NZ hikes rates. Is Australia next?

Adam: [00:00:24] 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. Yes, I'm back. And we're joined, as always, by my little older brother and real life economist Thomas. 

Thomas: [00:00:39] Yeah. Good Adam. Welcome back. 

Adam: [00:00:41] Oh, thank you. It's a delight to be back. 

Thomas: [00:00:44] A. While I was away, I heard you 

Adam: [00:00:46] had another economist in. That must have been amazing. 

Thomas: [00:00:49] Oh, I think it was a good ep, actually. The yeah, it was. You happy with it? I was, in 

Adam: [00:00:56] fact, the most important thing. 

Thomas: [00:00:57] Yeah, thanks. 

Thomas: [00:00:58] Now we had fun. We had 

Adam: [00:01:00] fun. I did actually check the the listen through stats, which is shows how much each listener, how much of the episode I listened through to and through the roof. Thomas people were listening right up until the end, which I hardly share was 

Thomas: [00:01:14] because I fell asleep. 

Adam: [00:01:18] No one was having a go. Thank you. Thank you for holding the fort while I was away. 

Thomas: [00:01:22] And thanks, Tim, thanks to the insights there. Go check it out. 

Adam: [00:01:26] Yeah, absolutely. This is our this is our birthday episode. We're officially we've officially turned one as a podcast. We are one year old. All right. A big app coming up. Got an email actually from Richard before we get started. Email from Richard, who's on the New South Wales Central Coast, Thomas, which is up your arse, and it's an email savvy at Equity Mates dot com or via the website Equity Mates dot com forward slash CV. Send us an email a couple of weeks ago when we were talking about Rivian, the Rivian electric vehicles, and he pointed out something kind of interesting, a bit of a fun fact about Rivian. He noted that some Rivian's come with a built in camp stove 

Thomas: [00:02:03] camps, which just strikes me as a little odd. I take that. Take that Tesla. 

Adam: [00:02:09] You might have wireless connectivity, but Rivian's 

Thomas: [00:02:11] go to camp stove and wireless wireless radio, that is I am. And if you believe for when you're really off the beaten track, thank 

Adam: [00:02:22] you, Richard, for sending us that little titbit that is quite fascinating. Or a big show coming up a lot to get through. Thomas, we're going to look at what's being dubbed the great resignation. Or, as I call it, people still hate their jobs, and a pandemic didn't really change anything. We'll also play a game of guess how many companies in the ASX 300 have made any money ever. It's higher than you might think. And a couple of well-known economists have been debating in the media why houses are not like mandarins. And I can only assume there's a gag in there somewhere that's already making economists chortle for the rest of us. Stay tuned to find out what's going on. But first, shout out to everyone listening in New Zealand. Michael sent us a message and said it said that we're actually part of his daily commute, which is showing real commitment given that we're a weekly show. New Zealand, of course, famous for its hiking Thomas hiking rates. 

Thomas: [00:03:21] That is, oh, tell us what's going on. Yeah, let's go. Put that on the highlight reel. Yeah, now the Reserve Bank of New Zealand 

Thomas: [00:03:33] became the first central bank in the world to hike rates for a second time from the from the lows of the post-COVID era. Yes, leading the central banking community out of record low interest rates a year hiked rates, then now up to 0.75 per cent. So it's still, you know, pretty low in the scheme of things. But yeah, on the way up and the sort of the outlook is they're going to hike pretty, pretty steadily from here on. Markets are pricing in another six rate cuts. Are BNZ talking about another seven, but markets aren't believing them? 

Adam: [00:04:06] Why doesn't anyone believe the central banks like what happens in with the RBA in Australia? Why doesn't? Why do people just not believe what they're saying? 

Thomas: [00:04:16] The one of one of the things that the central banks have their eye on is inflation expectations. So if people don't expect inflation to happen, they don't put it into their pricing. They don't, they don't, you know, firms don't raise their prices. Workers don't ask for more wages to anticipate inflation, and then you don't get inflation. It becomes a self-fulfilling prophecy. So inflation expectations determine inflation. But inflation expectations are determined by people looking at the central banks and their forecasts and thinking about what's going to happen. So it's a bit circular like that. So the central banks often talk up a big game and say the economy's doing great because then if everyone believes them, so if so, if you're under the target, under your inflation target and then you're saying you want the inflation to be above two percent, but you're under two percent, then then just by saying, Hey, we think the economy's doing pretty good, we think inflation's going to be around two and a half percent if everyone believes you. Then those inflation expectations get built into pricing and you end up with inflation of two and a half per cent. So right, central banks tend to talk to the what they want inflation to be in their markets are looking at what they think it actually is. And there can be times with those two things are different. 

Adam: [00:05:32] Is this a bit like that? Pat Cummins has been named captain of Australian Test team, but everyone knows that Steve Smith's really the one 

Thomas: [00:05:39] calling the shots. Yeah, I'm going to say yes. All right. This is awesome. I get my head around this. Okay, good. Yeah. 

Thomas: [00:05:51] Yeah, it's a bit funny. I mean, they're not. They're not far off. It's not. It's not a big difference. But yeah, it's a bit different. And it's also like, I also like, you know, forecasting is difficult. The market economists might just have a different outlook on where the economy's going to. To the central bank economists. So those those those

Adam: [00:06:07] forecasting

Thomas: [00:06:07] is difficult to get, keep that safely tucked in your back pocket and a river that whatever anything you say, doesn't pan out. 

Adam: [00:06:17] Yeah, right. Okay. So so rates have gone up. They're going up. Why is New Zealand so different to Australia? Like I would have thought, we're pretty similar environments, aren't we? It is. 

Thomas: [00:06:26] It is interesting that we're getting such different outcomes and it is a big difference. So an annual inflation's at 4.9 percent and heading heading north of that. So that's already well above their target range. Unemployment's down to 3.4 percent, the lowest level since December 2007, so it's just running hot. And oh and house prices. House prices are growing at 30 per cent, which is Adrian Orr. The central bank governor came out and just said, That's batshit crazy, bro.

Thomas: [00:06:57] I think, though, that 30 percent is just off the off the hook like, 

Thomas: [00:07:02] you know, you almost never see price growth that but that's that's coast to coast in New Zealand, like every, every town and cities going at these kind of crazy, right? So it does seem like the economy's overheating. And I think I think because New Zealand had the same pandemic response, super low interest rates and money printing, but they got off pretty light, you know, they were able to lockdown early and they didn't. They weren't as impacted by COVID as Australia has been Jacinda. 

Adam: [00:07:28] Now that again, 

Thomas: [00:07:29] now that you're just 

Thomas: [00:07:30] doing, just say this crushes it over there. Hmm. Right. 

Thomas: [00:07:35] Okay, yeah. So yeah, so that's so that's the New Zealand's. Got it. Got the BNZ, got her, you know, respond to those kind of numbers like then that's that's not temporary. You know, inflation at 4.9 per cent already and heading higher. That's that's that's that's going to be on transitory. 

Adam: [00:07:51] And so they were the first ones to bring in some of the some of the measures to try and pull that back when they like some of the buffer for the for home loans. And then I think they do, they increased the deposit required as well or the loan to value ratio. 

Thomas: [00:08:04] Maybe, yeah, they did it. They did a few things, a few macroprudential measures. Yeah, but it hasn't worked. Hasn't worked like prices. Keep accelerating the same, right? 

Adam: [00:08:13] What now? Then what do they do? 

Thomas: [00:08:14] There's an interest rate hike, interest rates. Yeah, I think that's that's the and that's the end of it. Yeah, is

Adam: [00:08:19] that is that the only is that the only sort of tool left in the bill?

Thomas: [00:08:22] Like, I 

Thomas: [00:08:23] I mean, there's probably other macro prudential measures they could invent, you know, like 

Thomas: [00:08:28] make it up. This is a credit credit rationing like to 

Thomas: [00:08:34] any anyone with a last name. J to Z 

Thomas: [00:08:37] who doesn't get it, can't get a mortgage this month, something like that. You could you do what you could do, whatever you want. 

Thomas: [00:08:43] It's unconscionable. 

Adam: [00:08:44] But I mean, money printing is one thing. I think we're all getting used to that idea. 

Thomas: [00:08:48] I don't know that the credit rationing that seems a little bit crazy even for these times that we're living in. But but at the 

Thomas: [00:08:56] end of the day, so it's just worth remembering that the economy is a construct and all the rules of the economy are just made up have been made up at some point, even something as fundamental as property rights that you own something and that you can go to law enforcement and get them to enforce your ownership of of a thing. That's just something we decided. That's just a social construct. There's no sort of natural law in it, 

Adam: [00:09:17] like at a primitive level, you mean? 

Thomas: [00:09:20] Yeah, like if 

Adam: [00:09:21] like as if the government disappeared. And this is wasn't this the whole thing with crypto and NFTs and decentralised finance and all that stuff where you're sort of saying you need something, there's no, no, no central authority to enforce the ownership of things? Yeah, which is what makes crypto so different. 

Thomas: [00:09:37] Yeah, I mean, that's that's that's one of my criticisms of like the full libertarian dream of bitcoin, as it's been expressed where I've seen is this like you're talking about taking money away from the government, but that sort of if if you defunding government, then defunding the police and the army in the military, but those are institutions that enforce property rights. So then in that scenario, it's just whoever's got the biggest guns ends up with all the property 

Adam: [00:10:03] that's you're living in the past already, you're living in the past. We're all living in the metaverse now, 

Thomas: [00:10:09] so you can have

Adam: [00:10:11] all your physical property 

Thomas: [00:10:12] dealing with it. You could use whatever. Okay, I'm in the metaverse. We sick. And living in a virtual mansion, say do what you want with the property. I'm no longer there anymore. 

Adam: [00:10:29] Right, Thomas, there's been a lot of talk about this in the last few weeks. They're calling it the great resignation. I have also heard it called the big quit. Hmm. And that sounds like an anti-smoking campaign. So we'll go with the great resignation. So what's going on with the great resignation? 

Thomas: [00:10:46] Yes, this came out of us data and then people are talking about it happening here in Australia and all over the world. Really, they're talking about this as being one of the phenomenons that come out of Covid. Yeah. So but the quit rate, there's a piece of data called the quit rate, which is the share of workers who voluntarily leave their jobs in America. We get that piece of data and that hit a new record of three per cent in September 2021, the highest highest level on record. And so people are talking about it being the the great resignation that it's happening. And that's one of the things is that partly that's concentrated in older workers. So there does seem that there's some older workers who are retiring and and exiting the labour force. 

Adam: [00:11:25] Hardly news would. Is it that old people 

Thomas: [00:11:28] are retiring and not working anymore? 

Thomas: [00:11:30] Well, more than though they were retiring earlier than you'd expect, possibly. 

Adam: [00:11:35] Right?

Thomas: [00:11:36] Is this the story there that they took their opportunity? And that's it. I'm out. But I mean, they were sitting on

Adam: [00:11:42] fat stacks of cash like everyone's been locked up and getting, you know, we talked, we've talked before about everyone saving rate savings rates and everyone's sitting on on more savings than ever. So they probably just brought forward a bit. 

Thomas: [00:11:55] Probably, right. Probably, right. But yeah, probably. Yeah, no. Yeah. 

Thomas: [00:11:59] You write a letter to RBA. I tell them what you reckon. Oh, well, if it was coming over for dinner, actually? Yeah. Yeah, uh yeah. 

Thomas: [00:12:09] Microsoft did some research where they reckon that 40 per cent of the global workforce are considering leaving their employers this year, I reckon, which would be pretty massive to do what? Invest in crypto, maybe. 

Adam: [00:12:24] See, I heard that they were leaving. I had I heard that same stat, 40 per cent, but they were just resigning to go and work somewhere else.

Thomas: [00:12:32] Hmm.

Thomas: [00:12:33] I think I think there is a lot of that. Yeah, yeah. Yeah. 

Adam: [00:12:36] Which then to call it the great resignation is putting a pretty negative spin on it, isn't it? Like, it's like the great. Everyone's getting a new job.

Thomas: [00:12:44] Yeah, yeah, that's true. 

Thomas: [00:12:46] Well, one we don't know because we don't know for sure whether people are planning to to return. And some some people, like Deutsche Bank strategist Robin Winkler, said that after a pandemic, you get this pattern where people's preference shifts from consumption to leisure, that everyone's dying. And it sort of makes you question what's important in life. And you say working is not important. Working is not what I want to be doing. I want to be living my life, starting my bespoke craft brewery or whatever it is and you go out and do, do you live more? And he's saying he had a saying that after the Black Death in the 14th century, the Black Plague, real wages rose because there was a massive labour shortage because everyone was dead. But average hours worked, dropped, so people worked less and saying it was it was a kind of a preference for more work life balance amongst the amongst the peasantry 

Thomas: [00:13:40] who work life balance in the 14th century. Yeah. Well, just spending too much time on the loom at my weaving gig, I've really got to really go to get home and play catch the rock with my kids. That's it. How reliable is that data? 

Thomas: [00:14:01] Yeah, I don't get that. There's a whole there's economic history is is an interesting field of sort of forensic creativity. 

Adam: [00:14:08] Yeah, it was probably a junior as well that put it together because all the senior management would have 

Thomas: [00:14:12] all died in the play. They would have gone out and schmoozing at lunches and banquets as it was at the time, and we all got the plague of 

Adam: [00:14:23] would have been some some junior stuck at home somewhere would have been safe. And then they'd say, what happened? 

Thomas: [00:14:28] What was the economic fallout from the plague? He's like, Oh, right, I guess they will stop working as much. Dad was home a bit more. Yeah. The other stat 

Thomas: [00:14:38] that I saw is a survey saying that four percent four percent of Americans have reportedly quit their jobs because they've got enough money to thanks to crypto investments. Wow. 

Adam: [00:14:47] Four percent. Mm hmm. So we're talking. It was high that three per cent were quitting to go to just go do something else and quit. No. Yeah. And four percent of quitting 

Thomas: [00:15:00] because I've got a Lamborghini in the garage because I bought some bought the salon back back in 2020. That saves hi again. I'm probably going to question your question. The reliability of the data. Yeah. 

Thomas: [00:15:16] Now you do. You do need to question the reliability of some.

Thomas: [00:15:19] And just to be sure. Yeah. 

Adam: [00:15:22] Because there was a site or did raid a couple of people today, actually, they were talking about how you know, it might not necessarily like quitting is not necessarily the best thing. Like it might just be a good time to go and talk to your boss and go like, Hey, you know, like, don't go in there and ask for 25 percent. It's ridiculous. But, you know, like, maybe just go and have a conversation because maybe your current job isn't like terrible and there are things you could do like. It's just a good time to have that conversation. I think I think everyone's reassessing a little bit like I can, you know, I don't know. I think they would do that anyway, don't they? I'm constantly reassessing and re-evaluating. I kind of I've never had a job where I've just gone, Well, 

Thomas: [00:16:01] this is it. I'm good, dear. Well, you finished. 

Thomas: [00:16:04] Yeah, you're a bit old. Like, I saw a stat the other day saying that if you were a millennial, like if you're under 40, you've never had a pay rise because there just hasn't been that sort of culture of of just general pay increases that sort of. That was an old world thing, like with the labour market over the past 20 years hasn't delivered real wage gains. Right. And so what do you? 

Adam: [00:16:26] Hang on. What do you mean? So people? So the younger generation haven't. What then on an award? 

Thomas: [00:16:32] I think part of enterprise bargaining, 

Thomas: [00:16:34] I think, yeah, less and less. Less and less so. But also the yeah, but the idea that you could go in and negotiate a pay rise or just go to your boss and say, Hey, I think I need, I think I need a pay rise. That's just not that's just not a thing. And this study was saying that millennials don't even realise that that's a thing. And and part of what happens when you have slack in the labour market, you know which which you haven't now because we partly be largely because we haven't had immigration. So that sort of created a lot of tightness in the labour market. But when you've got slack in the labour market, then you know everyone's feet. When you're fearful of your jobs, you're not going out there and asking for wage wage rises. And that's sort of what shifted this with this with the pandemic is that there's this tightness in the labour market and people could. People are seeing that there is tightness and it's starting to get competitive. The other thing is like that you've had huge government spending, so five trillion in the US that buys people time and they'd be like, Well, I've got a buffer now. Unemployment benefits are up. There's money coming in. I can actually just take stock and don't have to just jump out and take the best job. The first job I find or I don't have to stick with a job that's not really working for me. I can take a step back, have a breath and then find a job that really works for me, which which isn't, which I think is a different story, too. Like the big quit, it's more like just saying like, Okay, this this is a this is a seller's market, a seller of labour seller's market. I'm going to be a bit choosy about who I sell my labour to. Yeah. Because because because the first time in a generation you've got that luxury.

Adam: [00:18:07] Yeah, or you can. Let's have the conversation, too. You know that that must be pretty liberating. Like I mentioned finding that out, if you're like 25 and you didn't realise that was even a thing. 

Thomas: [00:18:17] You know what? 

Adam: [00:18:19] You just go like tomorrow and say, Look, I'm thinking I might be worth 

Thomas: [00:18:22] a bit more than I'm on jerking and you can sling 

Adam: [00:18:25] me a couple of extra bucks. And yeah, knowing that you've kind of got them over a barrel. 

Thomas: [00:18:29] Yeah, yeah, there's a great range, everyone to do it. There's a great story

Thomas: [00:18:34] about a McDonald's in the US who collectively decided there's the other thing we're seeing is a rise in collective action. But the the McDonald's manager got all these stuff together and said, I think we need more money. I think we deserve more money. There's not, you know, it's a tight labour market. We're not filling jobs. Why don't we all push for more money? And everyone went, Yeah, all right. Well, let's go on a day strike. And they sent sent the message to the to the manager of the who thing. 

Thomas: [00:18:58] And they quote a quote that 

Thomas: [00:19:00] quoted him saying, like, Yes, I sent my manager off effects and it was the scariest thing I'd ever done. 

Thomas: [00:19:06] I was like a fax. I wonder those machines make some pretty weird noises. All right, 

Adam: [00:19:17] let's pause there. We'll grab a quick word from our sponsors and be back with more comedian versus economist right after this. Welcome back here on comedian versus economist, don't forget, we love hearing from you. You can send us an email at Equity Mates dot com or via the website Equity Mates dot com forward slash CV, or why not check us out on Instagram and Facebook at CBC podcast. Now Thomas, the ASX apparently has $200 billion of companies that do not make a profit. How can this be? Mhm. 

Thomas: [00:19:50] Is this this is some research that comes from MST marquee research. They put together an index of sorts in the ASX 300, looking at the number of companies that are currently not delivering a profit. Yeah, and there's 48 of those in the 300 aren't making any money and 48 48. Yeah, what is wrong? It's quite a lot. Yeah, yeah, it's never zero, though. Like the sort of if you look at the chart or share it, maybe a charity Instagram, but it's normally about 30 per cent in about 35. So this sort of 35, you know, because it's not, you know, year to year, you have a bad year. Companies don't make some money or something. Yeah. So 35 seems to be about the long run average. You go up to 70 during the GFC, so 70 out of out of 300. 

Adam: [00:20:41] Right. And so the to take a step backwards, the ASX 300, that's the 300 biggest companies by market cap, right? So that's how much those companies are worth. Yeah, yeah. So yeah, just in case anyone wasn't familiar with the ASX 300, though, and some of those 300 companies you're saying 48 of them are not profitable. Yeah. And they're worth a collective $200 billion. Yeah. 

Thomas: [00:21:10] Yeah, yeah, yeah. So remember, like share price is is a snapshot of the future is what the market collectively believes the future looks like. So they might not be profitable now, but they're banking that in in the short to medium term, they are going to become profitable. That sort of Becky's mate. 

Thomas: [00:21:33] Yeah, yeah. I don't know if you call the most 

Thomas: [00:21:36] Vickie's, but yeah, some are. Some aren't making a profit. 

Adam: [00:21:42] They might soon speculate that they might say, Yeah, yeah, yeah, not Becky's. We're just speculating that they might do well, see? 

Thomas: [00:21:49] Mm yeah. So there's this. There was a sort of a I said, I think a chart to Instagram a few earlier in the year, Goldman Sachs did a similar thing for for the US market, and that was also like it bursting through record highs as well. And sort of the idea that, like misty market research is pushing as well, saying as a consequence of central banks and their cavalier attitudes to fuelling speculative bubbles. Right. I think that's exactly their agenda, but that's sort of saying like, it's all this. All this money printing creates super cheap money, which creates a bit of a speculative bubble in things, and people are willing to back horses that aren't aren't making any money, right? 

Adam: [00:22:31] So some of these are on the way up and some of them are on the way down. Is that fair to say, at least, like some of them did make money? 

Thomas: [00:22:37] Yeah, I mean, they might have just had a bad year. There's also I did see some criticism of the Goldman Sachs measure, saying it was a because it's on gap accounting measures, generally accepted accounting principles and saying that that's not a really great measure for looking at profitability. It's sort of it's a bit of a muddy measure to look through, and there there are other measures you should look at. But regardless of how how a series is constructed and how accurate it is, what's interesting is if it's a if it's consistently constructed and then the way it moves is interesting and has risen substantially since the GFC. Sorry, sorry since COVID hit. So it's down around sort of 15 companies when Covid it and is now up to 48. So I think things are shifting substantially on that front. Yes. So it is interesting. So the question is, is it is it is it a speculative story? Is it that I mean, I think if it was start ups, you often hear this about, you know, people backing start ups that aren't making any money and how crazy that can be in like doing that during the dot com boom, you had companies that had had never made profit, had never even made revenue, in some cases getting to eye watering valuations. And then that was a sign of a speculative bubble because people are willing to pay lots of money for shares in a company that had no track track record whatsoever. But I think when you talk about the ASX 300, you're talking about some pretty big companies. So I don't think we're not talking about speculative start ups here. We're talking about companies that, you know, have made it have got big enough to be in the ASX 300. That's that's a reasonably that's a reasonable benchmark, and they're just not happening to be profitable at the moment. So it might say more about current market conditions than it says about the speculative bubble that we may or may not be in. 

Adam: [00:24:25] So is it interesting, though? Not not that I haven't found everything you've just said very interesting. 

Thomas: [00:24:31] Is it interesting, though, that 

Adam: [00:24:34] it's high and now like so it was it was 15 and it's now 30. It's 48. It's that's the trend to keep an eye on it, like if that keeps going up. Is that is that is that interesting to you?

Thomas: [00:24:52] Yeah. No, it is interesting, but like like but 

Thomas: [00:24:54] to understand what it's telling you, though, that you need it, you need a bit more nuance in that picture. You need to sort of know why these companies aren't making money. Like, are they good companies that have just fallen on a bit of rough times because of Covid and they're going to bounce back? You know, maybe it's like Flight Centre or Qantas or something good companies. Rough times because of Covid not making any money, but should make money once once market the once the economy opens up again. Other companies like that? Or are they companies that people are just taking a massive punt on on the future, like a Tesla or Rivian or something where it's like based on a view of what the market may or may not look like in five to 10 years because. We're just taking a punt because there's all this cheap money in the system.

Adam: [00:25:43] Yeah, I said, see that likes that Qantas would be one that was. That's a good example to sort of focus on. So they would have made they did make losses for a long time during COVID. Planes are grounded. Mm-Hmm. But you wouldn't you wouldn't say that Qantas is a bad company. So no, and I guess this is different from the valuation of the company as well. So this is not a measure of the valuation that Qantas is still valued at, however many billions of dollars it's valued at. And so this doesn't this is just a fact. 

Thomas: [00:26:16] It's just like 48 companies didn't make any money for a little while. Hmm. Yeah. 

Thomas: [00:26:23] Yeah, potentially. Potentially. 

Adam: [00:26:24] Doesn't really say much more to me than that. 

Thomas: [00:26:27] No, I tend to agree. I think I think they're drawing a little bit of a long bow to say that this is points to the speculative nature of the market. Yeah. So there, analysts says central bankers are now sowing the seeds of horrendous value destruction in the future. However, they appear to be oblivious to this. I just think that I think this is what 

Adam: [00:26:49] Boat want us coming out. Coming out of a pandemic is a speculative,

Thomas: [00:26:53] no speculative play. No, that's right. I had to go the other day on 

Adam: [00:26:59] another podcast I listen to saying that Qantas was one of the best buyers will be talking now about Qantas in like 20 years. As like, you wish you'd bought Qantas, you know where it is now? Yeah. Not financial advice at all. And I was announcing it for me anyway, but that's what I hear. 

Thomas: [00:27:18] That's why that's the good oil. That's my email. That's that goes from your. My, my, my friends are podcast. No one's ever heard of it. Will it be less popular than ours?

Adam: [00:27:33] But Thomas, we're going to tackle the big question here on CVE. Why houses are not like mandarins. Jared, say this in email savvy at Equity Mates dot com and Jared. Send us a link to an article. I think it was in the ABC News with a couple of people, a Liberal MP and an assistant governor of the RBA arguing about why houses are not like mandarins. Thomas, talk me through them. 

Thomas: [00:28:01] Yes. So I don't know if it's still running. I think it might have finished now. The federal government was running a housing enquiry or housing affordability enquiry. I, it was chaired by the Liberal MP Jason Falinski. Yeah, and he was pushing the line. He said that basically he was saying it's about supply and surely if we have more supply, then we get cheaper prices. And he's saying, Let me give you this analogy. I went and bought fruit on the weekend and I paid about 75 cents per Mandarin, and I don't know if it was a good deal or not. But when I got to the counter, I still had money left over. I didn't increase how much I spent for the Mandarin just because I could afford to pay more, but I might have done that if there weren't enough mandarins in the store. He wasn't actually talking to Ellis at this point. He was talking to the guys at S6, and I'm glad we don't even know what you're talking about. 

Adam: [00:28:51] Was he smoking a joint at the time? 

Thomas: [00:28:52] Is he? It's a little hard to follow. He's happy with it. Oh, I'll admit, right? 

Thomas: [00:29:02] Yeah, he's saying basically is, isn't it about supply? And this is sort of classic federal at the federal level. So how is it housing affordability? Is this can that gets kicked around? And typically the federal government, both the Liberal and the ALP push the idea that you need more housing supply and you need to cut red tape and let developers have more run to bring more housing supply on line. Because when you bring more supply in line, that reduces prices. There's two reasons why they do that. One is that they're both in the pocket of the developers, so they're getting funding from developers. So that's that speaks to that interest of that base. But to if it is, if it's a supply side problem, then it pushes it back on the states and the local government because the states and local governments have control of planning. And so if you if you were talking if if you think the problem supply and freeing up land and bringing houses to market, that's good for a federal government because you're going to have to do anything about that. You just put puts it all on the states and the local governments. So you just you just handle that over the state Senate and wash your hands of it. So that's why you often get from in these housing enquiries. And there's been like a dozen over the past 20 years all come to sort of nothing. It's a bit of a it's becoming a little bit of a joke. That's why nothing nothing ever comes of it because the federal government wants to push it back on the states. And the states want to say it's about sort of the federal settings, like interest rates and the tax settings. But so there's a bit of an argument about who's got responsibility for housing affordability. And in the end, no one really takes it, takes responsibility for it. Right? So, yeah, so anyway, so for is pushing the line that it's about supply and then Lisa Ellis saying that it's not really about supply and saying at some level high house prices that was outdoing financial deregulation in the 1980s and the global decline in inflation in the 90s combined to reduce normal interest rates. And that's what pushed pushed up house prices. Houses are not mandarins. The land underneath them is very important. You don't buy mandarins with a 25 year mortgage. Accumulated interest is not a consideration when you're buying mandarins, and the mandarins you buy this week are new mandarins, and they're not the mandarins that you didn't buy last week, she said. 

Adam: [00:31:17] They're really labouring that analogy. 

Thomas: [00:31:19] I went to town with it bit. 

Adam: [00:31:24] So are you going to say why that was important was 

Thomas: [00:31:26] important because you're talking about the stock? And so there's nine million homes in Australia. Each year we build about 100000 new homes, so that's about one per cent. So we increase the housing stock by about one per cent each year. If you increase that by 50 percent to 150000, say, then you're increasing it by 1.5 percent, which isn't all that much different. It's not enough to move to move the market price. Does that make sense, so even if you bore, even if you just threw a whole 

Adam: [00:32:02] lot of supply 

Thomas: [00:32:04] at the market is not going to bring down the total stock because the total stock is just so huge.

Adam: [00:32:10] Yeah. And I kind of get it too, because the in the Mandarin analogy, like, have you ever tried selling a used Mandarin line? There is. You can't get anything for 

Thomas: [00:32:25] all Mandarin for lunch today. And I took it down the right and I said, Would anyone like the rest of my Mandarin? Just crickets. No one I was interested in at all. 

Adam: [00:32:40] So like, I can see why this mm, I'm not. I'm not even sure why it's kind of a debate. Yeah. Like she was saying, like there'll be new mandarins next week and there'll be new houses next week. But the difference is that the old mandarins are gone like that disappeared, you know? And so where the houses don't go anyway, the houses are here forever. Yeah, that's right. And they just they go into the system and they get passed around and it's blind. Freddy could see that it's not. They're not like mandarins. Mm hmm. 

Thomas: [00:33:15] You can eat them. 

Thomas: [00:33:18] Yeah, I mean, I think at some level it must be true. Like there's nine million homes in Australia. If I had a supply of 10 million homes tomorrow, that would shift the price of homes. Yeah, there is. There is some, some level where it matters. But yeah, at the current current level of the stock and the current level of the flow of the new houses coming in, it's not enough to, you know, tinkering with with that is not going to make a difference to house prices. The what monsters, house prices, what really moves house prices is interest rates and the credit market. And that's what Lucy Ellis's point is, right? 

Adam: [00:33:57] So you're on Lucy's side? 

Thomas: [00:33:58] Yeah, I'm definitely taking Lucy side on that one. 

Adam: [00:34:00] Yeah, I did. Actually, I did some research. I didn't want to come in. All, you know, houses are not like mandarins. I thought I didn't want to be just living in the echo chamber. So I went and tried to find the contrarian view and I found some, some information about warehouses. Maybe I like mandarins. One was because they offer an orange. 

Thomas: [00:34:23] You've seen a lot of orange orange brick houses 

Adam: [00:34:26] around make some quite Mandarin in appearance. Some of them have pips inside, especially if you go to fill up his house. 

Thomas: [00:34:36] She's got at least one favourite there. But I did. I found an 

Adam: [00:34:40] article from March that was talking about how Mandarin prices 

Thomas: [00:34:45] are going to go up 30 percent this year due to labour shortages, which is about the same time the housing market took off at about the same rate. So, yeah, well, I think maybe Jason was his name, Jason. Yeah, he's got a point. I think he's he's slightly off. He's slightly off the target, but I can help him out with if he needs some, if he needs some points. For his debate with Lucy, he's a shout out Jason, that TV podcast on Instagram and Facebook posts in this email TV Equity Mates. They'll go on the website Equity Mates. They'll come forward. Slash CV. All right. On that note, why don't we leave it there for this week? 

Adam: [00:35:28] Thomas, thank you for your company. Don't forget lots of great shows from Equity Mates Media Get Started Investing feed Equity Mates Investing Podcast. You're in good company. Took money to me and the new crypto curious Get You is around all of them. Thank you very much for joining us this week. Very special episode next week because it'll be our last for the year. It'll be the last before we go on Christmas holidays. Thomas, now I've got some family stuff to take care of and namely Christmas Day getting through that. So yeah. Join us next week. It'll be the final show of the year we did. We did want to do and ask us anything because apparently that's what podcast do. And now that we're a year old, we thought it'd be a good time to do it. We're confident, to be honest, that we'd have enough questions for the whole episode, so we thought we'd just throw the invitation out there. Ask us anything, anything you like at all. I've given you the email address several times savvy at Equity Mates dot com. But yeah, anything you like? Well, I think we're going to do a bit of a retrospective. Maybe a bit of a bit of, dare I say, Thomas, a bit of forecasting for next year, which we can review next year and realise how how wrong it was and talk about how difficult forecasting is again. 

Thomas: [00:36:47] So yeah, 

Adam: [00:36:49] thank you once again for tuning in. We do really appreciate it. We hope you'll join us for the final episode of the year next week. Until then, it's goodbye from us.