison website. Bonkers, I.

Alec: [00:30:34] Hear. Oh, where we get all our macro news from here on TV, it costs a lot for the monthly bonkers subscription, but I think you'll agree totally worth it. The finger on the pulse of that data set. I did say that. 

Adam: [00:30:52] They said a bag of coal has gone up from €16 to €33. 

Alec: [00:30:58] So yeah, a bag of coal. Who's buying coal in bags? 

Adam: [00:31:04] I don't know I like that. I think someone tweeted in response to the Doyle's pub tweet that like yeah. Because like a bag of coals at this really specific price. 

Alec: [00:31:13] And I don't know what. 

Adam: [00:31:14] That tells us. Yeah. So nobody kids this year I guess if you're hoping for a lump of coal in the city. Yes I reckon, I reckon they missed a trick to this pub by telling people to bring their own coat because as if you had of the alcohol coat, you know, the coat that you kind of get after. Like if they just said like we'll give you a free alcohol coat with your 12th whisky. 

Alec: [00:31:40] Like What's. 

Adam: [00:31:41] An alcoholic? An alcoholic? It's like we've had so much to drink. You don't feel the cold anymore. 

Alec: [00:31:49] That could get confusing, though. People might think they're getting free booze out of it. You have to have a very clear disclaimer. 

Adam: [00:31:56] It comes with that with the purchase of. 

Alec: [00:31:58] Year 12, that's when you get given that it would be. 

Adam: [00:32:02] Like money back. 

Alec: [00:32:03] If you if you got if you can't remember, like if you if you remember. 

Adam: [00:32:08] Being cold. 

Alec: [00:32:09] When you left, we'll give you your money back. I don't remember leaving hot air rises. If you're rolling around on the floor, that's going to be the warmest part of the pub. Uh. 

Adam: [00:32:19] Brilliant. Alec, thank you for joining us on TV. Really appreciate it. 

Alec: [00:32:22] It. Thanks, guys. It's been a pleasure. Thanks. 

Alec: [00:32:23] Yeah. 

Adam: [00:32:24] And if you do like the show, if you've got questions for us, you can send us an email cve@EquityMates.com or go and leave us a review wherever you listen to your podcast. But for us, it's bye for now.