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Higher rates, lower returns: Is Australia still investable? · The Money Puzzle

• 0:10
  Speaker 1: Hello and welcome to the Australian's Money Puzzle Podcast. I'm
• 0:13
  Speaker 1: James Kirby. Welcome aboard. As an investor, I think sometimes
• 0:17
  Speaker 1: you do need to take the big picture. And we
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  Speaker 1: really did have a big picture presented to us recently
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  Speaker 1: with what was called the Intergenerational Report from the government.
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  Speaker 1: And as a map, really, for Australia economically and where
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  Speaker 1: it's going, as they say, there really was marvellous material
• 0:34
  Speaker 1: in it for the active investor. And I think a
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  Speaker 1: major question However, hovering over that whole forecast is whether,
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  Speaker 1: as an investor, you might be better off investing somewhere else. Now,
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  Speaker 1: my guest today is Paul Bloxham. He's the chief economist
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  Speaker 1: at HSBC Australia. Delighted to have you on the show.
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  Speaker 1: I've meant to do this for a long time. How
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  Speaker 1: are you, Paul?
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  Speaker 2: I'm very good and great to be here, James. Happy
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  Speaker 2: to help, as always. Good.
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  Speaker 1: Well, we'll test your ability to help from here on in.
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  Speaker 2: Okay.
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  Speaker 1: So maybe listeners don't know what this was, this intergenerational report,
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  Speaker 1: but it was a substantial report issued by the government,
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  Speaker 1: which basically laid out what they saw. as our future,
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  Speaker 1: immediate future from an economic perspective, in terms of how
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  Speaker 1: GDP will grow, how productivity will grow, how unemployment will grow,
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  Speaker 1: what sort of economy we're facing. Needless to say, as
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  Speaker 1: a political document, whatever government was going to produce this
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  Speaker 1: was going to get bashed around because they're going to
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  Speaker 1: take optimistic assumptions. But from an investor point of view, Paul,
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  Speaker 1: what do you think we learned very broadly from that report?
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  Speaker 2: Well, I think it's great that the government does put
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  Speaker 2: this together. And actually, it used to happen every five years.
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  Speaker 2: And now they've switched tactics and they're delivering one every
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  Speaker 2: three years. It gives you a sort of set of numbers,
• 1:53
  Speaker 2: a set of projections out for 40 years. And it's
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  Speaker 2: quite a horizon, really, when you think about it. But
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  Speaker 2: it allows us to sort of set the scene for
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  Speaker 2: how the local economy is going to travel and how
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  Speaker 2: it fits into the global economy as well, what the
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  Speaker 2: big challenges are. Now, when you're looking over that sort
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  Speaker 2: of time horizon... I guess there are sort of two
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  Speaker 2: big things that really drive your projections. And the first
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  Speaker 2: one is demographics. You know, a lot of it is
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  Speaker 2: driven by what happens to the demographic profile. And one
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  Speaker 2: of the features that's very clear, which is the same
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  Speaker 2: as other countries too, is that our population will be
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  Speaker 2: aging over that period of time. And that will present
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  Speaker 2: challenges for the economy because what happens is you end
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  Speaker 2: up with fewer taxpayers and more people who need help.
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  Speaker 2: And so you get a rising dependency ratio. And that
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  Speaker 2: means that there's more that needs to be spent by
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  Speaker 2: the government to support things. And of course, there's a
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  Speaker 2: risk there that we need more tax revenue to drive
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  Speaker 2: things as well. And so that's one big feature of
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  Speaker 2: the story. And you can see it very plainly in
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  Speaker 2: the numbers, the population ages, as that happens, there's more
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  Speaker 2: government spending that needs to happen. And the government either
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  Speaker 2: needs to find it in tax revenue, or they need
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  Speaker 2: to find it through issuing more debt. And then there's
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  Speaker 2: a second big aspect to the story, which really underpins things.
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  Speaker 2: And that is what you assume will happen to productivity growth.
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  Speaker 2: Because keep in mind, if we've got less workers in
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  Speaker 2: the economy because the population is aging, we need the
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  Speaker 2: workers we've got to be more productive, to produce more
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  Speaker 2: income and support the overall economy. And that's where it
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  Speaker 2: gets really complicated because demographics are a bit easier to forecast.
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  Speaker 2: We know what the state of the current population is.
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  Speaker 2: We know the age profile. We know that demographics move slowly.
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  Speaker 2: But forecasting productivity can be quite hard. And I guess
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  Speaker 2: one of the big features from this intergenerational report was
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  Speaker 2: that the government is, what I would say, unrealistically or
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  Speaker 2: certainly very optimistic about what they're assuming is a baseline
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  Speaker 2: for productivity growth. Productivity growth in Australia has been very,
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  Speaker 2: very weak in recent times. In fact, over the past decade,
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  Speaker 2: labor productivity has barely grown at all. It's slowed down
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  Speaker 2: a lot. And this is a national issue, a big
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  Speaker 2: conversation that's being had. And the government is assuming in
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  Speaker 2: the intergenerational report that it will spring back to 1.2%
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  Speaker 2: each year on average over the next 40 years, which
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  Speaker 2: is the sort of rate we were running at a
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  Speaker 2: decade ago. And you have to really go back that
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  Speaker 2: far to get anything that looks like that.
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  Speaker 1: In relation to those two big issues, aging of the population,
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  Speaker 1: which most people would be familiar with, and productivity decline
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  Speaker 1: per capita, are we distinguished as an economy in any
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  Speaker 1: fashion there? There's aging demographics across all Western economies, isn't there?
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  Speaker 1: So tell me if I'm wrong. Is productivity the big problem?
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  Speaker 1: And is it a sufficient issue that an investor looking
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  Speaker 1: at us vis-a-vis Europe or vis-a-vis developed economies like the US,
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  Speaker 1: that their economies will do better? And so their listed
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  Speaker 1: stocks and investment markets will do better? Because they have
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  Speaker 1: been doing better, certainly the US. Yes.
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  Speaker 2: So the first answer is our demographics don't look quite...
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  Speaker 2: Some countries have actually got more challenged demographics than we do.
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  Speaker 2: We've got a higher fertility rate than a lot of
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  Speaker 2: other places. populations are aging more quickly in other countries.
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  Speaker 2: Our healthy migration program actually contributes to a slightly younger
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  Speaker 2: population because the migrants on average are younger than the
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  Speaker 2: extant population. And so it doesn't look quite as challenged.
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  Speaker 2: But on productivity, we actually look really quite poor at
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  Speaker 2: the moment. If you look over the past decade, we've
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  Speaker 2: had one of the worst productivity performances across the developed world.
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  Speaker 1: Across the world?
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  Speaker 2: Across the developed world.
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  Speaker 1: One of the worst in the world?
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  Speaker 2: That's right. If you look post-pandemic, I think we've had
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  Speaker 2: the worst performance across the developed economies as a whole.
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  Speaker 2: The US is the leading performer. It's running its productivity
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  Speaker 2: growth on average over the past decade of about 2%
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  Speaker 2: a year. and we are running at 0.3% a year,
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  Speaker 2: and there's a 20 percentage point gap between us and
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  Speaker 2: the US. And the Europeans are sort of a bit
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  Speaker 2: of above us in any sort of comparison, and not
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  Speaker 2: nearly as good as the US. But we are definitely
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  Speaker 2: in that lower grouping and bottom of it, actually. So
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  Speaker 2: the question is, does that improve? And the government's sort
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  Speaker 2: of set of numbers just assume that it does. And
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  Speaker 2: they assume a lot of it is grounded in this
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  Speaker 2: idea that AI is going to be a really big
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  Speaker 2: driver of lots of productivity improvements. And I guess I'm
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  Speaker 2: While I'm not skeptical, I think AI is going to
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  Speaker 2: deliver all sorts of things. I am a bit worried
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  Speaker 2: that perhaps the assumptions are a bit unrealistic. And so
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  Speaker 2: what does an investor take from this? Look, I think,
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  Speaker 2: and this is where you're headed with all of this.
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  Speaker 2: I mean, one feature is going to be government debt
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  Speaker 2: levels are going to be higher and we're going to
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  Speaker 2: be spending more to support an aging population. And so
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  Speaker 2: that means interest rates. are probably going to be higher.
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  Speaker 2: The higher for longer story is starting to really come through.
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  Speaker 2: And this sort of big report gives you one of
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  Speaker 2: the factors that drives that story. Another feature of the
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  Speaker 2: story will be, there will be more money spent in
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  Speaker 2: this economy supporting an older population. So if you're looking
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  Speaker 2: for industries that are growing, it's the ones that are
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  Speaker 2: actually involved in those parts of the economy, the aging population, health,
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  Speaker 2: these sorts of things are all the things that are
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  Speaker 2: going to be driving more growth. And I think The
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  Speaker 2: third one, which is really to your point, is around productivity.
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  Speaker 2: And are we genuinely going to get the sort of
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  Speaker 2: improvement that the government's projecting? And I guess I'm sceptical
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  Speaker 2: a little bit. I mean, I think their numbers are
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  Speaker 2: a bit too strong, a bit unrealistically high. And if
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  Speaker 2: we don't do quite as well, then you're absolutely right.
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  Speaker 2: Then you're going to be looking for other places which
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  Speaker 2: have got productivity that's stronger and therefore profitability that's strong.
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  Speaker 2: And I think you're already seeing this reflected in markets.
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  Speaker 2: You're seeing it reflected in overall equity market performance and
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  Speaker 2: so on. It is getting reflected in that story of
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  Speaker 2: we have a relative underperformance with regard to productivity. So
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  Speaker 2: the long-term view is that it might spring back. I
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  Speaker 2: think we have to take that with a bit of
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  Speaker 2: a pinch of salt, but that's what the intergenerational report
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  Speaker 2: was showing.
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  Speaker 1: Okay. So in terms of productivity, just two things I
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  Speaker 1: wanted just for the investor that's really interesting. I want
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  Speaker 1: to just, if we could just quickly cover this. First
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  Speaker 1: is What people are really, economists like yourself, are disturbed by,
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  Speaker 1: I suppose, is GDP per capita growth. Because if we
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  Speaker 1: didn't have constant immigration of skilled young people, then our
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  Speaker 1: GDP growth wouldn't be half as good. Is that how
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  Speaker 1: it goes? Is that the key figure? And the other
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  Speaker 1: thing I want to ask you is that per capita growth,
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  Speaker 1: it decoupled, right? Around 2006, for a long time, the
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  Speaker 1: GDP per person and the GDP were kind of tracking together.
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  Speaker 1: And in 2006, they split and they never came back.
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  Speaker 1: What happened there? And why does that matter?
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  Speaker 2: Yeah, so there are two great questions. And so the
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  Speaker 2: first answer is, yes, we focus on things like GDP
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  Speaker 2: per capita. But actually, at a deeper level, we look
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  Speaker 2: at something called GDP per hour worked. We're looking at
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  Speaker 2: how many people are working, how many hours are being
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  Speaker 2: put in, how much output's coming out. And when I
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  Speaker 2: was referring to these numbers of sort of productivity running
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  Speaker 2: at 0.3% on average over the past decade in Australia,
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  Speaker 2: which is very weak, That's what I'm referring to. GDP
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  Speaker 2: per hour worked. In fact, over the past year, it's fallen,
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  Speaker 2: literally fallen on the GDP figures that we saw a
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  Speaker 2: couple of weeks ago. It was down 0.2. Put the
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  Speaker 2: same number of hours in now that you did a
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  Speaker 2: year ago and you get less output. So that's a
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  Speaker 2: pretty challenged spot to be in. That rate of GDP
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  Speaker 2: per hour worked has slowed down from growing at 1.3%,
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  Speaker 2: which is what it ran at between 2005 and 2015.
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  Speaker 2: So back then, We had better productivity on average. Now
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  Speaker 2: it's slowed right down. We aren't focused enough on this,
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  Speaker 2: need to be more focused on it. You're right that
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  Speaker 2: if you look at per capita GDP, the two sort
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  Speaker 2: of start to come apart at about 2006. And a
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  Speaker 2: part of that is that the productivity slowdown was already
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  Speaker 2: starting to see, you were starting to see some signs
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  Speaker 2: of it back then. But you might say, well, Yeah,
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  Speaker 2: but 2006, we were still doing okay. And the answer is, well,
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  Speaker 2: our productivity wasn't running as quickly, but we were getting
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  Speaker 2: a really, really big boost from higher commodity prices. Remember
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  Speaker 2: the mining boom and the China boom? Commodity prices went
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  Speaker 2: up and we boosted our incomes by selling what we
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  Speaker 2: produced for a higher price. The world gave us a
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  Speaker 2: pay rise and that was happening all through that time.
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  Speaker 2: So this really didn't start to become a bigger issue
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  Speaker 2: until those commodity prices started to come down around 2014, 15.
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  Speaker 2: And then that engine started to slow down at the
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  Speaker 2: same time that the productivity story has not really been
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  Speaker 2: doing very much. And now we're left with GDP per
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  Speaker 2: hour not rising much. And why is this fundamentally important?
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  Speaker 2: Because this is one of the primary ways that you
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  Speaker 2: measure living standards. Living standards high in Australia, but they
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  Speaker 2: haven't been rising in recent years because we just haven't
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  Speaker 2: gotten productivity to go. And then from an investor's perspective, well,
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  Speaker 2: you know, firms, if they're productive, then they can be
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  Speaker 2: more profitable. And if they can be more profitable, of course,
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  Speaker 2: it can support returns. And that's how to think about
• 10:30
  Speaker 2: that sort of from an overall investment perspective.
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  Speaker 1: Okay, very interesting. What we might do actually, we'll take
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  Speaker 1: a short break and we'll be back with you in
• 10:37
  Speaker 1: one second. Hello, welcome back to The Australian's Money Puzzle Podcast.
• 10:49
  Speaker 1: James Kirby with Paul Bloxham, Chief Economist at HSBC Australia. Now,
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  Speaker 1: we talked in the first segment, folks, about some of
• 10:57
  Speaker 1: the economic, I suppose, first principles, if you like, in
• 11:02
  Speaker 1: terms of where we are. We have an aging population,
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  Speaker 1: and that really does change things. It puts the burden,
• 11:08
  Speaker 1: if you like, on the younger population. But from an investor,
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  Speaker 1: it suggests, though it's not a great suggestion, I might add,
• 11:17
  Speaker 1: to invest in retirement homes or whatever. That really isn't
• 11:19
  Speaker 1: going to get you very far as in a diversified portfolio.
• 11:23
  Speaker 1: But it does help us to read the tea leaves.
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  Speaker 1: And what we're looking at is, I suppose, Paul has
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  Speaker 1: basically alluded to a few things in the first part
• 11:32
  Speaker 1: of the show. Higher rates for longer, declining or at
• 11:35
  Speaker 1: least unimpressive productivity in the local economy. And if you
• 11:39
  Speaker 1: believe the productivity story, well, you heard in the first
• 11:42
  Speaker 1: part how the US is miles ahead of us on
• 11:44
  Speaker 1: productivity and it's miles ahead of us on investment returns.
• 11:48
  Speaker 1: So what I want to do now is basically cut
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  Speaker 1: to the chase for investors and ask Paul where key
• 11:54
  Speaker 1: investment variables, where he believes they might sit in the
• 11:57
  Speaker 1: near future. We won't ask you to forecast 40 years,
• 12:00
  Speaker 1: 10 years, four months would be good enough, Paul, if
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  Speaker 1: you could do it. Okay, let's start at the very start. Rates.
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  Speaker 1: To our surprise, perhaps, and I don't want to go
• 12:09
  Speaker 1: into whether the RBA was right or wrong, except to
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  Speaker 1: say we are looking at higher interest rates and we're
• 12:15
  Speaker 1: looking at higher rates around the world. So as an investor,
• 12:19
  Speaker 1: is it safe to assume that rates are going to rise?
• 12:24
  Speaker 1: What would we say, for a year, for the next year?
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  Speaker 2: Yeah, so there's a few things at work here. Interest
• 12:29
  Speaker 2: rates are already going up at the long end and
• 12:32
  Speaker 2: central banks are now starting to take a bit more action.
• 12:35
  Speaker 2: As we saw the Federal Reserve lifting interest rates, the
• 12:37
  Speaker 2: ECB's gone a couple of times, the Bank of Japan's gone,
• 12:40
  Speaker 2: and we think actually there's going to be more offshore
• 12:43
  Speaker 2: by those central banks as well. And so what does
• 12:46
  Speaker 2: that reflect? Well, partly it reflects that There's a bit
• 12:49
  Speaker 2: more inflation in the global system, and that's partly related
• 12:52
  Speaker 2: to the Middle East conflict, and that's been driving some
• 12:54
  Speaker 2: part of it. But that's the thing that's been driving
• 12:57
  Speaker 2: what central banks have been doing. But at the longer end,
• 12:59
  Speaker 2: where we've seen these interest rates now getting to higher
• 13:02
  Speaker 2: levels and looking as though they're going to stay higher
• 13:03
  Speaker 2: for longer, 10-year yields and so on, it's reflecting two
• 13:06
  Speaker 2: other things. It's reflecting, one, that there's a lot of
• 13:09
  Speaker 2: investment going on in the world right now, not just
• 13:11
  Speaker 2: in the governments that are spending when they're spending more
• 13:14
  Speaker 2: on defence and they're spending more on their ageing populations.
• 13:17
  Speaker 2: As we talked about earlier, that's a feature for Australia too.
• 13:20
  Speaker 2: We're spending more on the energy transition. But of course,
• 13:22
  Speaker 2: now there's this enormous call on saving to go into
• 13:26
  Speaker 2: building AI-related infrastructure, data centres and electricity generation, storage and
• 13:30
  Speaker 2: transmission capacity. And so, in principle, the thing that's happened
• 13:34
  Speaker 2: is real interest rates of risk Because there's so much
• 13:37
  Speaker 2: more demand now for capital, it's putting upward pressure on
• 13:41
  Speaker 2: the price of it. So that's driving up yields at
• 13:43
  Speaker 2: the long end as well. And the third feature is
• 13:46
  Speaker 2: uncertainty about the sustainability of government's abilities to really sort
• 13:50
  Speaker 2: of rein in their fiscal positions. And that's a feature too.
• 13:54
  Speaker 2: So I think all of these are at work and
• 13:56
  Speaker 2: all of them are sort of big picture trends. And
• 13:59
  Speaker 2: so it does feel like we're going to end up
• 14:01
  Speaker 2: in a world where interest rates stay at a higher
• 14:03
  Speaker 2: level in a more sustained sense. And so- What does
• 14:05
  Speaker 2: that then mean for other asset classes? Well, for Australia,
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  Speaker 2: I think the RBA, as you said, I think they're
• 14:10
  Speaker 2: going to lift interest rates further. I think we're going
• 14:12
  Speaker 2: to get a couple more rate hikes before the end
• 14:14
  Speaker 2: of the year. And that's going to be challenging for
• 14:16
  Speaker 2: some people, I know. But also, it's going to put
• 14:18
  Speaker 2: more pressure on house prices, for example. Housing prices are
• 14:21
  Speaker 2: already declining. They've come down nationally. They're falling in all
• 14:24
  Speaker 2: the major cities, most of the regional areas. We think
• 14:27
  Speaker 2: they're going to continue to fall over the next few quarters.
• 14:29
  Speaker 2: So that's something to watch out for. And those are
• 14:33
  Speaker 2: sort of some ways to think about what's going on. Yes,
• 14:35
  Speaker 2: I think we're in a world now where interest rates
• 14:37
  Speaker 2: are set to stay more elevated for a more sustained
• 14:39
  Speaker 2: period of time.
• 14:41
  Speaker 1: You mentioned earlier about the US being so far ahead
• 14:43
  Speaker 1: in terms of productivity and how their investment returns very broadly,
• 14:48
  Speaker 1: US S & P 500 returning about 15% and the
• 14:51
  Speaker 1: ASX returning about nine. Everything you say suggests to me
• 14:55
  Speaker 1: that that's just going to continue.
• 14:56
  Speaker 2: Well, I think when we're looking at what's happening in
• 14:59
  Speaker 2: equity markets, I think there is quite a divergence, as
• 15:01
  Speaker 2: you're saying, across the world and in particular the US.
• 15:03
  Speaker 2: The tech sector has been a leading feature of this story.
• 15:06
  Speaker 2: I think Australia, because we haven't got as big a
• 15:08
  Speaker 2: tech sector, we're more focused on commodities and the resources
• 15:12
  Speaker 2: sector and have a bigger banking sector. The performance has
• 15:14
  Speaker 2: not been as strong. And I think the overall story
• 15:16
  Speaker 2: is we just haven't had as much productivity growth. I mean,
• 15:19
  Speaker 2: that fundamentally underpins our valuations as well. I mean, I think,
• 15:23
  Speaker 2: you know, the commodity story is worth sort of delving
• 15:25
  Speaker 2: into a bit. This is something that is helping Australia
• 15:27
  Speaker 2: to a degree, you know, where we're benefiting from high
• 15:30
  Speaker 2: commodity prices, boosting incomes. But I also want to, you know,
• 15:33
  Speaker 2: I'd always caution that the big things that we sell
• 15:36
  Speaker 2: to the world, the big commodities, iron ore, coal, they're
• 15:39
  Speaker 2: not going to be in as high a demand as
• 15:42
  Speaker 2: they have been in the past. China's past peak steel,
• 15:45
  Speaker 2: it's got a huge oversupply of housing. doesn't look like
• 15:48
  Speaker 2: there's a lot of topside for iron ore or the
• 15:50
  Speaker 2: coal space. And as a result of that, even though
• 15:52
  Speaker 2: resources as an aggregate might hold up reasonably well, it's
• 15:55
  Speaker 2: not going to continue to boost incomes like it did
• 15:57
  Speaker 2: in the early part of the century.
• 15:59
  Speaker 1: From an investor perspective, the big miners, the really big miners,
• 16:03
  Speaker 1: Rio and BHP, they're banking on copper. And copper is
• 16:08
  Speaker 1: pulling them along now. So is it possible that our
• 16:11
  Speaker 1: big miners will continue to deliver former investors as well
• 16:16
  Speaker 1: because of their diversification into future metals.
• 16:19
  Speaker 2: Well, absolutely, there's a case to be made for big
• 16:21
  Speaker 2: global multinational diversified players if they can move what they're
• 16:25
  Speaker 2: producing into the areas like copper, like the rare earths,
• 16:29
  Speaker 2: like the critical minerals, and they get a bigger exposure
• 16:32
  Speaker 2: to that, then that supports them. I absolutely agree with that.
• 16:34
  Speaker 2: But we've got to keep a sort of slight subtlety
• 16:37
  Speaker 2: here that these are investments that are happening a lot
• 16:40
  Speaker 2: more offshore rather than locally. They may be locally listed firms.
• 16:43
  Speaker 2: So from the local economy's perspective, from the national economy's perspective,
• 16:48
  Speaker 2: we don't get to see that as much in things
• 16:49
  Speaker 2: like GDP and national income growth or the tax take.
• 16:53
  Speaker 2: If a lot of investment's going on in copper mines
• 16:56
  Speaker 2: in other parts of the world, then that may be
• 16:57
  Speaker 2: good for certain corporates, but it's not necessarily driving the
• 17:00
  Speaker 2: national economy.
• 17:01
  Speaker 1: Okay. So just reviewing what you're saying there, you see
• 17:04
  Speaker 1: the divergence in the US investment markets, share markets, and
• 17:08
  Speaker 1: the ASX continuing. You see house prices continuing to fall
• 17:12
  Speaker 1: for several quarters. I think your own forecast was 15%
• 17:15
  Speaker 1: peak to trough. Is that right?
• 17:17
  Speaker 2: 13 is the number that we've got out there. And
• 17:20
  Speaker 2: I think it's been quite well recited in the media.
• 17:22
  Speaker 1: Yes. And you were early on that, Paul. And I
• 17:24
  Speaker 1: want to tell listeners that you were very early on that.
• 17:27
  Speaker 1: And I think people have been late to the party.
• 17:29
  Speaker 1: Other economists have been late to the party on that one.
• 17:31
  Speaker 1: You've also mentioned that, obviously, because rates stay high, bond
• 17:34
  Speaker 1: yields stay high for the foreseeable future on what we know.
• 17:38
  Speaker 1: What have we not covered? We talked about the local
• 17:40
  Speaker 1: market and the commodities market, its ability to sustain us
• 17:43
  Speaker 1: as investors, but some of the big mines obviously being overseas.
• 17:47
  Speaker 1: Rio's copper play mostly ping in Guinea with the Semandu mine,
• 17:52
  Speaker 1: for instance. That's a good example of it. Okay. What
• 17:55
  Speaker 1: have I not asked you? Gold, where do you stand?
• 17:58
  Speaker 1: Is it a useful hedge against the inflationary forces, which
• 18:04
  Speaker 1: are to some extent pushing up rates?
• 18:06
  Speaker 2: Certainly, gold has been very impressive over the run of
• 18:09
  Speaker 2: last year in particular. It almost doubled in price last year.
• 18:11
  Speaker 2: A big part of the story is more uncertain geopolitics globally.
• 18:16
  Speaker 2: We know this is an ongoing feature with the Middle
• 18:18
  Speaker 2: East conflict continuing and the Russia-Ukraine war continuing and all
• 18:22
  Speaker 2: of the trade policy shifts that we've seen as well.
• 18:24
  Speaker 2: And that's been seen a lot of investors wanting to
• 18:26
  Speaker 2: move to something that's regarded as safer. I think the
• 18:29
  Speaker 2: other thing is there's a big push amongst central banks
• 18:32
  Speaker 2: around the world to hold to have less exposure to
• 18:34
  Speaker 2: sovereign bonds, particularly US sovereign bonds, and that's moved them
• 18:37
  Speaker 2: more into gold as well. These forces look as though
• 18:39
  Speaker 2: they're all very well supported. And we're quite constructive on
• 18:43
  Speaker 2: the outlook for gold prices. We think they're going to
• 18:45
  Speaker 2: stay elevated. They may even rise a bit further from here.
• 18:47
  Speaker 2: Because all of those things I've described are not flash
• 18:50
  Speaker 2: in the pan type things. They're things that just aren't
• 18:53
  Speaker 2: going to shift particularly quickly. I mean, the offset in
• 18:55
  Speaker 2: the last little while has been with global interest rates
• 18:58
  Speaker 2: rising at the long end. Investors have started to move
• 19:00
  Speaker 2: a little bit back towards bonds because they're going, well, actually,
• 19:03
  Speaker 2: I can get a yield. I don't just get the security,
• 19:05
  Speaker 2: but I get a yield. But I think the gold
• 19:07
  Speaker 2: story is still very well supported in this very uncertain
• 19:10
  Speaker 2: world that we face.
• 19:11
  Speaker 1: Okay, folks, we'll take a short break. Back in a moment,
• 19:13
  Speaker 1: I just have one question I've curated for Paul, which
• 19:16
  Speaker 1: is very interesting. Stay with us. Hello, welcome back to
• 19:28
  Speaker 1: the Australian's Money Puzzle podcast. James Kirby here with Paul
• 19:31
  Speaker 1: Bloxham of the HSBC Group, Chief Economist at HSBC Bank Australia.
• 19:37
  Speaker 1: Australia and New Zealand, actually, I think it is, Paul,
• 19:39
  Speaker 1: is that right?
• 19:40
  Speaker 2: Yes, and global commodities.
• 19:42
  Speaker 1: And global commodities. Oh, we should have gone deeper on
• 19:43
  Speaker 1: the commodities part. Okay, but we're running out of time.
• 19:46
  Speaker 1: Question from Carl. I know the government is still backflipping
• 19:49
  Speaker 1: on the budget. Can you please explain the status of
• 19:52
  Speaker 1: the budget? What is locked away and what isn't? Not
• 19:55
  Speaker 1: easy to do in five minutes.
• 19:56
  Speaker 2: It's a very complex problem. Have a go. No, it's
• 19:58
  Speaker 2: actually quite difficult to do in general. So, you know,
• 20:01
  Speaker 2: you have to keep track of the budget announcements that
• 20:03
  Speaker 2: have come through. We know what they look like. And
• 20:05
  Speaker 2: then you have to keep track of how many of
• 20:07
  Speaker 2: them get passed through the legislative process and that. can
• 20:10
  Speaker 2: be one by one, depending on which particular ones you're
• 20:12
  Speaker 2: looking for. And then you get a running update of
• 20:15
  Speaker 2: budget updates from the Department of Finance as to what
• 20:17
  Speaker 2: the budget bottom line's continuing to look like. Helpful resources
• 20:21
  Speaker 2: for keeping track of all of this are, well, looking
• 20:23
  Speaker 2: at the budget.
• 20:23
  Speaker 1: The PBO, the.
• 20:24
  Speaker 2: Parliamentary Budget Office, does a good job of keeping track
• 20:27
  Speaker 2: of this stuff. And then, of course, just watching... how
• 20:30
  Speaker 2: things pass through Parliament. It's not an easy task to
• 20:33
  Speaker 2: do that if you're really, really interested in the very,
• 20:35
  Speaker 2: very finer detail. But, you know, from a macro perspective,
• 20:38
  Speaker 2: what we do is keep track of what the Department
• 20:40
  Speaker 2: of Finance is telling us monthly in terms of how
• 20:43
  Speaker 2: the budget's tracking in aggregate. If you're interested in the
• 20:45
  Speaker 2: macro economy, that's the thing that we really focus on.
• 20:48
  Speaker 1: Okay. And, Carol, obviously the capital gains tax changes have
• 20:51
  Speaker 1: been legislated. So the old 50% discount after 12 months
• 20:55
  Speaker 1: is gone. And the self-managed super fund elimination of borrowing
• 21:00
  Speaker 1: for residential property is gone. The negative gearing for existing property,
• 21:04
  Speaker 1: that's also legislated. They're all through. They're done, done and dusted.
• 21:08
  Speaker 1: What's residual and still swinging in the wind is family trusts.
• 21:12
  Speaker 1: And we'll see where they get to on that. Okay. Hey,
• 21:14
  Speaker 1: thank you very much, Paul Bloxham. I know you're about
• 21:17
  Speaker 1: to rush off and catch up on the latest batch
• 21:20
  Speaker 1: of economic data, which never ends. And that's your job
• 21:23
  Speaker 1: to interpret it for the world. Thanks for interpreting the
• 21:26
  Speaker 1: big picture for us this morning.
• 21:27
  Speaker 2: You're very welcome. Great to have joined. I'll see you
• 21:29
  Speaker 2: next time, James. Absolutely.
• 21:31
  Speaker 1: Thank you, Paul. Lovely to have you on the show
• 21:32
  Speaker 1: for the first time and we'll talk again. Okay, folks,
• 21:35
  Speaker 1: keep the emails running, themoneypuzzle at theaustralia.com.au. Today's show was
• 21:40
  Speaker 1: produced by Tiffany Dimak. Talk to you soon.