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Bank of Mum and Dad: we've got the numbers (with Richard Schellbach) · 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, the World editor at The Australian. Welcome aboard everybody.
0:17
Speaker 1: You know an issue that's increasing the front and center
0:20
Speaker 1: at the Money Puzzle is this enormous hurdle, if you like,
0:24
Speaker 1: for everyone of buying a home, and many people get
0:28
Speaker 1: help from mom and dad, and many mom and dads
0:32
Speaker 1: give help. But you know, in financial in our financial world,
0:36
Speaker 1: in our investment world, it's like the elephant in the room,
0:40
Speaker 1: and because no one has any numbers on it until recently.
0:43
Speaker 1: Now Richard Shellback is the equities strategist at UBS, the
0:48
Speaker 1: global investment bank based out of Sydney, and though he
0:51
Speaker 1: spends most of his time looking at investment markets and
0:53
Speaker 1: macroeconomics etc. As you would expect the investment strategists to
0:56
Speaker 1: an investment bank to do, he did take the time
0:59
Speaker 1: usefully to take a look at this issue and we
1:01
Speaker 1: actually have some numbers on it. I thought it was
1:04
Speaker 1: a great opportunity to have him on the show. I
1:07
Speaker 1: wanted to have him on the show for a while.
1:09
Speaker 1: So here we go. How are you, Richard?
1:11
Speaker 2: I'm very well, James.
1:13
Speaker 3: I hope you are also and hollowed all the listeners
1:16
Speaker 3: out there.
1:16
Speaker 1: Good to have you on. So this was an issue,
1:18
Speaker 1: and I'm not saying that you've nailed it or that
1:20
Speaker 1: you've done this sort of we now know everything we
1:23
Speaker 1: ever need to know about this issue. But it was
1:27
Speaker 1: a very interesting report that you guys did on this.
1:31
Speaker 1: Could you, first of all, if you can just sort
1:34
Speaker 1: of encapsulate what you know now that you didn't know
1:37
Speaker 1: about this, what would we call it phenomena in Australian life?
1:45
Speaker 3: Sure, well, what we did know and have for some
1:49
Speaker 3: time is that this existed. It's real, it happens, So
1:54
Speaker 3: that didn't surprise us when we surveyed people and asked
1:57
Speaker 3: about it and got responses that indicated it existed.
2:00
Speaker 2: That's not new.
2:02
Speaker 3: But what we were able to get out of this
2:04
Speaker 3: survey of a thousand people around Australia was that the
2:08
Speaker 3: magnitude and the prevalence of it is possibly stronger than
2:15
Speaker 3: many would have suspected. So, for example, we found that
2:21
Speaker 3: a bit over twenty percent of people indicated that they
2:26
Speaker 3: receive financial assistance from other family members over the last
2:30
Speaker 3: twelve months, and similarly, about another twenty percent of people
2:33
Speaker 3: acknowledged that they gave financial assistance to other people within
2:37
Speaker 3: their family of the previous twelve months. So it essentially
2:40
Speaker 3: means half of the sample that we surveyed a thousand
2:44
Speaker 3: people are either givers or recipients of meaningful amounts of
2:49
Speaker 3: financial assistance over the last twelve months.
2:52
Speaker 1: They're involved basically in the bank of mom and Dad
2:55
Speaker 1: as they call it. Yeah, they're involved. And what is
3:00
Speaker 1: it the case that you discovered that mom and dad
3:04
Speaker 1: when they were asked, tended to give a bigger number,
3:07
Speaker 1: bigger dollar number than son or daughter of mum and
3:10
Speaker 1: dad when they were asked how much they received.
3:13
Speaker 2: Yeah, they did.
3:14
Speaker 3: And you know, like there's a bit possibly behavioral finance
3:18
Speaker 3: involved in that, but also just the way that family
3:20
Speaker 3: structures work. So when we asked the people who transferred
3:26
Speaker 3: money to a family member over the last twelve months,
3:29
Speaker 3: the common sums given were between one hundred thousand and
3:33
Speaker 3: two hundred thousand or above two hundred thousand.
3:36
Speaker 1: That's an enormous figure to me. That's like who on
3:39
Speaker 1: earth has that in cash? If they have super for instance,
3:42
Speaker 1: where would they get two hundred thousand cash to hand over?
3:45
Speaker 1: Because it has got to be cash it's got to
3:47
Speaker 1: be liquid.
3:48
Speaker 3: Well, they could have potentially sold down an asset in
3:52
Speaker 3: time being an investment property, downsize their house and ended
3:56
Speaker 3: up with a lot of cash through that. Alternatively, they
3:59
Speaker 3: could have drawn down super in a quicker way. There
4:02
Speaker 3: are various channels. But what we were getting in indication
4:05
Speaker 3: from the givers of these flows was that we're talking
4:08
Speaker 3: about numbers of one hundred and two hundred thousand or more.
4:11
Speaker 3: When we ask the recipients, they sort of more indicated
4:13
Speaker 3: that it was possibly, you know, one hundred thousand dollars,
4:17
Speaker 3: eighty thousand dollars, fifty thousand dollars. Now, I think the
4:20
Speaker 3: detachment between those two series of a product are two things. Firstly,
4:24
Speaker 3: many of the givers they're people in their sixties, seventies, eighties,
4:28
Speaker 3: They possibly have two or three children, so they're not that,
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Speaker 3: you know, four hundred thousand they're giving away is split
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Speaker 3: between three, and hence the recipients report a lower number.
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Speaker 1: It makes sense, so both parties may have been telling
4:42
Speaker 1: the twoth Actually.
4:44
Speaker 2: They may have been.
4:44
Speaker 3: Now the other element is there no doubt is exaggeration
4:48
Speaker 3: that goes on because sometimes the givers like to reflect
4:52
Speaker 3: about their generosity in a more glowing way. And the
4:56
Speaker 3: recipients are a little bit embarrassed story shame that they
5:01
Speaker 3: may be thirty or forty years old and they're getting
5:04
Speaker 3: financial help from their parents and they like to somewhat
5:07
Speaker 3: downplay it.
5:09
Speaker 1: I wonder, yes, you know, you know, I'm able to say, oh,
5:12
Speaker 1: I never got any help from my parents buying a house,
5:14
Speaker 1: you know. But the fact is that the house.
5:17
Speaker 2: I did the.
5:18
Speaker 1: Numbers because I covered your report in print, of course,
5:20
Speaker 1: and I did some of my own numbers. And you see,
5:24
Speaker 1: I bought a house in the middle of Melbourne and
5:28
Speaker 1: it was exactly three and a half times my salary.
5:32
Speaker 1: And my salary at the time was fifty grand a
5:34
Speaker 1: year and that doesn't sound like much now, but it
5:37
Speaker 1: wasn't bad at the time, and I was able to
5:42
Speaker 1: buy a house that was slightly above the average cost.
5:45
Speaker 1: Now here's the thing. I did this kind of reverse
5:47
Speaker 1: exercise where I looked and said, the house is still there,
5:50
Speaker 1: and I met out that if my adult children, and
5:55
Speaker 1: they're just like they're just a university age, were to
5:58
Speaker 1: try and buy that's it house. Now, I was able
6:02
Speaker 1: to three and a half time salary, which is exactly
6:07
Speaker 1: what it costs me, then they'd need three hundred and
6:10
Speaker 1: seventy one thousands. Basically, the house at the time was
6:12
Speaker 1: something like one hundred and seventy six and I was
6:15
Speaker 1: way over it. It is somewhere close coming up on
6:17
Speaker 1: two million. So I made out that someone on fifty
6:19
Speaker 1: grand a year could buy that house when I was
6:21
Speaker 1: buying a house, but someone now would have to be
6:23
Speaker 1: on three hundred and seventy one thousand a year to
6:25
Speaker 1: buy the same house. The point being that there was
6:30
Speaker 1: no way that I was going to be on three
6:32
Speaker 1: hundred and seventy one at thousand year at the age
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Speaker 1: of thirty. There are very few people who are, and consequently,
6:39
Speaker 1: I don't think at all the issue should be the
6:42
Speaker 1: embarrassment of manufacture, because it's such a ludicrous amount that
6:46
Speaker 1: is needed when you put it up against other costs
6:49
Speaker 1: in our society.
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Speaker 3: Sure, well, yeah, the affordability story has changed chalk and cheese,
6:56
Speaker 3: But the uncomfortableness with the situation probably stems from the
7:01
Speaker 3: fact that not all people are receiving these flows because
7:08
Speaker 3: not everybody has wealthy parents who are asset owners now
7:11
Speaker 3: gain fifty percent of the people that we surveyed indicate
7:15
Speaker 3: that they have no participation in these flows. So it's
7:19
Speaker 3: almost split down the line. Half the people out there
7:22
Speaker 3: are transferring between generations and half are not interesting.
7:27
Speaker 1: And have you any other data as to, for instance,
7:30
Speaker 1: the methodology, is it casual, is it gifts? Is it loans?
7:34
Speaker 1: Have you any sense of that?
7:37
Speaker 2: What we do know is what people are using it for. Now.
7:41
Speaker 3: The perception is that much, if not all, of it
7:45
Speaker 3: is properly related. We found that actually not the case.
7:49
Speaker 3: Now close to thirty percent of the people who receive
7:53
Speaker 3: these financial aid from other family members are using it
7:56
Speaker 3: for mortgage repayments.
7:58
Speaker 2: And then about you know, twenty.
8:00
Speaker 3: Five percent of people say they're using it as a
8:02
Speaker 3: lump sum to buy a property. About another twenty percent
8:05
Speaker 3: of people say that they're using it for collateral or
8:09
Speaker 3: guidance guarantee for a loan. Okay, so you know, you
8:13
Speaker 3: sort of lump all them together, and you've got maybe
8:15
Speaker 3: fifty percent of people saying, you know, it's it's.
8:17
Speaker 2: Property related, it's property related.
8:20
Speaker 3: But we've got another fifty percent of people who say
8:22
Speaker 3: that actually they're using that money for living expenses. Okay,
8:27
Speaker 3: So they're using those cash transfers that they receive from
8:30
Speaker 3: their parents or grandparents just to fund regular consumption.
8:34
Speaker 2: So that could be you know, their.
8:36
Speaker 3: Groceries and utilities and cars and insurance and everything.
8:40
Speaker 1: That could be just going out on a Saturday night
8:42
Speaker 1: living expenses. It's a very robbery phrase, right, Okay, So
8:48
Speaker 1: I'm i to talk to you as an investment strategist rather,
8:50
Speaker 1: you know, rather than another observer on all this. Do
8:55
Speaker 1: you think this is structural? Is this here to stee?
8:57
Speaker 1: And if it's here to steed, how do you think
8:59
Speaker 1: it might evolved? Will it evolve perhaps in a more
9:02
Speaker 1: formal manner than it has, because you've got to think
9:04
Speaker 1: the number of gifts and ar engines that are going
9:06
Speaker 1: to go off the rails and end up in the
9:08
Speaker 1: courts will mushroom in the years to come.
9:12
Speaker 3: All right, Well, it is structural and it's here to stay,
9:16
Speaker 3: and it's a defining feature of the economy now and
9:19
Speaker 3: will be for decades going forward. And there's a reason
9:23
Speaker 3: why the generation of Australians who are currently now in
9:27
Speaker 3: their late fifties, sixties, seventies, etc. They are the first
9:33
Speaker 3: generation that have hit retirement where they basically timed it
9:37
Speaker 3: to perfection because over their adult working lives i e.
9:41
Speaker 3: The preceding three decades, we saw a bull market in equities,
9:47
Speaker 3: a bullmarket and bonds, a ballmarket.
9:50
Speaker 2: And residential property.
9:52
Speaker 3: They also spent the bulk of their working age and
9:57
Speaker 3: adult life within the superannuation system. Yes, he's they're the
10:01
Speaker 3: first generation actually to hit or near retirement whereby they
10:04
Speaker 3: were paying into this nest egg.
10:06
Speaker 1: Because it kept going in the nineties, Really didn't it, Yes,
10:09
Speaker 1: so you.
10:10
Speaker 2: Early nineties and it kept growing and growing and growing.
10:12
Speaker 3: And not only have they been paying super through their
10:15
Speaker 3: working life, but it's been happening in a period where
10:18
Speaker 3: equities were in a ball market and property was in
10:21
Speaker 3: a ball market. So they've timed it to perfection and
10:25
Speaker 3: they've ended up in their sort of golden years with
10:28
Speaker 3: far more wealth than they probably ever would have imagined,
10:31
Speaker 3: and also more wealth than they.
10:32
Speaker 2: Will realistically be able to spend.
10:37
Speaker 1: It's very interesting, you know. It just makes you think
10:38
Speaker 1: at the end of the day of what this means
10:40
Speaker 1: is you're standing at an auction on a Saturday morning
10:44
Speaker 1: and there's forty people at the front gate bidding on
10:46
Speaker 1: a house. You can safely assume that half of those
10:48
Speaker 1: bidders had helped from their Mum and dad, and you
10:50
Speaker 1: can also some of the other half didn't. And that
10:53
Speaker 1: really changes the dynamics, isn't it of the property market
10:56
Speaker 1: in particular, and the structures of our worth ladder.
11:00
Speaker 2: That's right.
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Speaker 3: And look, the way I like to think about it
11:03
Speaker 3: is assets have become wealth, whereas in decades past, income
11:11
Speaker 3: was wealth. So think about twenty thirty forty years ago.
11:15
Speaker 3: If you thought about somebody who probably had a higher
11:19
Speaker 3: or better lifestyle financially than others, it was a product
11:23
Speaker 3: of their income. They were in a higher paying job, right,
11:27
Speaker 3: Whereas the way that things have evolved now is that
11:31
Speaker 3: a lot of those people that appear to be in
11:33
Speaker 3: quite a favorable financial position, you scratch behind the surface
11:37
Speaker 3: and you go, oh gee, that's not you know, what's
11:40
Speaker 3: their job. Their job's not necessarily a job that I
11:42
Speaker 3: traditionally would have thought is super high income earning, but
11:46
Speaker 3: they own assets. Those assets may have been assets they
11:49
Speaker 3: accumulated themselves, it may have been through inheritance. Baker moment,
11:52
Speaker 3: Dad xyzaid, but certainly it means that, you know, the
11:56
Speaker 3: balance sheet has become far more meaningful to household now
12:00
Speaker 3: and it's no longer just the income statement.
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Speaker 1: That's so interesting, and you know, folks are thinking just
12:07
Speaker 1: bringing it back to that simple sort of analogy about
12:10
Speaker 1: houses and salaries. I mentioned how to buy that house.
12:16
Speaker 1: At the time that I bought my first house, you'd
12:19
Speaker 1: need fifty grand a year to buy that house. Now
12:22
Speaker 1: is your first home in the center of the metropolitan
12:25
Speaker 1: city of Australia, you need a salary of three hundred
12:28
Speaker 1: and seventy one thousand. To look at it another way,
12:31
Speaker 1: you know, we were told that the huge and three
12:33
Speaker 1: seventy one thousand is a huge salary. But if all
12:37
Speaker 1: it can justify is a house that was as basically
12:42
Speaker 1: what was once upon a time of workers cottage, as
12:45
Speaker 1: Richard is saying, it's the work a cottage. The ownership
12:48
Speaker 1: of that asset is so powerful now VISI v the salary,
12:51
Speaker 1: so you get an extra twenty grand, thirty grand, forty
12:54
Speaker 1: grand on your salary. Unfortunately it's not as powerful as
12:57
Speaker 1: it used to be. Really interesting, we could talk about
13:00
Speaker 1: it a lot more. I want to talk to you
13:01
Speaker 1: about a few other things. Richard. Let's take a short break.
13:04
Speaker 1: We'll be back in a moment. Hello and welcome back
13:20
Speaker 1: to the Australians Money Puzzle Podcast. James Kirby here with
13:23
Speaker 1: Richard Shellback, the equity strategist at UBS. Now, Richard, because
13:28
Speaker 1: I I've got you, I think it'd be great to
13:30
Speaker 1: talk briefly, if it could, about your view, your particular
13:34
Speaker 1: view on investment markets. As we go into early twenty
13:39
Speaker 1: twenty five, there is a perception consensus almost couple of
13:44
Speaker 1: things this year that the US market will remain the
13:47
Speaker 1: best share market, that the Australian share market will be
13:50
Speaker 1: pretty ordinary this year, that the US shares will be
13:53
Speaker 1: considerably a better place to have money. To some extent,
13:57
Speaker 1: the AX is overvalued, mind you, so or is the US,
14:01
Speaker 1: but some would say that we're even more overvalued than
14:03
Speaker 1: they are. Where do you stand on that look?
14:08
Speaker 3: US leadership within this equity cycle has been something that
14:11
Speaker 3: we've observed for most of the last fifteen years, and
14:16
Speaker 3: developments over the last few months with respect to economic
14:20
Speaker 3: data in the US being consistently strong. The new US
14:25
Speaker 3: president coming in that's likely to follow more favorable policies
14:29
Speaker 3: with respect to regulation and tax that are business friendly
14:33
Speaker 3: tells us that the stronger for longer cycle in the
14:36
Speaker 3: US and its equity market remains intact. So we're still
14:41
Speaker 3: positive US equities, we see them moving up this year.
14:45
Speaker 3: At the same time, the rate at which they move
14:47
Speaker 3: up won't be as strong from a price point of
14:49
Speaker 3: view as last year, because they've already that was twenty
14:53
Speaker 3: two percent last year. Yeah, they've already front loaded much
14:57
Speaker 3: of this good news, and you're really still equities in
15:01
Speaker 3: the US begin to move up quite meaningfully from about
15:05
Speaker 3: September October when the polls started firming in favor of Trump,
15:11
Speaker 3: and hence the better earnings outlook that we see for
15:15
Speaker 3: US companies this year and the better growth outlook we
15:19
Speaker 3: see for the US economy this year. Too much of
15:22
Speaker 3: an extent is already in the share prices, and therefore
15:26
Speaker 3: share prices may see more muted gains over twenty twenty five.
15:31
Speaker 1: Okay, I'll just put the consensus to you, and I
15:33
Speaker 1: wonder what you have to say about it. As I understand,
15:36
Speaker 1: the consensus on US shares is that they will return
15:39
Speaker 1: something in the order of air point five percent this year.
15:42
Speaker 1: The consensus on Australian shares is that the price appreciation
15:45
Speaker 1: would be virtually flat. So we'll just get to four
15:47
Speaker 1: and a half that we get from dividends. So there's
15:49
Speaker 1: the US been taste as good as the ax. Again,
15:53
Speaker 1: what have you anything to say about that consensus view
15:56
Speaker 1: which is out there just now.
15:59
Speaker 3: Yeah, Look, the census view with respect to the U
16:02
Speaker 3: S equity market moving up around eight percent, between eight
16:04
Speaker 3: and ten percent, maps with our view for the U
16:07
Speaker 3: S equity market. On the Australian equity market, I'm a
16:09
Speaker 3: little bit more positive. I believe that you know, prices
16:12
Speaker 3: can move about five percent higher, So that's the share
16:17
Speaker 3: prices themselves, independent of the dividend payments, and that's largely
16:21
Speaker 3: off the back of the fact that you know, the
16:23
Speaker 3: Australian equity market was not quite as strong last year
16:27
Speaker 3: versus what you saw in the US. And we've got
16:31
Speaker 3: a earning story developing here, aided by interest retcuts from
16:36
Speaker 3: the RBA over the coming twelve months, which will allow
16:40
Speaker 3: for an earning's recovery across a range of sectors and
16:45
Speaker 3: therefore the overall Australian equity market can give gains this
16:50
Speaker 3: year that are comparable to the US.
16:53
Speaker 1: Yeah, I was thinking that if you were right, if
16:55
Speaker 1: it did five percent in the yeard was four just
16:58
Speaker 1: nine on armor. This is the thing about our market,
17:01
Speaker 1: isn't it that you always have that starter of the
17:03
Speaker 1: dividend yield a four percent or so. Okay, just quickly,
17:08
Speaker 1: I don't need you to tell me or anyone else
17:10
Speaker 1: to tell me that the banks did exceptionally well last
17:12
Speaker 1: year that they couldn't possibly do all that again this year.
17:16
Speaker 1: I just wonder what areas of the market might carry
17:21
Speaker 1: that earnings revival sector early on the ESX, if you
17:25
Speaker 1: had any views on that.
17:27
Speaker 3: Look the sector from an earning's point of view, where
17:29
Speaker 3: we're particularly positive in Australia over the coming twelve months
17:33
Speaker 3: are the industrial space. So when I think of some
17:36
Speaker 3: of the key industrials, I'm skewing towards names that have
17:40
Speaker 3: operations on the ground in the US. These are sometimes steel, building, material, energy,
17:47
Speaker 3: infrastructure type businesses, and what they're able to capture is
17:52
Speaker 3: the stronger top line growth environment the US economy is
17:55
Speaker 3: going to experience through twenty twenty five, and that is,
18:00
Speaker 3: as I mentioned, a product of the fact that the
18:02
Speaker 3: US economy is charging and Trump's policies are very pro business,
18:06
Speaker 3: pro profits. The additional thing that those Australian industrial companies
18:10
Speaker 3: capture is the weakening US dollar.
18:13
Speaker 2: Now.
18:14
Speaker 3: Trump policies very much support a firming US dollar, and
18:19
Speaker 3: that is what we have seen. But with that meaning
18:23
Speaker 3: that the Ossie dollar ends up very low against the
18:27
Speaker 3: US dollar, it means that when those US profits are
18:30
Speaker 3: transferred back to Australia, they get that additional currency boost.
18:34
Speaker 3: So that's the space where we see the most upside,
18:40
Speaker 3: and it's somewhere where many of the stocks haven't necessarily
18:45
Speaker 3: been star performers over the last five years in the
18:48
Speaker 3: way that tech has.
18:50
Speaker 1: Okay, you mentioned what did you say, building materials and
18:54
Speaker 1: what was the other industry sort of steel.
18:56
Speaker 3: Building material names, some steel names, some energy infrastructure stocks.
19:02
Speaker 1: Okay, I didn't know there was any building materials stocks left.
19:05
Speaker 1: I thought they were all taken over in recent times.
19:08
Speaker 1: A lot of the big ones, weren't they.
19:10
Speaker 3: Very big one called James Hardy and their operations are
19:14
Speaker 3: heavily skewed to the US and it's got a cracking
19:17
Speaker 3: business over there.
19:18
Speaker 1: I see. Very good. Okay, terrific. Look, we take a
19:21
Speaker 1: short break and you'll stay with us. I hope for
19:24
Speaker 1: some questions which I have selected. Okay, back in a moment. Hello,
19:35
Speaker 1: Welcome back to the Money Puzzle podcast. James Kirby here
19:38
Speaker 1: with Richard Shellback. Of Uba secuity strategists. Now, a couple
19:42
Speaker 1: of questions, Owen, I'm interested in the potential impact of
19:46
Speaker 1: Trump's policies on the share market. What was the impact
19:48
Speaker 1: of the tariffs in his last term, and what is
19:51
Speaker 1: the likely outcome this time around? He also mentions a
19:56
Speaker 1: few other issues, but I think immigration plans, et cetera.
19:59
Speaker 1: But the outstanding one is tariff's Richard, they say he
20:02
Speaker 1: did some tariffs all the last time, they didn't make
20:05
Speaker 1: a big difference. Tell me if I'm wrong about that.
20:08
Speaker 1: But that's my reading of it. What's your view about
20:12
Speaker 1: the Trump tariff effort which is largely hypothetical still, isn't
20:17
Speaker 1: that he hasn't actually imposed much just yet?
20:22
Speaker 3: Right? So, firstly, when we look back to that twenty
20:25
Speaker 3: sixteen to twenty twenty period and Trump tariffs in Trump one,
20:29
Speaker 3: I think I'd summarize it as his bark being worse
20:32
Speaker 3: than his bite. So yes, initially there was a lot
20:35
Speaker 3: of retoric on it, but the ultimate follow through and
20:38
Speaker 3: impact on economies and markets was far more muted. Now
20:43
Speaker 3: this time, in all likelihood that will not be the case.
20:47
Speaker 3: The tariffs that are being speculated and proposed are more
20:52
Speaker 3: meaningful but Australia's in a far more favorable space than
20:57
Speaker 3: almost anywhere else. Now, it doesn't necessarily mean that tariffs
21:01
Speaker 3: will help Australia.
21:03
Speaker 2: They hurt everyone.
21:04
Speaker 1: Do you mean they're not going to impose part of
21:05
Speaker 1: tariffs and US because we run a surplus with them,
21:08
Speaker 1: Is that right?
21:08
Speaker 3: Well, look, we don't know ultimately what will happen, but
21:12
Speaker 3: what we do know are a few things, which is,
21:15
Speaker 3: Australia we buy more than the US than we export
21:18
Speaker 3: to it, so you know, they're not looking to pick
21:21
Speaker 3: a fight with us. And also from a diplomatic point
21:24
Speaker 3: of view, we've got a long standing, very close relationship
21:26
Speaker 3: with the US. So we think we are so far
21:31
Speaker 3: down the pecting order in terms of the type of
21:34
Speaker 3: markets that they're likely to single out that it becomes
21:37
Speaker 3: an immaterial issue.
21:41
Speaker 1: Im material even including arn Ora and Cole in China.
21:47
Speaker 3: Well that's that's where it all starts linking together, because indirectly,
21:54
Speaker 3: if the US puts big tariffs on Europe and Asia,
21:58
Speaker 3: then these customers in Europe and Asia have less ability
22:03
Speaker 3: to pay for our goods because their economies slow down.
22:07
Speaker 2: Now that's a risk and hence that's why.
22:10
Speaker 3: I you know, began, you know this answering this question
22:13
Speaker 3: by saying that tariffs are ultimately not good for anyone,
22:16
Speaker 3: even if you don't get hit with them, because your
22:18
Speaker 3: other customers and trading partners do get hit with them.
22:22
Speaker 3: But on some of those sort of key exports iron ore,
22:26
Speaker 3: for example, you know, the Chinese property construction steel cycle
22:33
Speaker 3: is more a product of you know, the capacity of
22:39
Speaker 3: the Chinese government to stimulate as opposed to having you know,
22:44
Speaker 3: direct linkages into US tariffs.
22:47
Speaker 1: Okay, right, okay, very interesting. Hopefully that's useful to you all,
22:50
Speaker 1: and I expect it is. The main thing was saying
22:54
Speaker 1: that Richard, was that this time they will do something
22:56
Speaker 1: as opposed to the last time, there will there will
22:57
Speaker 1: be some Australia's low on the pecking order, as you say,
23:01
Speaker 1: or low on the target range, at the far end
23:05
Speaker 1: of the target range, because why would they because they
23:07
Speaker 1: can't have a problem with us since we buy more
23:09
Speaker 1: from them, which most people don't realize. I expect it's unusual,
23:14
Speaker 1: but it means it's unlikely to be directly impact, so
23:16
Speaker 1: the impact would be indirect. Okay. Question from Malar M
23:20
Speaker 1: A L A R. This is an entertaining question. I
23:24
Speaker 1: love your show and the Scottish accent is very reassuring.
23:27
Speaker 1: Thank you, Malar, except, of course I'm not Scottish, but
23:32
Speaker 1: I do like the Scottish accent. Who wouldn't. I'm Irish. Okay.
23:35
Speaker 1: On the back of Donald Trump's huge announcement of five
23:38
Speaker 1: hundred billion in the AI space stargate, I'm curious about
23:43
Speaker 1: and he mentions a stock called a d I S
23:46
Speaker 1: y N, which is a small Australian company developing semiconductor
23:50
Speaker 1: chipsmid from graphene. Do you think they're worth bank stocks in? Sorry, Malar,
23:54
Speaker 1: I'm not going to answer that. And Richard Shellback is
23:57
Speaker 1: not going to go in on one Chinese stock and
23:58
Speaker 1: give a call on it either. I'm sure I don't
24:00
Speaker 1: even have to ask him, but I will ask you this, Richard.
24:03
Speaker 1: The scare about deep Seek, which came from you know,
24:08
Speaker 1: even I was reading some extraordinary issues about how the
24:12
Speaker 1: impact of this deep Seek threat that basically there was
24:16
Speaker 1: a much cheaper startup in China that could threaten in VideA,
24:20
Speaker 1: and in a single day in video lost in dollar terms,
24:23
Speaker 1: the biggest selloff of a single stock in dollar terms
24:26
Speaker 1: in the history of Wall Street. So we have to
24:29
Speaker 1: say that the markets were terribly, if not worried, sensitive
24:34
Speaker 1: and ready to sell off on the sense of a
24:37
Speaker 1: threat to the AI boom and companies as diverse as
24:41
Speaker 1: pure AI plays to like property trusts in Australia being
24:45
Speaker 1: sold off because of Chinese startup which no one ever
24:49
Speaker 1: heard of, announced that they could do things cheaper than
24:52
Speaker 1: in Vidia, the world's biggest stock, which happens to be
24:55
Speaker 1: an AI play. Is the AI boom more vulnerable than
24:59
Speaker 1: we expect and could it if there's a major selloff
25:02
Speaker 1: in the market, Is this what will trigger it?
25:06
Speaker 2: AI?
25:07
Speaker 1: I don't mean deepsea, but something in the AI space.
25:11
Speaker 3: Look so far, it appears to be a situation that's
25:17
Speaker 3: not reverberating through the tech space. What we saw earlier
25:21
Speaker 3: in the week when this news came out was some
25:24
Speaker 3: of the specific AI companies, both the chip manufacturers and
25:29
Speaker 3: the utilities data centers which provide the energy needed.
25:35
Speaker 2: By them, sold off heavily.
25:39
Speaker 3: But other tech names you know, and I think of,
25:43
Speaker 3: you know, your standard tech names that you know, household
25:47
Speaker 3: have been around for you know, often ten or fifteen years,
25:50
Speaker 3: that have nothing to do with AI actually saw their
25:52
Speaker 3: share prices move up, so investors are not looking to
25:56
Speaker 3: flee tech. What they're doing is maintaining exposure to tech,
26:00
Speaker 3: but possibly lightening up on AI exposure and instead going
26:04
Speaker 3: back to other forms of tech hardware, software.
26:07
Speaker 1: Okey, And do you think that was a sensible approach.
26:13
Speaker 2: Look, we're still positive on technology stocks.
26:16
Speaker 3: You know, when we look at our market in Australia,
26:19
Speaker 3: our tech index is not AI exposed. We've got one
26:23
Speaker 3: or two that are in the data sped to space,
26:25
Speaker 3: but elsewhere they are totally detached from there, and they're
26:28
Speaker 3: generally software type businesses that offer services to other businesses
26:35
Speaker 3: to use their platforms, and hence they've seen strong earnings
26:40
Speaker 3: growth over the last three and five years.
26:44
Speaker 2: Multiples are high, but our.
26:46
Speaker 4: Expectation is their earnings growth can continue because they've got
26:49
Speaker 4: such great business models that continue to capture market share
26:54
Speaker 4: and still have fantastic profit margins, return on equities and
26:58
Speaker 4: motes set up around my businesses.
27:01
Speaker 1: Well, I suppose in some way sort of packing up
27:03
Speaker 1: what you say. When Nvidia lost its title of the
27:07
Speaker 1: world's most biggest stock in the world after that set off,
27:10
Speaker 1: which was a hell of a sell off, seventeen percent
27:12
Speaker 1: in a day, well it was replaced by Apple, So
27:14
Speaker 1: that just kind of backs up what you're saying, really
27:17
Speaker 1: that the tech sector remains the dominant earnings kind of
27:21
Speaker 1: machine in world markets. Okay, very interesting, David says, thanks
27:25
Speaker 1: for the summer series. I really enjoyed it. The first
27:29
Speaker 1: commentator of Sorrow, sorry I've forgotten his name, was one
27:32
Speaker 1: of the very best I've heard anywhere. That, by the way,
27:35
Speaker 1: was Mark Jokum of Global XCTF, so would be delighted
27:38
Speaker 1: to hear that, David. Thank you. And David also says
27:41
Speaker 1: one thought about the Fire movement fire that is a
27:43
Speaker 1: financial independence hutar early, which we had a show on
27:46
Speaker 1: which got a lot of response, he says. David says,
27:50
Speaker 1: what is the point of financial independence? Retire early? You
27:54
Speaker 1: live a miserable existence saving everything you can. Then when
27:59
Speaker 1: you retire, you have no friends to enjoy retirement with
28:02
Speaker 1: because they're still working. That's if you still have any
28:05
Speaker 1: friends after saying no to anything that costs money while
28:08
Speaker 1: you worked. Oh I love that, Thank you, David. A
28:13
Speaker 1: contentious view which might perhaps be challenged by some of
28:16
Speaker 1: the faithful in the Fire movement. All Right, terrific, Thank
28:20
Speaker 1: you everyone for listening. Thank you very much, Richard shellback
28:23
Speaker 1: of UBS, both on your view on the markets and
28:26
Speaker 1: particularly on the Bank of Mom and Dad, which had
28:29
Speaker 1: so much attention but so little numbers or serious analysis
28:34
Speaker 1: so far. I think you'd be well rewarded if you
28:36
Speaker 1: took a look at that again in the near future.
28:38
Speaker 1: Thanks Richard, thank you, and thanks everyone. Keep those emails
28:42
Speaker 1: coming please. We get great value from them and I
28:45
Speaker 1: get to answer. I think I get to answer every
28:49
Speaker 1: single one of them. I hope I have. There are
28:52
Speaker 1: very few. If they're unanswered, they were in some way impossible.
28:56
Speaker 1: The Money Puzzle at the Australian dot com dotu for
28:58
Speaker 1: that correspondence show was produced by Leah Summer Glue Talk
29:03
Speaker 1: you soon.