Latest / The Curve / The Weekly: Worst Interest Rates Since 2008 & Shein Loses $5bn in a week.

Transcript

The Weekly: Worst Interest Rates Since 2008 & Shein Loses $5bn in a week. · The Curve

0:01
Coming up in today's episode, we are talking about, not my favourite topic, if I'm being completely honest with you, we're talking about bonds.
0:08
It's an economic 101 update, which I will say when we first started, I thought was boring.
0:14
Actually very interesting.
0:15
The market is going crazy right now, so we're going to look at what's going on.
0:18
And we talk about Shein, which has just become a public company.
0:22
Yes, you can invest in it, but should you?
0:24
It just lost about $5 billion in one way.
0:27
This is The Curve Weekly, where we read the finance news so that you don't have to.
0:31
I'm Vic Harris, a finance professional who's had a career making money for other people.
0:35
And I'm Sophie Hallwright, ex-TV radio producer, who was sick and tired of not understanding the economy, my money, how to invest, so we started this podcast.
0:42
But before we dive in, a word from today's sponsor.
0:46
This episode of The Curve Weekly is made possible by Pathfinder KiwiSaver Plan, helping you invest alongside your values.
0:51
Pathfinder's one mindful money, best ethical investing provider for five years running.
0:56
So we've teamed up with them to bring you the ethical hotline.
0:58
Got questions about the ethics of an investment or unsure where you draw the line?
1:02
Submit your questions via the link in the podcast show notes.
1:04
And thank you so much to Pathfinder for making this episode of The Curve Weekly possible.
1:08
Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver Plan.
1:12
A product disclosure statement is available at pathfinder.kiwi.
1:15
So Soph's going on holiday.
1:18
I'm going to Greece.
1:19
So I've got five days on Idra.
1:22
Oh, yeah, nice.
1:22
One of your favourite islands.
1:23
I feel like everyone's there right now.
1:24
I know.
1:25
One of our friends is literally there right now.
1:27
I've got another friend there.
1:27
I'm like, maybe I'd come.
1:28
Come.
1:29
Come.
1:30
Please come.
1:30
My dad's coming over.
1:31
Oh, yeah.
1:32
That's right, Ian.
1:33
Good old Ian.
1:34
Bless.
1:35
I'm sad.
1:35
How long is he here?
1:36
He'll be here for a while, right?
1:37
Two and a half weeks.
1:38
Yes.
1:38
Bless his soul.
1:39
He's coming, jumping on a flight, coming to visit me and having me move back to New Zealand.
1:44
No, I'm excited.
1:45
I'm really excited.
1:46
Sorry, but that is just the ultimate dad, isn't it?
1:49
I know.
1:49
You need to move countries.
1:50
I was like, I'm nearly 40.
1:51
Wait, we actually haven't even said you're moving to New Zealand, have we?
1:54
Oh, yeah, shit.
1:55
Did we just drop a bomb?
1:55
God, we just dropped a massive bomb with no context.
1:58
Everyone, I'm coming home.
1:59
What's that song?
2:01
What's that song?
2:03
I'm coming out.
2:04
Oh, no, wrong one.
2:06
That's about your sexuality.
2:08
That's what I mean.
2:09
I'm coming home.
2:10
I'm coming home.
2:12
Yeah, yeah, that's actually... Tell the world.
2:13
Sorry, I hate listening to people saying... Yeah, tell the world.
2:16
Please tell the world.
2:17
Tell the world I'm coming home.
2:18
So Vic's going to be...
2:19
I expect streamers, balloons, signs at the airport.
2:23
Oh, perfect.
2:23
So if everyone could be at the international arrivals with signs.
2:27
No, please don't.
2:28
I would have come off about a 25-hour flight, and I might want to see anyone.
2:32
Everyone looks haggard at that time.
2:33
So yeah, we've both got big trips, but very different parts of the world.
2:37
Yeah.
2:37
Just selling all my stuff at the moment.
2:38
Gosh.
2:40
Maybe I should do a little haul on Instagram.
2:41
Oh, that's actually not a bad shout.
2:43
Yeah.
2:43
So let's actually just talk about the fact that you're moving back to New Zealand.
2:46
Yes.
2:48
It's for an exciting reason.
2:49
It is.
2:50
Yeah, no, the fun's doing so well and it's a little hard to do from over here.
2:54
Yeah.
2:55
So just the bloody time difference.
2:57
It's so funny that the time difference.
2:59
I'm sorry.
2:59
I'm not going to Australia.
3:00
She's on the podcast.
3:02
I think in general we're a bit ambitious with the idea of what is possible.
3:06
When you have a team on the other side of the world, it can be really difficult.
3:10
Yeah.
3:10
Obviously, because the Curve Fund right now is a New Zealand fund.
3:13
Everyone is in New Zealand that's helping with it.
3:15
We onboarded this new person this week.
3:17
It was 9.30pm my Sunday.
3:20
What a life.
3:21
I know.
3:21
And I was like, okay, so you're all good.
3:24
If you have any issues, I'll be asleep.
3:27
Have a good day.
3:30
Yeah, have a great day.
3:31
You know, it's so...
3:32
It's odd.
3:33
I'm excited to be back.
3:34
I, yeah, no, it's going to be exciting and...
3:38
I feel kind of a bit.
3:39
It's bittersweet.
3:40
Because I like, now I'm like, I want to make the most of London.
3:42
And I'm like, oh my God.
3:43
The dirty streets.
3:45
They're so nice.
3:45
Yeah, yeah, yeah.
3:46
Everything's got a new, like, glow.
3:47
The tube.
3:48
Wow, it's so fun.
3:49
Oh, my God.
3:50
I think that you'll be back so much, obviously, because the podcast and the rest of the team will be here.
3:57
Basically, we'll have people in the UK working for the Curve, in New Zealand working for the Curve.
4:01
I mean, who knows?
4:01
Maybe in Australia one day.
4:03
But it is weird because we moved over together, and now we're sort of, like, having a semi, like, long-distance relationship.
4:10
Yes, very well.
4:11
But I guess that's the beauty of technology.
4:13
We can podcast from anywhere and there's, maybe it's kind of fun.
4:16
You can tell me what's going on in New Zealand.
4:18
I'll tell you what's going on in the UK.
4:19
And we've got lots of events coming up in Australia and New Zealand, which is really exciting.
4:23
Yeah, if you're in Australia, FinFest, right, in October?
4:26
FinFest, yeah.
4:27
There's another one, which is TBC.
4:29
Many things going on.
4:30
New things, yes.
4:31
It'll be very exciting.
4:32
And I'll be home in Jan, Feb, March, you know, so we're just international at this point.
4:37
And then I'll be back June, July, August.
4:38
Oh, Jesus.
4:39
See, we're basically, we're actually, it's going to be such a lull.
4:42
You're basically, we're both international.
4:43
Everyone will be like, we don't care where you are.
4:45
Like, we can't keep up.
4:46
Yeah, true.
4:47
Maybe it's not even worth an announcement.
4:49
Anyway, I've got a note in here that says, get comfy, Soph.
4:51
Get your coffee.
4:52
This is an Economics 101 episode, and I need you to concentrate.
4:56
I know.
4:57
That is the...
4:58
I know, and I saw that, and I thought, well, at least she's briefed me.
5:01
Yeah.
5:01
You know?
5:02
I know what I'm in for here.
5:04
I actually do love the economic zoom out when you give me an example of what's happening in the world and then relate it to...
5:12
The learning.
5:13
I was just like, you're going to jump in here and read this prep sheet and go, nah, nah, nah.
5:18
And I was like, no.
5:19
It's important.
5:19
Listen to me.
5:20
So the title, Why Boring Bonds All of a Sudden Matter.
5:24
Yeah.
5:25
Miso's coming home with me.
5:26
Oh, yeah.
5:26
Miso's just here.
5:27
She's lying her little chin on this.
5:29
Should I get her up?
5:30
I just kind of want her to sit with me.
5:31
Yeah.
5:32
Come on.
5:32
Fuck yeah.
5:33
Come on.
5:33
Yeah.
5:34
Miso.
5:35
She can't come until December.
5:36
I know.
5:37
Shit.
5:37
Yeah.
5:38
So.
5:38
You're leaving your daughter behind.
5:39
I know.
5:40
It's very sad.
5:41
But, you know, mum's got to work.
5:43
Mum's got to pay for your life.
5:44
Mum's got to work.
5:47
I'll be sending money home.
5:49
Just can't afford her flight home.
5:50
Just leave it.
5:51
Oh, sorry.
5:52
Sorry, guys.
5:52
Can everyone look after her?
5:53
Gosh, honestly, she's more expensive than I am.
5:55
But you're so much cuter.
5:58
Anyway, sorry.
5:59
So today we're talking about bonds.
6:00
Boring bonds, but why they're not so boring.
6:02
So the market the last few days, if anyone's been looking, which...
6:07
No, it has.
6:08
Probably hasn't.
6:09
But, you know, I run a fund now, so it's a little stressful when the market starts falling.
6:14
But that's the world.
6:16
That's why we give it to you.
6:18
That's why you're doing it, not me.
6:20
Yes, the market has been falling the last few days.
6:22
Look, it's only a couple of days.
6:24
This is what happens.
6:25
This is the risk we take when we invest.
6:27
Markets go up and down.
6:28
It's normal.
6:29
But I just want to explain what's going on because we love the news headlines.
6:34
They love to make a...
6:36
Yeah, there's blood in the streets.
6:37
It's a big old story, guys.
6:40
You know, they've got something, they've got to find something to talk about.
6:43
Yes.
6:44
So this is all to do with government bonds.
6:48
Now, a bond is essentially an IOU.
6:50
So it's like when I borrow money off you and I'm like, look, so I'll pay you back.
6:55
I just need to borrow $1,000.
6:56
I'll pay you back with interest.
6:57
Can I borrow that money for two years?
6:59
You're like, yep, cool.
7:00
So I take the thousand, I spend it on something, usually with governments, it's like you're investing in roads, hospitals, public parks, I don't know, things like that.
7:10
And then I pay you back an interest and then I pay you back the lump sum at the end as well.
7:14
So that interest rate, what I pay you for the cost of borrowing that money is called a yield.
7:20
A yield.
7:21
Now, I want you to remember this.
7:22
I want you to remember this.
7:23
Can I just pause and tell you why this annoys me?
7:25
So, like, the reason it annoys me is because my dad always uses yields.
7:30
He always talks about yields.
7:32
And the way he says it, I love my dad so much.
7:34
But holy...
7:37
I have to take the deepest breath when he starts talking about yields.
7:40
It is just so confusing.
7:42
And do you know what's the most annoying thing about it?
7:44
Sorry, I just need to have one tiny rant.
7:45
No, no, vent, vent, please.
7:46
Okay.
7:48
It is that I have now learned about investing for six years.
7:52
I would say I am not a beginner anymore.
7:54
I know a decent amount.
7:56
He talks, I glaze over.
7:59
He talks, I am confused.
8:01
He talks, I don't know what the hell he's...
8:03
Whereas when I talk, you're engaged.
8:05
I'm just engaged.
8:05
I light up a little bit.
8:07
I do find yields in an annoying word.
8:08
Also, yields, it's like, oh, the bond yield.
8:11
It's the easiest thing to sound like.
8:13
You know it all, yeah.
8:14
When it's like, it's just the return.
8:15
You can say, like, the yield on a property is the rental yield, you know?
8:19
Like, it's like the return that you're getting.
8:21
Is a yield.
8:22
Yes, is a yield.
8:22
So technically, could it be the same?
8:24
Could you use that word for any investment?
8:26
The yield is the return, or is it mainly only used for property and bonds?
8:30
Property and bonds is probably the most.
8:32
Yeah, I mean, the yield on the stock market doesn't really work.
8:35
Dividend yield, that's the return that companies will pay from their profits.
8:39
So, like...
8:40
Yeah, it's just, if you try and think of it like a return, it's probably the easiest way.
8:45
But anyway, those yields, so the interest, the percentage, so not the dollar amount, the percentage...
8:54
of the amount that I have to pay you back.
8:56
So, okay, let's use an example.
8:58
Yep.
8:59
You want to buy a new coffee machine and you don't have enough money.
9:01
And you've said, so if can I borrow 200 pounds, I want to buy this coffee machine.
9:06
I'll give you a 10%, which is unheard of with bonds.
9:09
Yep.
9:09
Yield.
9:10
Yep.
9:11
Yeah, sure, but it's going to cost you.
9:13
It'll be 10%.
9:13
Yep.
9:15
In 12 months, I want it back.
9:16
So that's 20 pounds.
9:18
So you give me 20 pounds at the end of the year.
9:20
220 pounds.
9:20
Yeah.
9:21
Yeah.
9:22
Yeah.
9:22
Same thing.
9:23
And yeah, exactly.
9:25
If you were like Vic, I've lent you money before and you have not paid me back.
9:29
Yeah, she's very unreliable.
9:30
Or I actually know that you owe all these other people money.
9:33
So I'm actually going to charge you 50% yield.
9:36
Because if someone owes lots of other people money, risky.
9:39
They could not pay you back.
9:40
So you're going to make the yield or the return.
9:42
You're a high risk.
9:43
You're high risk.
9:44
Because I'm giving you the money.
9:45
So I'm taking a risk on you.
9:46
Yeah.
9:47
Therefore, I want to be compensated for that.
9:48
It's like when you put your money in a term deposit.
9:50
Yeah.
9:51
the yield, well, like the return on that is low because it's low risk.
9:55
You're not, the bank's not going to lose your money.
9:57
The money's not going to fluctuate.
9:58
And so when we talk about risk, it is just, yeah, the movement up and down.
10:02
And so, yes, if I was a risky person, then you would charge me a higher yield.
10:07
And so this is what we are seeing right now.
10:11
The yield for government bonds is going up and it's going up rapidly and,
10:17
In the UK, it's just gone over 5%.
10:19
It's so high.
10:20
The last time it was this was in 2008.
10:24
which was global financial crisis.
10:26
And for context in 2020, it was at 0.1%.
10:29
0.1?
10:30
0.1.
10:31
So this is like, everyone's like, hang on a second.
10:34
The world and the market is like pricing in like the fact that the government bonds are now really risky and it's happening in the U S 30 year bonds have just hit 5.3.
10:45
So this is the highest since 2007 around the world.
10:49
Government bond yields are going up and the market's getting spooked.
10:52
Everyone's getting spooked.
10:53
Is everyone getting spooked because governments shouldn't be risky, therefore the returns on lending the government money shouldn't be very high.
11:02
They're the most safe.
11:04
You've got companies that will issue bonds and they're definitely more risky.
11:08
Within companies, you've got riskier companies and safer companies.
11:12
But within governments, governments are the most...
11:16
They should be the most...
11:17
The lowest risk company...
11:20
corporations or whatever you want to call them.
11:21
But is the idea of governments now being considered more risky?
11:26
So the reason is that the US government, for example, has just passed $40 trillion in debt.
11:31
And if we go back to the example of a coffee machine, I have $40 trillion of debt that I owe interest on.
11:40
And now I'm wanting to borrow more.
11:42
So you're like, no, no, no, no, no.
11:44
I'm going to price that super high.
11:46
That is such a good way to explain it.
11:47
So it would almost be if you personify the US government as Uncle Joe.
11:54
And he owes people $40 trillion.
11:56
Why would you ever give him more money?
11:57
Totally.
11:58
And it's not the dollar amount.
11:59
Well, it is the dollar amount.
12:00
But it's the interest they have to pay each year on that $40 trillion.
12:04
It's more than the entire defense budget in the US.
12:07
Yes.
12:07
And you know how much the US law is going to war.
12:10
Like, it's insane.
12:11
So investors are starting to worry that governments are overextended.
12:16
So they're now going, you know what?
12:17
I demand a higher interest rate to lend you money.
12:20
And this is not just in the US.
12:21
It's like all around the world.
12:22
Also, that's one reason.
12:23
The other reason is the Middle East...
12:26
Conflict is kind of back on the cards and oil's now climbing back up.
12:31
That means inflation and inflation is an absolute kryptonite for bonds, meaning that when you get paid back that $200 that I borrowed.
12:42
If inflation's super high, that $200 is now worth so much less.
12:47
Oh, okay.
12:47
So I'm like – So if inflation goes up and up and up, a 5% return could be nothing if inflation's gone up over 30 years.
12:53
I'm like, no, no, no, I want to be compensated even more.
12:55
Yeah.
12:56
Because when I get that $200 back in 12 months, if you had inflation at 7%, 8%, it's like, okay, well now that's even worth less.
13:04
So we've got these kind of two forces that are coming together at once
13:11
And we also had some really strong economic data come out of the US, which also helps support the fact that inflation is remaining really strong in the US, meaning interest rates are going to go up, which also impacts bonds even further.
13:26
There's kind of three strong forces that are at play that are meaning this is why the stock market is falling.
13:33
And why do you think...
13:36
the stock market is falling, if we've got inflation going up.
13:38
Did you ask me that because you saw my eyes glazing over?
13:41
No.
13:41
Because I have been trying to pay attention.
13:43
Yeah, no.
13:44
Am I doing a good job?
13:45
You are doing a really good job.
13:47
I'm really enjoying it.
13:48
I understand it.
13:48
But there was about 30 seconds that I stopped listening, and that was when the question came in.
13:52
So I was thinking, shit, shit, shit.
13:54
Oh my god, I used to hate that at school.
13:56
Oh, I know.
13:57
Someone knows you're not listening and they're like, blah, blah, blah, blah, blah.
14:00
And then they say your name at the very end of the question and you're like, oh god, I didn't hear the question.
14:04
I feel like I always get stung with that.
14:05
Maybe I'm just not listening.
14:06
I don't know.
14:07
Yeah.
14:07
I always, I'm like.
14:08
You always take notes and it looks like you're doing something else.
14:12
So that, but you wouldn't have been doing that at school.
14:14
no you just did a face like yeah i am doing something else yeah i'm like yeah i'm taking notes yeah i'm taking notes but um it's not an excuse now when you've got like ai note takers right yeah you're just like oh yeah i'm just like yeah i'm just yeah it's like you're on instagram no yeah um okay so what was the question so why is the stock market falling yes investors are spooked from just like everything that's going on oh
14:38
Can I guess?
14:39
Yeah.
14:39
Is it because if you can get 5% return in a bond, why would you bother investing in the stock market that maybe returns 8% if you could do something that's got basically no risk but is still giving you a decent return?
14:53
Yeah, exactly.
14:54
Thank you.
14:55
Thank you so much.
14:58
Oh, little mini claps.
14:59
Little mini claps.
15:00
We're there now.
15:00
If you're not watching, we're here.
15:01
We're so late to the mini clap party.
15:03
Okay, right.
15:05
So the stock market is like, well, shit, I don't have a job anymore.
15:09
Like if you take all the money in the world and you're wanting to get a return on that, where do you put it?
15:14
It's like, well, now if interest rates are going up because of high inflation and bond yields are going up, it's like, well, I may as well.
15:22
Put it into that.
15:23
Yes, it's still risky because we just talked about how there's added risks now.
15:27
But you're right.
15:27
It's like, where can I get the best return?
15:29
But if more people start doing bonds instead of the stock market, so there's heaps and heaps and heaps of demand for bonds.
15:37
Yep.
15:38
Wouldn't that mean that bonds then...
15:40
The demand for them, the price goes up.
15:42
Oh, yeah.
15:43
And then the percentage return goes down.
15:45
Yeah.
15:46
Say demand for bonds goes up and say someone comes and buys my bond for $300.
15:51
It's my $200 bond, but they're still going to pay $20.
15:53
$20 on $300 is a lower percentage than $20 on $200.
16:02
Oh, so you can on-sell bonds, but the percentage, even if you make a return on that bond, the first you buy it doesn't then get more of a return because they bought it for more.
16:11
No.
16:11
They're getting a smaller, okay, that makes sense.
16:13
Yeah, so the percentage or the yield is locked in for that.
16:16
But why can you, isn't the whole point of buying a bond you buy and hold?
16:19
So it doesn't kind of defeat the purpose if you can then sell it on?
16:22
No, it's kind of like, it's like stocks.
16:23
But why would someone then want to buy it for a more expensive price?
16:27
Wouldn't you just get the bond straight from the horse's mouth?
16:29
Yes, but they only released, you know, like a 30-year bond.
16:33
You know, like you can buy those throughout those 30 years.
16:36
It's just weird because it kind of defeats the purpose of a buy and hold for 30 years.
16:41
I would have thought you were like, no, you're locked in.
16:43
Yeah, but then like...
16:45
I own it so I can on sell it to.
16:48
It's like a stock.
16:49
It's like if you buy a stock, you originally at IPO, you buy it from the business.
16:53
But then if you sell it or buy it from someone else in the stock market.
16:56
And the situation changes, right?
16:57
I might be like, yeah, yeah, cool.
16:58
I'm going to buy Apple five years.
17:00
And then I'm like, oh, should I actually need that money?
17:01
And then.
17:02
Yeah, I just honestly thought it was like when you first told me about, you know, when you invest, you've got to leave it for five years.
17:07
I just thought that was like the rule and you can't pull it out.
17:10
Well, it should be.
17:10
Which, yeah, I know.
17:11
But like.
17:12
Imagine just a caveat on the curve fund.
17:13
Oh, you can't get money out in five years.
17:15
Oh, and you can't.
17:15
But that's, I sort of thought when you say about bonds that it's a 30 year that it would just be you actually do have to leave it for that long.
17:21
But you don't.
17:22
You can still buy and sell.
17:23
And there's bond markets just like there's stock markets.
17:25
You know, people can, yeah, you can be a bond trader.
17:27
Yeah.
17:28
Or a stock trader, bond trader, like, gosh, I couldn't think of anything.
17:31
But you, yeah, I mean, you're...
17:33
But, like, there's some incredible bond funds and, yeah, they're amazing people, but, like, it's just not my cup of tea.
17:38
Yeah.
17:38
It's more exciting to own a company.
17:40
Anyway.
17:40
So that is basically why the stock market is going down, the bond market is starting to look quite exciting.
17:45
What does this mean in everyday life, though?
17:49
It means that mortgage rates are going to go up.
17:53
Because interest rates are going up, bond yields are going up.
17:57
It means that because the government's debt that they owe and that the interest they have to pay on that is so large, how are they going to solve that problem?
18:07
You either cut what you're funding, so you cut spending on hospitals, on education, on healthcare, on parks and infrastructure, or you tax people more.
18:18
I feel like it always comes back to, and taxes.
18:20
And your tax more.
18:21
And we're increasing taxes, yeah.
18:22
And who has to pay the difference?
18:24
We do.
18:25
Yeah, it's like the government's gone out and gone, spending willy-nilly.
18:29
And then they're like, oh, okay, can we just get some more of you?
18:32
Thanks.
18:32
We need to, we didn't really, we didn't budget appropriately.
18:35
They're the irresponsible spender that then blames their friend for drinking the tequilas.
18:40
Exactly.
18:41
It's really annoying.
18:42
It's like, oh, shit, I've run out of money.
18:43
Can you just pay me more?
18:45
Thanks.
18:45
Oh, yeah.
18:46
Yeah.
18:46
You budget better.
18:47
Yeah, exactly.
18:48
Budget better and spend better.
18:49
Maybe we should just all set up like a coup that's just like, no, you're not going to tax us.
18:55
You don't do a very good job.
18:56
We need you to do better and then we'll be the ones that suffer again because the rubbish won't get collected.
18:59
True, that would be really annoying.
19:01
There'll be no one at hospitals, no one will get paid.
19:03
Oh God, yeah.
19:04
It wouldn't be, yeah.
19:04
Well, you're kind of in a bind.
19:05
You sort of have to, you have to.
19:07
There's no way around it and you don't have any control over how much taxes you're taxed except for who you vote for, I guess.
19:14
Do you think in the same way that businesses are adopting AI to make their systems and their processes more efficient and spend less, if the government could get their A&G and implement proper AI systems, that...
19:30
In the same way businesses are saving costs, they've got less overheads, they're able to produce more and be more productive.
19:36
If governments did the same thing, would that help in terms of A, the money they need to borrow, but B, being able to pay back what they owe quicker?
19:44
Yes, definitely.
19:45
Yeah.
19:45
And also when you've got...
19:48
huge, large tech companies that are spitting off cash, you know, like they are literally like growing at a phenomenal rate.
19:56
That also helps because they can invest in things that the government might now not be able to and like all of that.
20:02
Oh my God.
20:02
So tech companies could end up helping.
20:05
Well, it has to be a good return on investment for shareholders and all of that, but there'll be more private companies.
20:10
funding things.
20:11
Wow.
20:12
If that makes sense.
20:12
Yeah.
20:13
That's so interesting.
20:14
Yeah.
20:14
And I just want to finish on a quote from Warren Buffett.
20:16
Of course you do.
20:17
And he said, it's only when the tide goes out that you discover we never run swimming naked.
20:21
And that is the best quote he's ever had.
20:25
I wouldn't have not have expected that from him.
20:26
And it's like when right now the tide is going out, rates are rising, like bond yields are rising.
20:33
Everyone had so much debt and no one cared when rates were low because everyone could pay their bills and it was fine.
20:37
Yeah.
20:38
And now the rates are going up.
20:38
Everyone's like, oh, shit.
20:40
I've actually got too much.
20:41
I'm not too much.
20:42
Hell.
20:42
Yeah.
20:42
So we're about to find out who's naked or which country is very naked.
20:48
Do you know the thing about that, not just countries, but also people.
20:51
If you've loaned, if you've got a loan car and you've got lots of really high expenses that you can't afford to keep paying back, you might see people downgrading their lifestyle because they actually just can't keep up with interest rates.
21:04
And companies as well.
21:05
If interest rates go up and they've got now massive interest bills and they're having to pay that rather than invest in growth of their business, like debt can really hurt.
21:12
It can be great when interest rates are low.
21:14
Yeah.
21:15
But when interest rates go up, it can really, really hurt.
21:17
Yeah.
21:18
Coming up after the break, we are talking about Shein, which is a fast fashion brand that has done, well, it did very well.
21:26
And then it's been struggling recently.
21:28
So we're going to explain what's going on.
21:30
But first, we have a quick word from today's sponsor.
21:32
I invest so much more now, but I still don't feel great about profiting from companies that I don't believe in.
21:39
You know, weapons.
21:40
I just, I personally do not want to be making money from conflict.
21:44
But what about weapons companies that supply both sides of the conflict?
21:48
Pretty confusing, right?
21:48
I know, it's so confusing.
21:50
And I feel like I'm not alone in that.
21:52
Yeah, I mean, 80% of New Zealand investors don't want weapons in their KiwiSaver, yet Mindful Money reports that over $400 million is still invested in weapons manufacturers, which is why choosing the right provider matters, like Pathfinder KiwiSaver Plan, which aims to avoid profiting from conflict.
22:09
They've been recognized as weapons-free by Mindful Money and written loads of blogs on this topic, even covering their position on Gaza, which a lot of people have avoided.
22:17
So if you want to check out our podcast show notes to learn more, and thanks so much to Pathfinder for making this episode of The Curve Weekly possible.
22:24
Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver plan.
22:28
A product disclosure statement is available at pathfinder.kiwi.
22:31
So Sheehan, they went public.
22:35
Recently.
22:36
Which was being spoken about for a very long time.
22:38
They had to shop that business around to pretty much every stock exchange going, who wants to take us?
22:44
Which is unheard of.
22:45
Do you mean because everyone wanted them or no one wanted them?
22:48
The US was like, not us.
22:49
UK's like, not us.
22:51
Imagine.
22:52
Whereas here you've got... That's so embarrassing and really sad.
22:55
And also you've got Anthropic, right, which is Claude, that has got exchanges...
23:00
climbing over themselves to have them.
23:04
And it's just so interesting.
23:06
But it finally found a home on the Hong Kong Stock Exchange.
23:12
And interestingly, the company was –
23:18
valued at about $27 billion.
23:22
Now, I want you to remember that number.
23:23
$27 billion?
23:24
Yeah.
23:24
On its first week of trading on the Hong Kong stock market, it lost about $5 billion.
23:31
So it was down about 20%.
23:35
So a really, really bad start.
23:36
But in 2022, it was valued at $100 billion.
23:41
I actually knew this.
23:42
I saw it.
23:44
I saw a headline because it's worth like a quarter of its value now.
23:47
In 2022, if you had invested 1%, so say you put a billion in, that now would be worth about $200 million.
23:57
I guess what I think is if someone has that much money to invest, is it the same as me investing $100 million?
24:03
And therefore it goes to 20 isn't a big deal.
24:06
It's still the return though, right?
24:07
Like you still have to answer to your investors, which are probably private investors that want to return.
24:11
That's still a really bad outcome.
24:14
Optically, what is that saying?
24:16
You know, that the business has had to IPO at such a discount to what its previous round was.
24:22
It's just like crazy.
24:23
It also shows just how times change.
24:27
2022, markets were on a absolute tear.
24:30
People were climbing over themselves to invest in anything, really.
24:33
Remind me where it started.
24:35
In China.
24:36
So a huge amount of the cat table, Chinese investors?
24:40
Or would it be global?
24:42
It's global, yeah.
24:43
And also that's why they wanted to invest in the US and the UK because those exchanges are way more highly regarded than the Hong Kong Stock Exchange, for example.
24:52
And they want to position themselves as a global company.
24:55
The biggest thing with Shein is they...
24:59
built their business on a legal loophole.
25:03
So they would ship their products direct from China to American doorsteps or European doorsteps, you know, like they do direct to customer.
25:11
And there was an exemption that if you ship something below $800 directly to a US customer, you didn't have to pay import duties or tariff or anything.
25:21
selling like $8 to $12 dresses.
25:24
They flew under the radar.
25:25
Because no one is spending $800 on Shein.
25:28
But that's a massive cost advantage.
25:31
Then they changed the rules.
25:32
Isn't that so dumb to create a business based on regulation that could change?
25:37
So this is what my learning is from this story, is that...
25:42
You should never be investing in a business because of a loophole.
25:45
It should be on genuine growth and a genuine competitive advantage, whether that's brand, whether that's, you know, whatever it is.
25:54
We've seen this happen with like Airbnb, for example, they had, you know, there's been crackdown on short term rentals.
26:00
We've seen it with Uber.
26:01
There's been a crackdown on whether their drivers are contractors or, you know, now they have full-time employees.
26:08
If regulation is the way that you're growing your business or you're skirting around the rules or whatever, those can change in a heartbeat and really impact.
26:17
And that's what's happened with Shein.
26:20
And that's also why the value of the business has gone from $100 billion to $25 billion.
26:25
Question.
26:26
Do you think that...
26:29
The same could be said about innovation that has come or been born out of regulation or lack of regulation.
26:37
I've had a business idea.
26:38
So I've been thinking lately, how outrageous is it?
26:43
I'm not actually selling this business, by the way.
26:45
This is just something else they can.
26:46
I'm looking at you like, when are you doing this?
26:48
You have quite a bit on right now.
26:50
I'm not sure how you're planning on doing that.
26:53
So I was just thinking, because this is a good example, it's almost like it wouldn't be built on a loophole in a dodgy way, but it's built on the lack of there being more government support in an area that it's just crazy to me.
27:06
I mean, you're so passionate about this space too, hypothetically, my new business idea.
27:12
It's crazy to me how many of my friends are looking or thinking about having kids but can't afford it.
27:17
The childcare problem, which we've spoken about forever on this podcast, is such an issue.
27:23
A lot of people can't afford childcare.
27:25
They then don't think they can afford to have kids.
27:27
It is one of the biggest barriers.
27:29
It's almost more expensive for people than their rent.
27:32
The system is broken, right?
27:33
We all know this.
27:34
We've talked about it.
27:34
So I'm not, I'm not trying to like beat around the bush, but I was just thinking how cool would it be if you set up some kind of business that allowed more community rather than people having to go to nursery or external paying or all these exuberant amounts for someone to look after your kid.
27:48
What if, you know, on your street or something, there was some kind of community thing where...
27:53
Every day of the week it went to a different person's house.
27:56
Everyone shared the cost of nannies.
27:58
Or, you know, you're seeing all of this stuff pop up in the US where there's almost co-working spaces for people who work for themselves where there's a creche internally.
28:06
But those types of businesses are kind of built or the premise is because government hasn't stepped in and said, we'll pay for childcare up to three years old.
28:14
So if you then built a business around it and then regulation changed, is that also super risky?
28:19
Yes and no.
28:20
It's a great way to think of like, okay, where's the friction in society?
28:26
What do I not like doing?
28:27
What is the problem here?
28:28
What's the problem I'm trying to solve?
28:30
Yeah.
28:31
And it's a great way to start any business and a great way to think of like, because if you can solve a problem for someone, then you've got such price flexibility essentially.
28:39
Because people need it.
28:41
What you're saying is...
28:42
that is quite a different kettle of fish than this because this is almost the reason that they look financially successful or like they are you know killing it in terms of orders is because they're kind of not paying for all their expenses so if you compare the amount of revenue profit where they're at as a business compared to similar businesses they look really good but that's because there's almost this enormous cost that hasn't been built into their p&l
29:07
that other businesses like them pay.
29:09
So it's almost inflating the value of the business in a fake way.
29:12
A hundred percent, yeah.
29:14
A really good example is like retirement village operators, for example, get so much of their money from the government and that helps pay for pensioners' accommodation.
29:23
If they were to change those rules slightly, that impacts those businesses.
29:25
You know, it's kind of, sometimes you want government support or you want government involvement.
29:30
And when it works, it works great.
29:31
But they can also change.
29:33
You know, we've just had a whole segment on how government is so stretched right now.
29:37
So, you know, the likelihood of them paying for childcare is very slim.
29:41
It's probably not on their top priority list.
29:44
A really good example is comparing to Zara.
29:46
And Zara has an incredible, I know people have issues with fast fashion, but it has such a competitive advantage.
29:53
It has genuine, like fast design to shelf turnaround, strong brand, operational excellence.
29:58
Like, wow.
29:59
That business would never disappear with a change in a tax rule because it's been around for a long time.
30:04
This is also the issue with IPOs.
30:06
So, yeah, she in.
30:08
We are back for the ethical hotline.
30:10
Now, I want to say before we speak about the question that's come through, I love all our listeners equally.
30:16
I love their questions.
30:17
I think they're geniuses.
30:19
I will say, I think today's question, perhaps a bit lazy, you know, maybe a little bit too broad.
30:26
This is a really hard question to answer.
30:28
And so we're not going to be able to cover all bases.
30:30
So the question that has come through is, should I be invested in AI companies?
30:35
Is this ethical?
30:36
And I thought...
30:37
I get where you're coming from, but how were we meant to answer this succinctly?
30:41
I'm not sure.
30:42
But you still send it to me.
30:44
I know, sorry.
30:45
But it's like, there is so much nuance to this.
30:49
But at the same time, it is what I think most people are interested in knowing.
30:53
Can I invest in AI and can it be ethical?
30:57
And I mean, look...
30:59
this answer you're probably going to need to read the full one on Pathfinder's website we're going to link it in the podcast show notes but we are going to give a bit of an overview for anyone that just wants a quick fire is this ethical or not I don't know where to even begin Lily I'm going to be honest okay I mean it's not a binary is it ethical or not yeah on a long film article we cover off a little bit of what AI is and what the pros are what the cons are and then what tools investors have to navigate AI so yeah
31:28
It's just kind of equipping you with information because when you're educated, you can make better decisions.
31:33
But look, there's a financial component.
31:35
People are freaking out about the AI bubble.
31:37
You guys have talked about this.
31:38
There's concerns that the companies are overvalued and whether or not they're actually going to deliver.
31:45
the returns that they're kind of promising shareholders and what will happen if they don't.
31:49
We just focus in on the ethical components.
31:52
You got stuff like energy use.
31:54
We know it uses a huge amount of energy.
31:56
And then it also, like what kind of energy?
31:59
So when there's an increase in use, what kind of energy is being produced to fuel these data centers that fuel the AI?
32:08
You've got water and land consumption issues.
32:11
One of the things I wanted to bring up with you,
32:15
before, I wondered if you had, which is the human labour component.
32:19
No.
32:20
So there's like this new job.
32:21
Everyone's complained that AI is taking everyone's job.
32:23
It's made a new job for everyone, but it's kind of an awful one, which is called, sometimes it's got different names, but data labelling.
32:31
Essentially, it's human beings who have to parse the information before it goes to the AI because they don't want to, like, ruin the AI so that it will, like, they don't want to put yucky stuff into the AI in case it reproduces it.
32:45
So they use humans to, like, parse the information first.
32:48
And you can imagine the nature of this content that these people are having to review now.
32:54
And there was a big furore because OpenAI was using an outsource provider called Sama, and they were using contractors in tenure who they were paying at most like $3.74 an hour after tax to go through all of this objectionable material.
33:12
And some of them were so traumatized.
33:14
Also, Meta, you know, the glasses, that stuff, what people are recording also goes back to Meta and these data labelers review it and they have to like edit out.
33:25
Sometimes people watch pornography.
33:27
Sometimes people film subjects without consent.
33:30
Yeah.
33:30
It's almost like the worst parts of humanity are having to then be filtered by people.
33:36
But the weirdest thing about that as well is, yeah, like the dark web or like the underbelly of the internet that lots of us don't see.
33:44
It's almost like even just a tiny, tiny glimpse at the Louis Thoreau Manosphere documentary.
33:49
It's the stuff that normally stays within its echo chambers of people who are thinking or seeing or doing quite messed up things.
33:56
But now there's these other people that are basically being paid to sift through that.
33:59
It's really scary and weird.
34:01
But just thinking about it, broad strokes, it's like too big of a thing for fund managers or individual investors to like rule out with a blanket exclusion because it's so interconnected in everything we do.
34:14
So actually it's more about assessing individual AI companies on a case-by-case basis and thinking about things like how transparent are they about their environmental protections?
34:24
Do they have a policy around environmental impact?
34:28
Do they have a supply chain policy to protect human rights?
34:31
Yeah.
34:32
Do they have a responsible AI policy that addresses all of these things, a sustainability report, whether I put back on it?
34:38
So it's really a case-by-case basis in terms of how each AI company behaves.
34:43
Right.
34:44
So it's kind of similar to when we talk about ESG, whether you're looking at any kind of investing, whether it's is this harming the planet, is this harming people, etc.
34:53
is this harming animals?
34:55
There's so many different ways that something could be or not be ethical.
34:59
When it comes to AI companies, you have to really look holistically.
35:03
It's so many different elements before you would say, yeah, we'll invest in that or we won't.
35:07
But if you're probably worried about, you know, the AI is an ethical question, perhaps there's some ETFs that are exclusive of some AI.
35:17
I don't know.
35:18
Maybe we can explore that in the full answer for people to have a read.
35:21
Yeah.
35:21
Yeah.
35:21
Also, if you're with a fund manager like Pathfinder, for example, because we have a set of exclusions like weapons, if an AI company produces a weapon or produces software that fuels a weapon, that will hit our exclusions and we won't invest in them.
35:36
So if you look at your fund manager and review their policy on how AI intersects with their other exclusions, that could give you a greater level of comfort as well.
35:46
Okay, amazing.
35:48
And for anyone that does want to read more about this and feels quite, I guess, probably overwhelmed with the amount of information and things to think about, obviously that's the whole point we've got the ethical hotline is to ask the experts and to be able to sort of outsource responsibility.
36:03
So if you would like to read the full answer, you can find that in the podcast show notes.
36:07
And if you've got any questions that you would like,
36:09
Lily to answer, then please submit them to the ethical hotline.
36:13
But thank you so much, Lily.
36:14
That was really interesting.
36:16
I definitely feel like I need to go and read the full answer.
36:18
Thank you.
36:19
The views expressed by Pathfinder via the ethical hotline are of a general nature and are not specific to Pathfinder's product.
36:25
To learn more about Pathfinder and what they do, please visit pathfinder.kiwi.
36:29
So we have one last episode of The Curve Weekly this Wednesday.
36:34
So coming out in a couple of days' time, we're very exciting.
36:38
We've got Vic back on the pod.
36:39
I have been back on.
36:40
She's been, as you know, very busy with The Curve Fund.
36:43
She's relocating to New Zealand.
36:44
There's been a lot going on.
36:46
And we've had Emma Louise Boynton filling in the last month.
36:48
But this Wednesday, I'm back.
36:50
Vic is back, back, back on the pod.
36:52
And the last episode before we have a two-week break is our property podcast.
36:57
We're going to be answering a whole lot of curveballs with the amazing Holly Echerton from Succession.
37:02
So have a good rest of your week.
37:04
Please leave a comment, review.
37:05
Let us know how you found this episode.
37:07
We will see you on Wednesday with Victoria Harris.
37:10
See you.
37:11
Thank you so much for listening to The Curve Weekly.
37:13
Make sure you hit subscribe or follow wherever you're listening so you're always up to date with the latest finance and investing news.
37:18
And feel free to leave a comment to let us know what you thought about this episode because we would love your feedback.
37:22
We've got new Curve Weekly episodes for you to listen to every Monday.
37:26
But until then, listen to Erasing the Curve.
37:28
These are our in-depth podcast episodes where we chat about all things money.
37:31
We're also around all week on socials if you're hungry for more Curve content and all the links are in this podcast show notes.
37:37
We hope you have a great week and we'll catch you for the next episode of The Curve Weekly on Monday.
37:41
you
37:49
Okay, quickly, the Curve was created to empower and educate you about investing, but we are not financial advisors.
37:55
Our platform exists for educational purposes only, and it doesn't provide personalized investing advice for your individual needs and should not be relied upon to make an investment or financial decision.
38:04
And always remember to do your own research before making any investment or financial decision.
38:09
We're here for any knowledge and support you need, but the final call is always yours.
38:13
And thanks for being here.
38:14
You got this.
38:15
Yeah, we know you got this.