Finance & Fury Podcast

In this episode, we look at the influence the RBA has and will have on housing prices. We look at interest rate movements and regulations and how prices are expected to respond.

In today's episode, we break down the history of share markets, focusing on the ASX, to look at how we ended up with the system we currently have. We also look at the makeup of the ASX 100 years ago and how this has changed over time.

In this episode, we will be looking at the economy of the 1970s, the share market correction that occurred and what contributed to this. The aim of this episode is to see if will we experience the same sort of market conditions, or if what we are dealing with is something completely different.

In this episode, we look the pros and cons of both sides of the passive or active investment argument. We review the historical performance of average active manager to the index that they track and explore why they under or overperform.

In this episode, we look at the works of Fama and French. Two men who stated that it is impossible to outperform the market, whilst also providing a later framework to do so.

In this episode, we look at using Real Estate Investment Trusts (REITs) as a way to gain exposure to real estate investments and compare this to direct property ownership. We go through the pros and cons of this structure and explore where they can fit in to an investment allocation.

In this episode, we answer a question from Jason on how much you need to retire. We look at an article by the ABC on this subject and explore the figures and assumptions used, as well as considerations that need to be taken

In this episode, we answer David's question about cash assets that held in managed funds or ETFs. We discuss look cash held in unitised investments, look at allocations based around your goals, as well as the opportunity cost of investing in defensive funds.

In this episode, we answer the question from David. We look at bond pricing theory and compare this to when prices of bonds change, before or after interest rate changes are announced.

In this episode, we look at the looming Russian debt default and if this is the catalyst for another financial collapse or simply another blimp on the radar. We will look at the ramifications from a Russian debt default and what this could mean for global financial markets.

In this episode, we look at that it is almost impossible to time the exact bottom of the market. However, we look at four indicators to tell when financial markets have been oversold and are become cheap to purchase.

In this episode we look at some long-term data and explore the reason that holding the course of an investment strategy works better long term than trying to guess what will happen in the short term. We go through four key facts to remember when your emotions are telling you to sell.

In this episode, we look at the core reasons as to why markets fall, explore the economic consequences of the Russia-Ukraine conflict to determine if this is a genuine cause of concern for financial markets. We also look at if there can be a buying opportunity through an overreaction from financial markets

In this episode, we look at Robert Kiyosaki's comments on negative gearing. In doing so, we will cover what negative gearing is, does it really help property investors and has it led to property price increases?

In this episode we look at the average financial position of the Australian population. The aim of this exercise is to provide a bit of a wakeup call if you are below the averages, and to help provide strategies to close the gaps. But in the end, you should only compare your financial situation to yourself from yesterday and build towards your own financial independence.

In this episode we do a breakdown on the Richest Man in Babylon. We go through a summary of the classic rules of money that helped me build a solid financial foundation early in my financial journey.

In this episode, we look at an alternative method to traditional budgeting where you instead allocate your financial resources. We explore the concept of paying yourself first and the general categories to direct your cashflow to better your financial position.

Hi – hope you're all going well and welcome to Finance and Fury. In this episode – look at cryptoasset investments and the increase in accessibility for retail investors through alternative structures – as in Western economies – US, EU, and Aus – these are becoming available for retail investors through structures like ETFs – i.e. exchange traded funds This comes off the back of Treasurer Josh Frydenberg- looking at a series of regulatory and tax proposals covering digital wallets and crypto assets – focus being on reducing scams and fraud The move could also include the introduction of an outline for central bank digital currency - which has been covered in depth already in previous episodes – may cover any actual announcement when there is more news about the actual policy In past episodes - Covered the BIS framework for what they consider cryptoassets – many have viewed this as legitimacy given to crypto – but it is legitimacy purely in the form of an asset – not a currency which was the original concept as a medium of exchange But these recent legislative developments seem to be an adoption from financial institutions to make money – and potentially a barrier to entry for anyone looking to get into supplying crypto – need for a DAO – decentralised autonomous organisation – another topic for another day – but institutions see money being made and want a piece of the action Late into last year - the Commonwealth Bank of Australia announced plans to support trading of 10 crypto assets on its app, which has 6.5 million active users. On top of this – there is a new megatrend – Crypto ETFs – Before we get into that – I want to make one observation - Two ways cryptoassets have been treated by governments – it is based around those countries that adopt and those don't – and instead outright ban cryptoassets – this has been based around the power dynamic between politicians and companies, in particular banks and investment firms – in other words – who politicians are beholden to based around funding interests Lets first look at countries where the politicians are not influenced by the lobbyists from major global banks – something like China – where the politicians are de-facto controllers of the economy have greater control over the banks due to having a semi-communist/fascist makeup – they have done their best to ban cryptoassets We have seen a lack of innovations in investment products and outright bans on certain investments in cryptoassets – as well as enforcement from governments But in countries where companies – in particular the financial system through lobbyists have the power to influence the politicians who make the rules – essentially, those that are the other way around from China – we are starting to see a adoption of crypto assets – not as a currency to replace what the central bank provides – but as an alternative asset class that banks can capitalise off through the demand of the population Banks and most companies have one goal – to make money – every company wants to do this – investment managers and banks do this through what is known as FUM – the funds under management – the more money that people invest in their products, the more revenues they can generate due to percentage charges – in additional to brokerage I did an episode on the BIS framework a while ago – where they actually defined crypto assets – and talked about the securitisation of traditional assets, such as shares or bonds – in essence – the central banks of central banks sees no problem with the financial system in the west adopting crypto – as long as it is an asset– not as a currency or as a replacement to the fiat monetary system we have in place – as they have their own designs in mind – there can be no competition for the medium of exchange – It is the building block for confidence in the economy – plus – taxation is the key to this – the government needs one single currency they can domestically track and monitor to make sure they get what they determine is their share of your money through taxation. Banks will make a lot of money through governments allowing retail investors the ability to purchase crypto related assets through banks/asset managers – which is why there has been large lobbying efforts from institutions like Goldman Sachs and other banks for this regulatory push In the end – investment managers (fund managers and the banks) will make money through Investment products if people purchase them (i.e. their FUM increases and based around the same % they make more money – 1% at $1bn is more than 1% at $100m) – they will get their hands on anything they can that investors want to hold – and the more they want to hold an asset, the higher the money made from a MER/ICR can be Now – this is Not advice – general information only based around what product are available in the market – need to take into account your own personal situation - Two types of indirect investments – An ETF with an underlying crytpoasset and

Welcome to Finance and Fury. Sorry for the break over the past two months – been busy with moving into our newly built place – been in a process of trying to clear out lantana and fallen trees from 5,000sm – that combined with helping take care of my daughter and the excess work in a led up to the end of the year I didn't have time to get an episode out – sorry – all weak excuses aside – in this episode – We will go through Critical thinking for making investment decisions to make 2022 your best year yet This is a great episode to start off 2022 – as this can become your most powerful ability to make correct decision when it comes to where to allocate your finite resources – everyone on earth has finite resources financially – even Jeff Bezos or Elon Musk has only so many billions they can spend – this is a massive amount – but without creating more – if they spend it all the money runs out – Your individual ability to maximise your wealth - Is based around your ability to decern the correct financial decisions to make time and time again – making just one decision, or getting lucky once often isn't enough to help maximise your wealth in the long term – can help in the short term – but over a long period of time, such as 20-30 years, you will make many decisions – each of these can compound off one another or they can result in set backs the aim of this episode is to try and teach a method of critical thinking not only can this be applied to this year to help work towards your financial goals – but for the rest of your life – in every area of your personal life when making a decision – when applied correctly – you will become a master of critical thinking What we will discuss is a process that helps to make a decision based around your personal situation that will equate to the best outcome for your as an individual – hence – this can be the most powerful tools in your arsenal – if you have the ability to make more correct decisions, over time, the further the compounding effects start to accelerate your life outcomes – those previous decisions become a compounding outcome the more of them you make Thinking critically isn't taught – but it is something that we all have the ability to do We are all born as critical thinkers but this is beaten out of us from an early age – especially through institutionalised schooling – we don't think but learn to absorb and regurgitate information Kids are in a constant state of learning – which is why they ask 'why' so often – they are trying to learn In high school – how many times do you ask the question "why" or "how" something works the way it does – most assessment is to get as high a score as possible on a rubric grading system and you get a grade from A to F, or out of 100 – so you lean how to get a high score without critically thinking about the assessment But it is never too late to start critically thinking 3 Steps to critical thinking – Identify the correct question, evaluate and then make a decision at its core - The solution to critical thinking is really four simple words: Why, does, how and what? These are four simple words that help anyone to develop their critical thinking skills in all areas of life The key to thinking critically about investments – or anything in reality – is this skill that can be applied to any area of your life – which requires you to think about things – the only way to really think about something is to ask yourself the correct questions, then evaluate these – helping you to narrow down to the correct decision The very nature of understanding a question comes in the form of understanding the answer – but many of us have no idea about the answer to our own questions Sure – you can sit back and have someone else spit information at you – which you can blindly follow – but this isn't critical thinking – it is being told what to do and following without a fuss – but this can lead you down the wrong path Critical thinking is important – allows you to come to the correct conclusion for your own situations Taking a step back and looking at my own personal experience when it comes to initial meeting with clients - Most people I have met don't think about the investment itself and if it is best option for them – they simply want to invest into an asset class because they have heard of others doing it – i.e. their critical thinking around making a decision is that others have done it – i.e. monkey see monkey do – is this real critical thinking? Some examples – Someone in their mid-60s who is looking to retire in the next few years purchases an investment property that is leveraged at 80% because they went to a seminar about property investment Why might this be the incorrect decision? Take a minute to think about this – if they are looking to retire, they won't have an income to cover the debt and costs, so the property will need to do all of this – and at 80% LVR – if interest rates rise their net incomes would decline If you haven't though

Welcome to Finance and Fury – In this episode, we will be looking at the future of property prices based around recent changes in lending assessment, bond yields and what this means for interest rates It comes as no surprise when I say that property prices have gone up a lot over the past 2 years – well above forecasts – at the same time, and in a causal manner, interest rates and bond yields have declined to record lows – but is the party coming to an end sooner than expected? As there are some emergences in the bond markets which may spell an interest rate increase ahead of schedule – putting downwards pressure on property prices - There is a bit to unpack here – do so in three parts – we will go through the current state of the property market – then what happened last week in the bond market in Australia – then what this means for central bank policy on interest rates To start with - Looking at housing prices – Almost in lockstep – prices have increased at rapid rates across the world, reaching new heights in many cities – But rural and urban markets have shared in the spoils - which is noteworthy for two reasons First – lockdowns and movement restrictions have given rise for remote working – which has actually weakened the case for urban housing – but yet prices in urban areas continued to rise Second - housing affordability in cities was already heavily strained even before the latest irrational exuberance in property took hold - yet the lack of affordability of homeownership for large parts of the population has evidently not been an obstacle to price increases Why is this the case? Record low financing costs have increased borrowing capacity for property buyers – Plus – there is an entrenched expectation that most people hold when it comes to property in Australia – that is of long-term value gains which has made owning a home so appealing that the price level doesn't seem to matter – FOMO – it can be hard to wait to buy, if you think that in doing so the prices will be 10% higher next year, as this is what you are used to seeing These higher prices have led to higher household leverage levels - as the current acceleration in mortgage volumes clearly demonstrates – Data from CBA shows that across the country, the new average mortgage across the whole of Aus (higher in Syd and Melb, lower in NT) stands at $580,900 – which is up by around 16%, or $80,000 over the past 12 months – is it any wonder why prices have gone up by so much? This has exacerbated worsening affordability, unsustainable mortgage lending practices, and a rising divergence between prices, household incomes and rents – all of which have historically served as forerunners of a housing crises But as long as financing costs trend toward zero, property prices, incomes, and rents can continue to decouple from the real ability of borrowers to cover these debts These have been trends just not seen in Australia, but worldwide - As a result, the growth of outstanding mortgages has accelerated almost everywhere in the last 12 to 18 months, and debt-to-income ratios have risen—most markedly in Canada, Hong Kong, and Australia Due to this - pressure is mounting on governments and central banks to take action – even before lockdowns - Lending standards were being relaxed due to ever declining interest rates over the past decade – Overall, housing markets have become even more dependent on very low interest rates, meaning a tightening of lending standards could bring price appreciation to an abrupt halt in most markets New entrants into the property market have to borrow increasingly large amounts of money to keep up with higher prices – or even people wishing to upsize to a new property - As a result, the growth of outstanding mortgages has been growing due to the relaxed lending standards and falling mortgage rates. Therefore - ever-higher property prices and leverage levels imply ever-higher risks due to the property market being under the spell of a dangerous narrative – that the party will keep going The main barriers for borrowing that most households face is now based around creditworthiness – i.e. how much people can borrow – so once that obstacle is cleared, coupled with the expectation of ever-growing house prices – this has exacerbated the FOMO making homeownership look attractive regardless of price levels and leverage that it costs This rationale may keep markets running for the time being – whilst interest rates are low - But it's not sustainable in the long run. Households have to borrow increasingly large amounts of money to keep up with higher prices – resulting in higher levels of principal repayment each month – on top of the risk that interest rates rise Does all of this mean we are in a bubble? – looking at a paper released by UBS on the Global Real Estate Bubble Index - Price bubbles are a recurring phenomenon in property markets across the world – but the term bubble is a little tricky The term "bubble" refers to a substanti

Welcome to Finance and Fury. Currently, the prospect of stagflation is being seriously debated by economists and policy makers across most economies – the big question is – will we suffer stagflation – and if so, how do markets react? The first stages of an energy crisis are currently in the making - In Europe - natural gas prices have tripled in the last three months – with rising petrol prices across the globe – even in Aus, petrol prices are up – Why do energy prices matter and what does this have to do with stagflation? Energy is an input into everything – transportation, manufacturing, even keeping office lights on – all of this flows through into increasing prices over time Coupled with this – annual CPI currently is sitting at 5.3% in the US, 5.8% in Poland, 7.4% in Russia and 9.7% in Brazil – even Aus is at around 3.8% - so all countries are sitting above their target rates – the countries suffering the most severe inflation are those suffering from supply shortages The major concerns are that these energy spikes in conjunction with supply shortages will lead to lasting inflation – and due to the potential of slowdown in economic output (which is also related to the supply shortages, leading to less economic activities) – economies have the potential to enter a stagflation situation Stagflation was a phenomenon that plagued the economies of the world back in the 1970s – you had an energy crisis, with soaring prices, which had flow on effects to every sector – You also had slowing economic growth, where a few quarters in the mid-70s hit negative GDP growth rates - and there were accompanied with higher levels of unemployment – and due to energy prices, massive levels of inflation Defining stagflation – what does this actually mean? Relating the term stagflation simply to the economy of the 1970s is a little too simplistic – just saying that it is a time where there is inflation, lowering GDP, a wage-price spiral and high unemployment doesn't quite define the issue at hand This is because the issue is, there is no hard definition of stagflation when it comes to the metrics involved with the actual definition – i.e. how much inflation needs to be present, and what does the growth rate of the economy need to be to equate to stagflation – so here are three broad definitions for stagflation that can narrow this down Growth around zero or negative, and inflation well above target Growth below trend and inflation comfortably above target a strong slowdown in growth and strong pickup in inflation Out of these, instead, what if we say that 'stagflation' is a period where inflation expectations are rising above the central bank target rate and growth is slowing and is below trend (i.e. expected to drop below growth forecasts)? This is a softer definition and much easier to apply – if inflation reaches a rate of above 3% and is expected to climb higher, and economic growth, as measured by GDP is forecasted to be 3% but turns out to be 2.5%, i.e. the forecasted nominal rate – then do we meet stagflation? I would say that this would be a situation where an economy would be in a stagflation environment There's just one problem: when compared to the economic environment of the 1970s - looking at the current state of the economy, things are a little different Where then do markets actually sit? Look deeper at inflation expectations and GDP growth To start with – looking at the US – inflation is high – at a 13 year high at around 5.4% - However – the US manufacturing Purchasing Managers' Index(PMI) has risen over the last two months whilst inflation rates have remained the same over this time period The PMI is an indexof the prevailing direction of economic trends in the manufacturing and service sectors – if this is on the rise, then it is expected that the costs for manufacturing and services is expected to increase – this leads to further inflation expectations down the road In Australia – The PMI has dropped heavily since July – so we seem to be doing better than the US – with lower potential inflation outbreaks Scenarios of slowing growth and rising inflation clash with most forecasts - recent moves in inflation expectations, especially in the US are a bad situation – but growth doesn't seem to be slowing at this stage – especially when compared to how the 1970s played out Over the past 18 months - GDP growth rates have gone through negative downturns – most western economies saw around three quarters of GDP growth rates – but will this continue? Well no – they rebounded rather quickly – US GDP dropped by around 9.1%, then sat at -2.9% and -2.5% over the next quarters respectively, but then rebounded to 12% growth – this 12% is a rebound from the bottom – so will calm down in terms of growth rates – but what is more important is the nominal level of GDP – this is sitting at about $20.9trn, from the peak in 2019 of around 21.4trn – or a $500bn loss Australia's GDP actually peaked back in 2012 at just shy of $1.6t

Welcome to Finance and Fury. I was looking at an interesting survey that is regularly conducted – so in this episode What do investment managers think the top risks to the markets are? This is a survey that Deutsche Bank regularly does where it surveys investment managers and Wall Street participants – The results help to gives some insight to the thinking of portfolio positions from those that control some of the largest levels of money flows in the investment landscape – This is interesting because of what actions investment managers take in response to their predictions – if they think markets will go down, they might be slightly more defensive in their allocation – or sell off some of their higher growth holdings – resulting in a decline of those shares - What happens to the price of assets on markets often occurs ahead of any event materialising – prices move at first due to the anticipation of an event materialising Looking at the DB survey - One of the questions that the 600 participants were asked: "Which of the following do you think pose the biggest risks to the current relative market stability?" – where they had 13 answers in total to choose from – These are not in order – but I will list all 13 out and let you think about what you think the biggest threats are to financial markets and see how it stacks up against the predictions of wall street Domestic policies (such as tax or spending that governments make) – This partially relates to Fiscal policy – the policy that governments make, how much to tax people, what stimulus packages are taken, if business are to be shut down due to lockdown restrictions Worries about the debt burden – This is the risk to domestic governments, particularly in the US that the increase in the debt has on markets – can the government repay their debt obligations? Geopolitics – This is international politics which could affect markets – this ranges from hot wars, such as if a war between the US and China breaks out over Taiwan – which is very unlikely – all the way to a tariff policy on commodities Worries about longer term structural consequences of the covid shock – supply issues from government shut downs Waning vaccine efficacy – this can be a risk to markets as it can spell further government shutdowns and restrictions An uneven global vaccination campaign and economic recovery – this relates to countries having different policies to one another New variants that bypass vaccines Tech bubble busting – FANG shares and other large tech companies which make up a large portion of markets like the NYSE and Nasdaq collapsing – this is possible when looking at their PE ratios Strong economic growth failing to materialise or being very short lived – Policy makers have forecasted good growth of GDP coming out of a slump in GDP – this has been prices into the markets, so if it doesn't materialise then markets can negatively react A Central bank policy error – For example – not increasing interest rates when they should – continuing QE longer than necessary – tightening too quickly Fiscal policy being tightened too quickly – the stimulus measures being reduced too quickly Higher than expected inflation/bond yields – inflation materialises at a higher rate than anticipate – and bond yields start to rise – which means their prices have collapsed Other – could be anything else So what do you think? – No right or wrong answers – the results are simply the opinions of the 600 survey participants Is it Covid related – with vaccines not working as promised, or a new variant coming out? Is it due to geopolitics, or domestic policies, like a debt burden? Or is it central bank related, with policy errors or fiscal policy being tightened too quickly? Or is it inflation and bond yields being higher than expected The poll shows that it appears that the fears from government responses to covid is officially over - According to the latest monthly survey of 600 global market participants conducted by DB - for the first time this year, the biggest perceived risk to markets is no longer government responses to covid. Instead, the top three risks are: higher than expected inflation and bond yields – This is the highest by any margin – 74% central bank policy error – where a CB may tighten too quickly – i.e. increasing interest rates rapidly to combat the number 1 perceived risk of higher than expected inflation strong growth failing to materialize or being very short lived (i.e. stagflation and/or recession). These three are rather related – in reality – Inflation materialises – with no growth – such as a stagflation event – then central banks may respond but make an error – then this exacerbates the issues Overall – higher than expected inflation/bond yields are the biggest perceived risk by professional investment managers – but the flow on effects from this are really what matters So lets break these three down further – looking at what wall street anticipates from here The most likely cata

Welcome to Finance and Fury. In this episode we will be looking at the Property market in China and focus on the Evergrande developments – in particular if there is actually a timebomb starting to surface – and look at the potential contagion risks to the rest of the world – such as the Aus and US Many in the press are comparing what is happening to Evergrande as another Lehman's moment – which was one of the defining collapses of a financial institution that lead to the flow of effects culminating in the GFC – it is understandable that the media takes this route – Lehman's is a recognisable name and fear and doom scenarios generates more clicks and sells more adds – but is this worst-case scenario true? Is the collapse of Evergrande really going to lead to another global financial crisis? A few weeks ago – we covered where the next financial collapse is likely to come from – between the USA and China - Two factors were the focus – leverage and contagion risks Looking at leverage - Credit growth is a major risk to almost every market – both from bonds from investors and lending from bank of financial institution borrowing – both of these are relevant to the private sector in China Credit growth is even a concern in Australia – APRA worried about banks and lending – they have increased their servicing cost by 0.5% - worried about credit growth vastly outpacing income growth But the major focus for any systemic issue is the contagion risks – if one company defaults, does this create a GFC, or just a collapse of an isolated entity – The loss potentials are substantially different between both scenarios – one is investors in a company losing money versus every investor globally losing funds due to collapsing markets world wide – the degree they collapse also is different If Evergrande fails – what does this matter? At this stage - The irony of the contagion risks is from the increased news coverage that this topic is being granted – if a topic is covered in the news everywhere – this creates uncertainty and fear – investors can panic – this creates real market declines, so the risk of market declines become a self-fulfilling prophecy – even me covering this topic can create some level of risk aversion, which may cause people to sell off investments – but is there more than just the normal fears in the markets from media coverage occurring? To start with - What is happening in China – We need to look at their property market, or more specifically the debt that property developers hold – especially in relation to Evergrande and Chinese economy at large Chinese economy - the rise and fall of Evergrande is tied into the economy of China quite heavily – Evergrande is China's second largest property developer – but this ranks around 147th in the world – but it is the most indebted property developer in the world – which should start to ring some alarm bells – it's on balance sheet liabilities amount to around 2% of Chinas GDP – off balance sheet – this could be higher – and likely is A company in isolation with debt isn't much of an issue – but a company with too much debt can be a problem – In isolation this isn't too much of an issue – if the company defaults but business in other sectors of the economy continues as normal then markets may go down a bit but then continue as normal – but what if this one company is a sign of greater systemic issues - where most of the companies in your country in this sector have the same problems – that of having too much debt that they are likely to default on? Especially in the property sector – The BIS released a paper showing that Chinese non-financial companies have 160% Debt to GDP, versus in the US where it is about 80% - so double in China compared to the US – Property also has an overweight on GDP compared to the US It is estimated that property development makes up around 25% of China's GDP – this growth has been fuelled by Debt – this is a major issue for the CCP - China property market – the history over the past 20 years The increase in demand for property and the increase in pricing has been fuelled by massive amounts of urbanisation – rural workers/population moving to cities for work and a better income for their families High demand for properties in desirable cites has massively inflated the property values in these urban environment – developers often sell every property in a development in advance of the construction even starting This has led to lower quality – contractors skimming on materials to lower costs – where constructions can actually collapse in a few years after completion Prices to income ratios – results in a situation where you have generations of people living in one apartment trying to repay the loans We think that Australia is bad – and it is – but many major cities in China, such as Shenzhen see 43 times the average household income in property prices – compared to Sydney which was around 13 times at the peak of the market Speculation – large

Welcome to Finance and Fury. In the last episode we talked about finding meaning in life, even in the worst of possible situation. That topic leads in nicely with purpose, which we will be covering in this episode. As Finding a purpose gives life additional meaning – and having fulfilment in life through having meaning helps to fuel a purpose – which further fulfils meaning – quite a symbiotic relationship – But to build on this purpose and work towards this, goals are also important - But Finances are important – which can also be seen in the concept of resources – as cash/money is a medium of exchange to purchase resources, or other investments – either way, having infinite resources or money without purpose or meaning is worthless – What is the point of having millions of dollars if you have no reason to wake up every day? Most of us don't find ourselves in this position – but if we have no financial means, or resources, then fulfilling our purposes can be harder – finding meaning can still be achieved if you have no money or place to live, but unfortunately, the way that society is structured does require some means of resources to cover the outflows for living – even if you buy some land outright, you still need to pay rates So, what financial goals are you working towards to have enough to achieve your end goal – as well as maintaining purpose and having meaning in life? This is not just about being able to accumulate investment or make money, but be happy along the way and feel like you are fulfilling your purpose and find meaning is waking up every day – The journey to financial independence is a long road for most people, so having something to work towards and enjoying the journey allows you to actually wait it out – rather than work for 2 years and then start to hate your working life – life is about the journey, not the destination How do you go about this? Find your purpose – and find some career where you can generate an income to direct toward financial resources to build towards financial independence – how do you achieve this? Get some goals in place First step, if you don't already know what it is – is to figure out what your purpose is – this is the path that will give you guidance It is important to find your purpose as if you don't know what you want, it is impossible to get it. 'what is the meaning of life?' – I actually see this as a rather silly question – as there is no one overall meaning to life, if this is considered to be our collective existence, except to exist and eventually die But there is a meaning to your life – at the individual level and family level – we each have desires and goals, which go towards forming our own individual meaning towards our existence – Therefore, you just need to find your purpose and live up to your potential in achieving this – this actually goes back to last week's episode – because state and politicians do try to give the perception that there is a collective purpose for a whole society that will fill everyone with meaning - you need to decide what you want and what is important. You have to Be clear why you are here! To do this – you have to look at what you want – not what others want When we are younger and getting out of school, we are often looking for meaning and some direction in life – we have very strong influences from either our school, parents or friends in what direction we take At lot of this has to do with programming in life – where we simply follow in the path of what is easily laid out in front of us – so this slowly changes our real purposes to conform to the new social norms or what is set out in front of us. This leads to taking actions in life which will get the approval of others rather than ourselves We are told from childhood the word 'no' and 'don't do that'. While this was said to help protect us, it has led to crushing dreams. While conformity has been important in evolution (by not sticking out and getting ousted by the tribe), it has lead into conforming to a normal level of life or living someone else's dreams. This is why you need a reason to get out of bed in the morning which is your purpose. If you have this purpose, something to work for, you will be successful and happier along the way. So – how do you find out what your purpose is? – if you don't know, to figure this out requires a bit of brain storming. It requires the creation of a list – where you need to write some lists of things that are important in your life. At financeandfury – there is a workbook which can help – but this has 3 columns: I care about, What I am great at, I love doing – try to write 20 things for each: total of 60 The more the merrier – doesn't have to be something big, more = more brainstorming beside each one put a plus or minus against it – if you really enjoy or are great at = put a plus against it. something that you just put in there to make up the numbers, put a minus sign against it. From those from each list – select the t

Welcome to Finance and Fury. I'd like to start a serious conversation about the individual self and our drive for meaning within society. This relates to economics and by extension, personal finance – as economics focuses on how the individual incentives drive decision making – all with the aim to maximise our utility – i.e. gain the maximum benefit – which could mean we driven by money, freedom, or some other purpose - What drives the way that we act? - so in this episode, we will be adding a philosophical element to this topic – this episode isn't about the property or share market, so if that is why you tune in - feel free to not listen – the purpose of this episode is more abstract – and aims to help those who want to help themselves through making sense of the current state of the world and prospering through this – To do this – we will draw on some of the teaching of the greatest philosophers through history – like John Locke, Carl Jung, and Viktor Frankel to name a few – this will be a bit of a longer episode – as there is a lot to unpack If you are still with us - To start with, I am going to read a passage from Carl Jung's book, The Undiscovered Self – 1958 – then we will break this down to unpack the individual in relation to society and the state "Instead of the concrete individual, you have the names of organizations and, at the highest point, the abstract idea of the State as the principle of political reality. The moral responsibility of the individual is then inevitably replaced by the policy of the State. Instead of moral and mental differentiation of the individual, you have public welfare and the raising of the living standard. The goal and meaning of individual life (which is the only real life) no longer lie in the individual development but in the policy of the State, which is thrust upon the individual from outside and consists in the execution of an abstract idea which ultimately tends to attract all life to itself. The individual is increasingly deprived of the moral decision as to how he should live his own life, and instead is ruled, fed, clothed, and educated as a social unit, accommodated in the appropriate housing unit, and amused in accordance with the standards that give pleasure and satisfaction to the masses. The rulers, in their turn, are just as much social units as the ruled, and are distinguished only by the fact they are specialized mouthpieces of State doctrine. They do not need to be personalities capable of judgment, but thoroughgoing specialists who are unusable outside their line of business. State policy decides what shall be taught and studied." There is so much to unpack in this one paragraph alone – The first few lines look at once individual responsibility has been replaced by the policy of a Government – the differences of the individual are no longer celebrated in society – it is used to create an us versus them mentality – when a government have two primary parties, politics becomes a sceptical, like a game of rugby, AFL, cricket, NFL – there are two teams competing for the win – and each side has their supporters – and each side has some level of animosity towards the other – often not much, but you can see this spill over – like in some south American football (i.e. soccer) games Once we get to this point – there is no need to focus on the individuals rights or happiness – as we are supporting a team – "goal and meaning of individual life (which is the only real life) no longer lie in the individual development but in the policy of the State" – therefore, the state (or government) tries to replace your own individual goals with public policy – in a utilitarian way - this then leads into the state focusing on their own definition of public welfare and the raising of the living standard – which requires increased authority of the state The desire to increase public welfare and raise the living standard is a noble goal – but unfortunately centralised powers have a hard time actually achieving this goal – and throughout human history – I cannot find any examples where the state, when given extreme powers to achieve this goal, have been able to deliver in the long term – otherwise the USSR, Cuba, North Korea, Cambodia, Vietnam, Venezuela and the list goes on, would have been able to economically outperform countries with less centralised state control – and provide their populations with higher living standards This ties back to the statement "the policy of the State, which thrust upon the individual from outside and consists in the execution of an abstract idea which ultimately tends to attract all life to itself" – the state tells you how you should live in an abstract idea – which through social reinforcement leads to a trend, where public consciousness starts to sway towards this end – this is where sentiments such as eat the rich come from Remember – the economy is the sum of our individual economic output – so the more power the individual has to better

Welcome to Finance and Fury. In this episode, we will be looking at investing using a moat. Moats are an effective tool for defence historically – you would put one up around a fortified structures – such as a castle or town – can be filled with water or not, many different types and variations – but the whole aim is to make a location more defensive from attacks – so what does a moat have to do with investing? Well – in this episode we aren't talking about defending your castle from some medieval invaders – we are talking about moats that can be identified to provide some defence for your investments – in particular – we will focus on Economic Moats - What is an economic moat? An economic moat – simply put – is the ability of a business to maintain a competitive advantages over its competitors This – like a moat around a castle - helps a company to protect its long-term profits and market share from competing firms – which in this analogy would be the attackers a competitive advantage is essentially any factor that allows a company to produce goods or services better, or more cheaply than its competitors – this means that this company is likely to outperform its competitors due to capturing a larger market share and therefore, generating better profits Castles also had competitive advantages – you could place one on top of a hill – or have a drawbridge across a moat – making it harder to breach the gates – no two castles were exactly the same, as the landscape and designs of the time all vary from location to location This is the same when looking at shares in a company - When talking about companies – a competitive advantage is evident if the company has been able to maintain a market share due to a combination of different competitive advantages – essentially putting it in a monopolistic or oligopolistic environment Different types of economic moats – There are several ways in which a company creates an economic moat that allows it to have a significant advantage over its competitors – we will go through 6 types – But by no means are these all-inclusive - Cost Advantage - a cost advantage that competitors cannot replicate can be a very effective economic moat. Companies with significant cost advantages can undercut the prices of any competitor that attempts to move into their industry, either forcing the competitor to leave the industry or at least impeding its growth. Companies with sustainable cost advantages can maintain a very large market share of their industry by squeezing out any new competitors who try to move in. Successful Resource companies often have a cost advantage over their competitors – when you look at this industry – the price of the materials can vary – but if you have the lowest costs – you can weather the storm BHP – has a cost base of just under $12 per tonne for iron ore – this is the cheapest in the industry – when prices plummet to $40 – they are still making $28 – a good margin – when the prices are around $125 – they are making a killing The next best is Fortescue with $15 per tonne – but that $3 is still a large difference – 25% more in costs This comes with economies of scale – which leads into the second competitive advantage Size Advantage - Being big can sometimes, in itself, create an economic moat for a company At a certain size, a firm achieves economies of scale where there can be synergies between businesses – or they can control the supply chains as well This is when more units of a good or service can be produced on a larger scale with lower input costs. This reduces overhead costs in areas such as financing, advertising, production, etc. Large companies that compete in a given industry tend to dominate the core market share of that industry, while smaller players are forced to either leave the industry or occupy smaller "niche" roles. High Switching Costs – This is a tricky tool that companies can use – increase the costs to switch between them and their competitors products Thinking about Apple and Android for a second – I have had a Samsung phone for about 13 years now – after having an iphone for about 2 years prior – I made the switch, but I remember the difficulty in not only switching IOS – but also the transfer of contacts and data – it is almost like starting from scratch This is where the size advantage can also come into benefit - When a company is able to establish itself in an industry, suppliers and customers can be subject to high switching costs should they choose to do business with a new competitor. Competitors have a very difficult time taking market share away from the industry leader because of these cumbersome switching costs. Intangibles - Another type of economic moat can be created through a firm's intangible assets, which includes items such as patents, its brand, government licenses and other factors which give it the edge over competitors – such as loyalty Strong brand name recognition allows these types of companies to charge a premium

Welcome to Finance and Fury – For this week's episode we are answering a question from listener David – surrounding some options to save for a home deposit "The conventional wisdom is to save for, say, a home deposit in a bank account with as high as possible interest rate. However, recently it seems house prices are rising quicker than I can save, and interest rates are lower than CPI. If my goal is to have a sufficient deposit in ~3 years' time, what are your thoughts in keeping savings in a conservative (or even higher risk?) mutual fund instead? Wouldn't a low-risk fund be less risky than cash during an inflationary period?" This is a great question – and brings up an important point – is the long term conventional wisdom on saving for a home deposit in cash no longer wisdom but a horrible idea? Especially in the current economic environment where your cash savings are earning a negative return in real terms when accounting for inflation – so let's have a look at this and look at some alternatives Historically - that conventional wisdom of saving for a home deposit in cash has been ingrained in the deposit saving strategy – and for a very good reason – that reason has been due to volatility in the short term – why take any risk on your savings if you can generate 4-5% p.a. in interest returns and inflation is only 2%? However – if you are getting 0% interest return and inflation is 3% - does this sound like a good idea? Also – home prices have been booming since interest rates have declined, with 2- or 3-year fixed rates being in the high 1% range – this has fuelled increases in prices which are beyond what cash can provide With home prices increasing and no returns on cash savings – you need to constantly save more and more to make up the short falls Example – want to buy a $550,000 home – need $110k as a deposit – plus $10,600 for stamp duty Say it will take you 4 years to save for this – but in this time property prices go up by 15% - same property is now worth $632,500 Now you need $ in deposit and $14,300 in stamp duty – this is a further $16.5k in deposit and $3.7k in stamp duty – so this may take you a further 6 to 12 months to save for – in which time property prices can go up even further So what do you do? Just keep saving more, or look at investing these funds in the hope of getting a decent return? This is a very important question – due to this increase in price of property and the opportunity cost of keeping funds in cash – are there better alternatives? The issue with using savings to invest into growth assets, such as shares, especially with the aim that these funds increase in value in the short term, is that this is investing purely based around hope – and that hope is that the invested funds increase at a greater rate than a savings account can provide by the time you need to use the funds The irony is that these days a savings account will likely provide you a 0% return in nominal terms = a negative return when accounting for inflation and the price increase of property This leaves savers in a horrible position – either save more to minimise the short fall or – invest funds in assets that can provide an above property price growth level of return But this investment needs to help balance any risks – especially in the short term What are some alternatives to saving in cash? Let us look at a Conservative investment fund – Conservative funds are those that have the majority of their allocation in defensive investments Their allocation is normally a majority of FI assets and some cash – with a smaller allocation to shares – both Aus and Int to help generate some growth returns The aim of these funds is to normally get a return of a few percentages above cash rates As an example – there is the Vanguard conservative index fund – either in ETF or managed fund versions The comparative returns of this fund have been good – especially when compared to cash – Cash returns over the past 3 years on average has provided 1% p.a. which is far below most peoples target when incomes to achieving a savings rate How has the conservative fund performed? Over the past 3 years it has provided a return of 6.5% = 4.5% of this has been income with around 2% being capital growth Looking even further out – you have the 5-year average returns of 5.54% – the income return has been 4.75% and growth has been around 0.68% In hindsight – and as a comparative tool – investing funds in the vanguard Conservative ETF would have provided additional capacity to save than pure saving funds in cash – but investing Is always perfect in hindsight Conservative fund has around 62% in FI and 8% in cash – total of 70% defensive – then has 18% International shares and 12% Australian shares – this significantly reduces its volatility when markets take a downturn Look at volatility – Looking back over time – Drawdown analysis - What happened in GFC? – In 2008 – fund lost 2.5% - but then had a total drawdown of 10% by 2009 Recently ha

Welcome to Finance and Fury This episode, look at where the next financial crisis may come from – Will it be from the USA or from China? This is a question I was thinking about the other day – as there is a lot of talk about the Chinese economic being built on a house of cards and at risk of collapse – but if this does collapse, will it lead to a world-wide economic recession? Or, will the USA beat China to the chase and trigger the next collapse? So, in this episode – we will look at the likely nature of the next financial collapse and whether this will be triggered by economic issues in the USA or China Looking back in history - the idea of a global financial crisis is relatively new in the scheme of things it has and can only occurred in times when economies are interconnected in terms of trade, or financial reliance – in the modern era – this is coined as globalisation – but the trigger has tended to come from the economically dominant country in this economic system – i.e. the most connected nation that a global economy is reliant on Therefore – it is no surprise that over the last 100 years, the United States has become the primary source of economic collapses that have spread to throughout the rest of the world In reality - over the last 200 years, the USA averaged a financial panic every twenty years – which over this timer period puts it in competition with the UK for the most occurrences of economic disaster of any country on the planet – What is different is the size and scale on these panics' effects on the rest of the world – The USA has only really been an economic powerhouse from the post WW1 Era – hence previous panics, such as the Railroad panic of 1873 has far less effect on the global economy and their financial markets when compared to an event like the GFC, or even share market collapse that preceded the great depression of the 1930s There is an emerging trend within an interconnected global economy – when the major economic powers catch a cold, the rest of the world starts to sneeze – Which brings up China – which over the last few decades has emerged to be the second largest economy behind the USA – where both countries are heavily reliant on one another – USA relies on China for consumption and debt funding, and China on the USA on net exports and reinvesting those funds in treasury notes through foreign exchange – but this relationship can be rocky Almost like business partners who have grown to hate one another over the years – but both parties know that without the other their business would fail This brings us back to today's topic – the next financial collapse Regardless of where it comes from - The form of the next financial crisis will very likely be initiated from the financial system – and in the from excess levels of leverage within a fragile system, created through speculation Technology and innovation have adapted in regards to leverage as well as investors access to leverage – When looking through all financial crisis – whist the triggering cause has differed – the common characteristic has been that the economy become fragile due to excess levels of leverage – i.e. borrowed money creates additional asset bubbles and exacerbates downturns Looking back in history - the crash of 1929, which triggered the great depression, came from an overleveraged market that was built up through the introduction of margin loans in the previous decades, as they became popular around the 1890s - then the requirements of these loans, that have the shares as collateral, became even more loose in the early 1900s – leading to the build-up and eventual collapse of the share market – Skipping forwards to the 2000s – systems of leverage had evolved dramatically - with CDOs, as well as synthetic derivatives which first came into use in the 1980s – These instruments combined with speculation lead to the inevitable collapse that occurred in the GFC In the modern era we are now looking at highly leveraged crypto positions using derivatives, as well as the age-old overleveraged markets both in property and shares – So - regardless of the technology of the mechanism that the money flows into - one common characteristic stays the same is that financial corrections comes from over-leveraged positions that occurred due to speculation – in other words – the higher the level of capital which can be introduced into an economic system under speculation, the greater the risks are to that system This brings us to today – where the fact that leverage has been allowed to increase at ever increasing pace due to low interest rate policies globally means that at some point – the mount of excess leverage that exists within the economy increases beyond the productive level of the economy – hence it becomes speculation – therefore, at some level it must come unstuck Speculation through leverage (i.e. debt) – used to have an opportunity cost – the concept of an economy having a near-zero interest rate policy like we cur

Welcome to Finance and Fury. In this episode we are going to look at the different factors to consider when deciding on how you should select investments This is an interesting topic – as everyone will have different factors that influence their investment decisions – but the ultimate outcome for most people is to make money – i.e. you wish to receive a return on your initially invested capital – and do so at a rate that beats your opportunity cost – i.e. the next best use of the funds, like repaying debt But this is easier said than done though – So in this episode – we will look at the major factors that influence investments and see which one has had the largest impact on out performing the index as well as minimising volatility – in other words, what has provided the best returns over the past 20 years at the lowest comparable level of risk – we will also look at if these trends can help to provide some insights into investing moving forward I think it goes without say that this episode is not advice, but just general information based around a historical analysis – because we are not taking into account anyone's personal situation Why do investments perform the way they do? This question has an obvious answer – the price of an asset is based upon the supply and demand of the investment – if the demand is high and the supply low or capped, then prices will rise – but it isn't this simple – it is easy to say that an investment is simply in high demand with lower supply – hence the price goes up – but this becomes more complex when trying to figure out why this has been the case? Why have certain investments been in higher demand than others? focusing on the different factors that investments can have attributed to them can help to understand this nuanced question – this is where factor investing comes into the picture What is Factor investing? It is an investment approach that involves targeting quantifiable characteristics – these quantifiable characteristics are what are referred to as "factors" These can help to explain differences in investments and how they have performed – both in terms of returns as well as volatility, which is the measurement of risk Now - a factor is any characteristic that can explain the risk and return performance of an asset The approach to identify these is considered to be quantitative – hence it is based on observable data, such as an investments price in relation to its financial information, rather than on relying opinions or speculation characteristics that may be included in a factor-based investing include two general categories – being that of macroeconomic factors as well as style factors - Macroeconomic factors – these are the larger picture economic factors that tend to influence markets at large Economic growth – This includes an investments exposure to the business cycle Real interest rates and inflation – which focuses on the risks of interest rate movements and the exposure to changes in prices that a business faces from price increases Emerging markets – these can be beneficial however are exposed to political and sovereign risks, as well as currency risks Liquidity – exposure to illiquid assets Each of these factors is important at the macro level – but instead – we will look at the other factors based around investment style factors Those of Style factors – These include the value, volatility, momentum, quality, and size of the investments Value – A share is considered to be of value if the current price is considered to be discounted relative to their fundamental value, also known as fair value – As an example – say a share is trading at $10 – but some analysts punch the numbers and determine that this company, based around its free cashflow and growth prospects should only be worth $8 – then this would not be a value purchase – however, if a share was valued at $15 and trading at $10, then this would be an obvious buy Therefore - value investments aim to capture excess returns through purchasing shares that have lower prices than their fundamental value There are many different methods used – but most commonly, value managers track price to book and price to earnings ratios, dividend growth forecasts, and the present value of free cash flows as part of their fundamental analysis The best way to think about value investing is when you see a special at the supermarket – if an item is on sale, for 30% reduce price, are you more or less likely to purchase the item? So in essence - The value factor attempts to capture excess returns to shares that have low prices relative to their fundamental value. This factor has generally performed best during economic recoveries – when fundamentals matter more to investors Minimum volatility – This is a focus on stable, lower risk shares – i.e. those that are consider safe harbours, such as blue chips and have stable business models and often provide a service with a moat around them – essential consumption with companies

Welcome to Finance and Fury. This episode we are going to have a look at investing in megatrends. When investing – there are many different approaches people can take – people have different return requirements – hence, when constructing a portfolio of investments, you may try to isolate certain sources of return – such as capital growth or income focuses If you are retired and needing a passive income, then an income focus is more important – so purchasing share that pay FF dividends, or owning a property that has no leverage or debt on it will be the focus If you are an accumulator – you may wish to focus on capital growth, or target sectors of that don't typically pay out high level of income returns, but have the potential for higher levels of capital growth – such as technology or healthcare shares As part of this focus on capital growth – one method that is available to investors is to target specific investment themes – or "megatrends" This is where investors focus on high growth opportunities in sectors of the economy that are expected to grow at higher rates than the economy at large So in this episode - we unpack what megatrends are, how they can be identified and invested in, and what they can offer investors as well as the dangers to look out for What are megatrends? A megatrend is a long-term structural shift that transforms economies – I studied these trends in a course at Uni, UQ which offered – Evolution of Economic Systems It involves trends of technological and demographic changes – as well as creative destruction To be classified as a megatrend – they have to have defining characteristic that distinguish them from normal economic cycles in the way that any changes they create are enduring – i.e. long lasting beyond a normal business cycle One of the biggest examples in the past 100 years is that of the creation of cars - this ended the industry of horse drawn carriage industry within 30 years This created major economic destruction – as not only did it displace a use for horses which were seen as a major economic good, but also those involved in providing carriages, driving those carriages as well as breeding the horses – ask yourself, who would invest in horse drawn transportation in the modern era? But go back to 1850 and this was a major business The invention and effect of cars (or automobiles) was dramatic and long lasting - Creating cars did not just make humans more mobile, it also created the modern geography of cities, including highways, suburbs and shopping centres. But it did take a number of years to get off the ground – as initially cars were only available to the wealthy who could afford the new novelty – but as supply ramped up with many competitors coming to the market, prices started to drop to the point that cars started to become affordable The introduction of the television is another example – this was first introduced to Australia in 1956 in a commercial capacity – and by 1975 there was a television in most households Television wasn't just a revolution for media and entertainment, it has also had profound social and cultural impacts. We have also had the megatrend of the internet – But this is where two or more megatrends can combine to create another dominate force in the economy, which translates into investment opportunities – In our current world – this would be in the form of streaming services, like Netflix What megatrends all have in common is they are intertwined with demographic and technological changes - However – to take off fully, they typically need to be allowed to occur by governments – i.e. the legislative power – we saw this back in England with cotton gins – which are a machine that quickly and easily separates cotton fibres from their seeds, enabling much greater productivity than manual cotton separation – this is also called ginning – but in the UK back in the day, to be granted a business licence you needed to seek royal assent - so the inventor of the cotton gin went to the Queen of England for a licence to start a business using this new technology, but was denied due to the economic destruction this would have caused – so they went to France and got granted the right to start their business Like all megatrends - the uptake in the use of the technology or service is usually exponential; at first there is a time-lag for adoption, then soon the megatrend is everywhere – which is why the UK soon allowed cotton gins to not fall behind the garment production of the French Needless to day - Megatrends can have implications for investors who can correctly identifying and act on them Those who invested in media businesses in the 1960s, went on to reap super profits. So too did those buying into computer businesses like Microsoft, Apple and IBM in the 1970s for the PC revolution. This is all an exercise in hindsight of course, however, illustrates the power that megatrends can play in shaping markets and investment outcomes – but there are also mega

Welcome to Finance and Fury. As you might have seen, Brisbane has won the bid for the 2032 Olympics – but is this a good thing for the SEQ economy and the people living in it? in this episode we will have a look at the economics of the Olympics – we will Look at the costs and benefits of hosting the games – to see if firstly Brisbane/QLD is going to benefit – and if there is economic gain for being the host –– Lots to unpack here – lets get into it Introduction - The Olympics have evolved dramatically over time From going all the way back to the Ancient Greek times – to the first modern games which were held in 1896 Over time – like many things – Olympics became more commercialised – as over the past 60 years, both the costs of hosting the games and the revenue potentials have grown rapidly – but it seems like the costs have growth at a greater rate than the revenues - sparking controversy over hosting the games – as to whether it is of any benefit to the host city A growing number of economists argue that both the short- and long-term benefits of hosting the games are at best exaggerated and at worst non-existent, leaving many host countries with large debts and maintenance liabilities – so is this true? And if so, what does this mean for QLD and Australia at large I've got the data from a few studies – but the main one we will be looking at is – "Going for the Gold: The Economics of the Olympics" – link in the show notes at www.financeandfury.com.au Costs Incurred When Hosting the Olympics On the cost side - there are three major categories – 1) general infrastructure such as transportation and housing to accommodate athletes and fans – 2) specific sports infrastructure required for competition venues – 3) and operational costs, including general administration as well as the opening and closing ceremony and security. General Infrastructure – One of the major expenses is the general infrastructure to accommodate the anticipated wave of tourists and athletes that descend upon the chosen city - cities commonly need to add roads, build or enhance airports, and construct rail lines to accommodate the large influx of people as well as build an Olympic Village to host the athletes The International Olympic Committee (IOC) requires that the host city for the Summer Games have a minimum of 40,000 hotel rooms available for spectators and an Olympic Village capable of housing 15,000 athletes and officials. Event Infrastructure - The Olympics also require spending on specialized sports infrastructure. Because of the somewhat obscure nature of many of the events, most cities do not have the facilities in place to host all of the competitions – Think about some of the events, from cycling, needing a velodrome to skateboarding which has been recently added – there are now 41 different sports, of which there are about 340 events all needing different facilities – all of these events and sports need tailored spaces to facilitate the events Additional Expenses - Once the facilities are in place, the Games require spending for operations including event management, transporting and accommodating the athletes, as well as the opening and closing ceremonies, and security So, what does this all cost? An accurate financial accounting of Olympic expenditures in various cities is very hard to find Firstly - It can be difficult to disentangle spending on Olympic building projects from planned infrastructure improvements that might not be attributable directly to the games – such as the Brisbane Airport getting a second runway Secondly – many of the costs are incurred behind closed doors and never fully disclosed – As an example - Submitting a bid to the IOC to host the Olympics can costs millions of dollars. Cities typically spend $50 million to $100 million in fees for consultants, event organizers, and travel related to hosting duties – as an example - Tokyo lost approximately $150 million on its bid for the 2016 Olympics and spent approximately $75 million on its successful 2020 bid But these costs are private due to reforms taken by the IOC – The people of a city don't get a say as much anymore as to whether they wish to host the Olympics – the public used to in plebiscites but in many cases, people voted to not host the games – so what the IOC has done in response is to introduce a reform, one of which is putting all the bidding behind closed doors. They're sick and tired of being embarrassed by cities dropping out. So, the process is now secretive. What are the Benefits of Hosting the Olympics – There are some major categories of benefits that exist in the short term and long term: the infrastructure and employment in the lead up, benefits of tourist spending during the Games; the long-run benefits or the "Olympic legacy" which might include improvements in infrastructure, foreign investment, or tourism after the Games – but also intangible benefits such as the "feel-good effect" or civic pride Short run benefits – Employmen

Welcome to Finance and Fury. In this week's episode, we will be looking at the demand for property in Australia. If you haven't listened to last week's episode – it may be worthwhile – discussed supply of property in Australia – this week we will be focusing on demand – which in conjunction with supply = the price of property When looking at property price movements – there is an equation to crack – low supply and high demand = price gain e where has limited supply but lots of demand is likely to see some rise in the property price over the medium to long term the reverse is true – if you have areas with high levels of supply – or the potential for supply to increase over time at a capacity beyond demand – then prices may not rise and at worse, actually fall. As part of this equation – it is important to look at not what is happening now, but what is likely to happen in the future – If you are looking at what is happening now – then you will be buying into a market based around current dynamics – which may not hold up in the future – As an example - somewhere with limited supply now, but currently has very high levels of demand is likely to already be very pricey – the issue with buying something that is expensive is the further upside capacity that the property may have can be limited – but let's say that in the future demand stays high, but all of a sudden supply catches up This is often the case if it is possible – due to developers wanting to get in on the high demand So, if you have inner city areas with high demand – then developers are incentivised to develop this region and therefore -supply will increase – this can do so at a greater rate then other areas if there are lots of infill or greyfield sites, which we covered in last week's episode Demand for property – look at what are the drivers of demand, current state of demand and how to identify areas that will be in demand in the future This comes from people and their wants and need – peoples demand is represented in property in the form of how many dollars someone is willing to purchase a property for – but this one output (of how many dollars people are willing to purchase a property for) has many different inputs – Desire and demographics – The number of Buyers and where are people demanding property – The number of buyers comes in two forms – population growth and relocations within a nation If population growth is high and people are relocating to certain areas – this can manifest in higher demand Centre for Population still expects Australia's population to grow – but it is likely to be 4% smaller — or 1.1 million fewer people — by 30 June, 2031 due to boarders being closed Where people want to live can be very subjective – as people have different desires – but often this will be in a close proximity to work, or retirement lifestyle living, as well as facilities like shops, schools and transportation Desire can also be influenced by emotion – when emotions run hot, in demanded areas – can see FOMO There has been a shift - Looking at demand through a lense of demographic demand - many people have had a chance to re-evaluate their life circumstances over the past 18 months - Offices were shut and remote working took over – inner city retail and hospitality has been dramatically altered - moving forward people may work from home at a greater rate and not be as drawn into cities This means gone are the days where our 'home' was simply the place we rest our heads and enjoy some downtime between work and our social lives – If you can leave your home and be within walking distance of, or a short trip to, a great shopping strip, your favourite coffee shop, amenities, the beach, a great park That's why choosing the right neighborhood may become even more important – as the saying goes, location, location, location - This is key because it is estimated that 80% of a property's performance is dependent on the location and its neighbourhood. The more liveable a neighbourhood is – the higher the chance of capital growth – but again, only if supply cannot be replicated Beyond the demographics of property – another very important component of demand comes in the form of affordability – how much people can actually afford – if the population has no money, or cannot borrow funds to put towards a purchase, then the price demanded will be lower interest rates are at historic lows – this technically means that housing affordability per $1 is as cheap as it ever has been Remember that this does not mean that properties are cheap by any sense of any metrics – it simply means that for every $1 that you borrow, it is now the cheapest that it has historically been due to low interest rates So you can borrow more dollars and you can afford to pay back this balance due to low interest rates – however it isn't really his simple – as the principal component of the loan repayment also increase The RBA has declared that the interest rate will not increase until unemploy

Welcome to Finance and Fury. In this episode we look at the future of the supply of property in Australia. We will talk about the availability of land in Australia, look at the population density and supply of developments, as well as what the future supply has in store – assuming that the demand stays constant, then the areas with under supply will see price gains – those with supply abundance will see price stagnation Australia is a unique country – outside of places like Antarctica, or Greenland with massive land masses but with relativity greater areas of unliveable space – compared to many other nations, we have a high rate of urbanisation with high levels of unused land Looking at the land use in Australia – Area KM2 and portion of Australia as a % Land for Intensive uses (mainly urban) 16,822 0.22% Rural residential 9,491 0.12% Australia's population is estimated to be 25.5m - of this population around 86% of people are living in urban areas – This is fairly similar to many other western nations – US is about 83%, UK 84%, France 81% - then you have nations like Singapore or HK – sitting at 100% What is different is the portion of the land that goes towards housing this urban population – US have 3% of the nations land that houses this urban population, and in the UK it is 5% - remember that Australia is 0.22% - or 13.6 and 22.7 times greater respectively So in Australia - Using some simple math – Just under 22m people are living in 0.22% of the nations land mass There are some major reasons for this – First - Large portions of Australia are rather inhabitable - 18% of the Australian mainland is considered to be desert, but about 35% of the Australian continent receives so little rain that large population centres never sprang up there – Fresh water is always important, but also rainfall for vegetation for food and livestock – apart from Antarctica, Australia is the driest continent on earth – so much of our land has reduced liveability But when accounting for the inhabitable land – assuming it is 35% of the continent – then this still means that the land use for urban population is 0.34% - or 10 times lower than the US Secondly - The period of settlement of Australia – focused on the coast and major harbours or river inflows Over time – major cities sprung up – Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth – but not in the same manner as other nations that have had hundreds of additional years of development in a different technological era – where the population was given a greater chance to sprawl before technology made urbanisation easier – Urbanisation is only possible in developed countries due to technology Transportation and infrastructure, as well as water and food supplies used to be the major issues for having large sprawling cities Transportation and infrastructure – cars, trains, buses, roads – sewage and power – all important to house millions of people in a dense urban area Water and food – the ability for people to live in cities is a hard logistical task - this does come back to transportation and infrastructure – how do you produce enough food and provide enough fresh water to people in the millions – but then you need to transport this into city centres – just in time supply chains Because Australia was starting to grow in population when these problems had mostly been solved – there was no need for population sprawl like in many other nations where the burden needed to be spread out before technology and innovation took over – When comparing Australia to other nations with larger levels of land supply – this starts to become obvious – Big cities – London makes up 13.5% of the UK population, or New York making up 2.5% of the US population - but Sydney makes up 21% of the population of Australia This limited supply of land surrounding these major cities when accounting for demand is a large part of why the price of property in London, New York and Sydney is higher relative to many other cities in these respective nations Where does this leave us as a nation when it comes to property supply in the future – We have a massive potential to achieve property affordability in Australia when compared to a nation like Singapore – but not in a practical way based around the way that we live, or want to live If every person living in cities moved to rural areas, we would see more of a normalisation of property prices i.e. the price of rural properties would rise, whilst CBD prices would decline – on average property could become more affordable - But as previously mentioned – this is not how many people want to live – most people need to be close to their place of employment or alternatively, wish to have the lifestyle that a bigger city affords – therefore, people wish to live close to cities – hence to help with population growth and demand for property, additional supply needs to become available When looking at the property supply development – what are the options to increase the

Welcome To Finance and Fury. Is the market at risk of de-risking? Bit of a mouthful – but over the past 12 months the share markets has been going on a run with higher flows of capital going to higher risk shares over those that could be considered defensive shares – those with lower historical risks due to the backing of fundamentals, such are earnings In this episode – we look at the cycles of share markets – looking at the longer-term trends of periods of risk taking and periods of risk avoidance – in which prices of different segments of shares can move independently from the overall index price movement – index may be going up but segments of the market can decline in prices As previously mentioned, certain sectors of the market have performed very well over the past 12 months – Tech sectors, financials, commodities and other highly leveraged share sectors have performed well - This has seen segments of the market start to underperform the index in Australia – as a massive chunk of the ASX is made up of the banks and commodity companies – in the US, the upper end of the index is tech companies and financials In Australia - Under performance has occurred in the historically lower risk segments of the ASX – communication services, industrials, utilities, Health Care, even Gold mining companies – whilst these companies are all incorporated in the ASX index, it means that other companies have outperformed by a larger margin If the index is 50/50 split between lower risk and higher risks segments, and the index has performed 20% over the past 12 months – in reality any combination of returns could have occurred to get this aggregate outcome – however – let's say that higher risk shares have provided a 40% return, whilst the lower risk segment have provided 0% returns – then this means the index would have performed by 20% over this timeframe – in hindsight, where would you have wanted to be invested? The lower risk shares, the index, or the higher risk segments of the market? Obviously, the high-risk segment But what about looking forward? Can these higher risk share categories constantly outperform? Markets have cycles – ups and downs – the nature of market volatility – But these ups and downs of the market are viewed as an aggregate of all shares in all sectors when viewed as an index – but what makes up the index? Thousands of individual shares When separating out the underperforming companies to the over performing companies, the ASX has had an incredible return – especially over the past 18 months Growth/Risk companies have returned 70% over 18 months Value shares have returned only 8% over this same time period – this by itself is a below average return, but when compared to growth companies, it is a significant underperformance The prices of shares is based upon the behaviours of the investors in the market – The price responds to inputs – the number of buyers and sellers in the market – which can be broken down further into economic human action which is actuated to what is anticipated Praxeology - is the theory of human action, based on the notion that humans engage in purposeful behaviour, as opposed to reflexive behaviour (like increasing saliva in your mouth when you see food and are hungry) and other unintentional behaviours (like slipping over on ice) People want to make as much money in markets as possible – so when economic dynamics are present – the market is anticipated to respond in a certain manner – therefore, people change their investment positions around this, and the price of these shares change – how much of this is a self-fulfilling prophecy is anyone's guess – regardless, the historical numbers don't lie When it comes to investing – whilst emotions can be the catalyst to your response, which may not be rational or in your best interest, people believe that they are responding with purposeful behaviours when investing – that is to make the most money possible – or to avoid losing money – even if the end result does not work out in this manner – i.e. you end up losing money – you still are acting in a purposeful manner – even though it may not be rational or work out for us in the long term - we have myopic risk aversion built into us epigenetically There is no such thing as perfection – a humans we will always get things wrong – but our behaviours to help avoid further losses in markets is to follow crowds – if everyone is selling and we aren't is there something wrong with us? Do we not know something that they do? Our brains then think that obviously, they know more than us, then this means we also need to sell – which locks in potential losses in the portfolios This is the issue with human behaviours in the market – because the market is millions, if not hundreds of millions of investors participating in the selling and purchasing of securities which are publicly available to anyone So in the end the price of any share comes down to the sentiment of the market – supply and dema

Welcome to Finance and Fury. What does your future have in store for you? It is hard to say exactly – so instead, what does your ideal future look like? You might be thinking about next year, the year after that, or 20 to 40 years in the future – Let's say that in regards to this question – think about once you have achieved financial independence – i.e. finished your working life and are retired – where are you, how are you living, what are you doing and how are your funding this? Have you become a grey nomad, are you living by the beach, spending your time playing golf? This is a big question – if you have never really thought about this before then you probably can't form a good mental image of this without taking the time to think about it – In this case, it may be worthwhile to stop listening now and spend some time to figure this out – if you need help, or some templates, we have some at the website – financeandfury.com.au – register to the members section for free and get all the handouts and tools But if you do have your ideal picture of what your financial independence looks like - Everyone listening to this will be different in what they are picturing – having a different idea about what they want to do in retirement, how much this will cost them, and how they are going to fund this – some people will want $300k p.a. and other will want $50k p.a – I see this in my daily life in advising clients – everyone has different wants and capacities to achieve this This difference is great – everyone has different desires, dreams, things that make them happy – as well as financial recourses to turn their goals into a reality – as an individual, you have the right to choose how you live your life, both now and in retirement But as an individual, your ability to achieve your desired outcome really comes down to your freedom of choice – which comes from the freedom that society allows the individual to have – where the laws of a society are dictated to us by Governmental powers Your freedom to choose what you want to do – your ability to choose where you live, how you travel, what you do with your money are all incredibly important when it comes to determining your own financial freedom You also have the freedom to choose how you will fund this – though business, personal investments, superannuation, property – but all of these are subject to legislative risks – if the government that you live under doesn't allow property rights, or you to own anything, like North Korea, then you are out of luck – you will never have a retirement as the state isn't going to fund your retirement, and you have no capacity to accumulate wealth towards your retirement – as private ownership is outlawed – you work until you die, scraping by every single day in an effort just to feed yourself This is where Freedom is important – if you had no freedom of choice and had to rely on a centralised entity deciding for you, where if the state has the power to give you everything, they also have the power to take everything away from you But this is why we are lucky to live in this country – we have one of the most generous social security schemes in the world – but on top of this we still do have incredibly high levels of investment and financial independence freedoms – this makes me very appreciative when looking around at what is happening in other countries around the world - look around at most other nations in the world – Cubans are protesting in the streets for their freedom – they have been living under communism for decades and want their own self-liberty South Africa turning inwards on itself through rioting which is destroying economic infrastructure which will further exacerbate their economic decline with supply issues of the basics, like food, medicines and energy Or North Korea as previously mentioned, or Venezuela – where 90% of the population lives under severe food shortages – the average population lost around 11kg in 2017 alone – but those at the top live very well – not like an economically free nation, it is purely the politically connected and politicians themselves that live well – due to the centralised nature of the state What is happening in these countries is a stark reminder that no matter how free or economically powerful a nation once was – there is always the ability for it to slide into decline with governmental central planning – but also how lucky we are to not be living under a completely centrally planned economy There is one simple test to determine where the best countries to live are – look at where people want to move – nobody is trying to emigrate to nations with highly centralised governments – people are trying to flee these nations There has been a common trend through history – the only walls communist/socialist nations have ever had to build are those that are stopping people from leaving – which again limits freedom of movements Freedom to choose is the most important thing for you to be able

Welcome to Finance and Fury - Is ESG investing the way of the future and good for your portfolio? Within the last few years, large publicly listed companies and investment managers investment are really paying attention to what is known as an ESG score – which stands for environmental, social and governance – it is meant to be used as a determinant on the sustainability of investments – the concept of sustainability it is growing in prominence in every sector of the economy, but particularly within institutional investments and publicly listed companies In this episode – I want to look at what is ESG, how it is determined and scored, and can following this trend and only investing in ESG companies help your bottom line when it comes to long term returns? To take a step back – society has been moving towards greater levels of sustainability and environmentalism – with this shift – Publicly listed Companies are becoming concerned with where they fit into this – as well as investment managers wishing to purchase these companies if you are a fund manager investing in a weapons manufacturing company, is this an ethical investment based around ESG metrics? If it doesn't score well and your mandate determines that you cannot invest in low scoring companies then this would have to be excluded from your portfolio – even if the world is going to war and Raytheon is about to make a lot of money But from Raytheon's point of view – you want to be considered by professional investment managers to be an ESG company so that that institutional money can flow your way – because if you are cut off from that market, your share prices will suffer and you would be failing your duty as a board member to maximise shareholder value – i.e. providing returns to shareholders So major corporations are becoming very engaged with the parties that provide ESG scores to help not only incentives further investment in their business – but also to help determine from an outside/institutional perspective if the company is worth investing in – as public investors have shown an interest in putting their money where their values are – This has also seen the rise of many managed funds, brokerage firms, and ETF providers offering products that employ ESG criteria as the sole determinant for investment decision making – people want these products so the market is providing to meet this demand – but does following ESG scores as a criteria for an investment strategy actually work for a long term investment strategy? What is ESG - Environmental, social, and governance criteria are a set of standards for a company's operations Environmental criteria consider how a company performs as a steward of nature - can include a company's energy use, waste and pollution, natural resource conservation, or treatment of animals criteria can also be used in evaluating any environmental risks a company might face and how the company is managing those risks - For example, there may be issues related to a company's ownership of contaminated land, or its disposal of hazardous waste and management of toxic emissions, or its compliance with government environmental regulations Social criteria examines how it manages relationships with employees, suppliers, customers and communities Does it work with suppliers that hold the same values as it claims to hold? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do the company's working conditions show high regard for its employees' health and safety? Are other stakeholders' interests taken into account? Governance deals with a company's leadership, executive pay, audits, internal controls, and shareholder rights. A big one I have seen is ethics of the company, board composition and transparency – does the company uses accurate and transparent accounting methods and that stockholders are given an opportunity to vote on important issues? Do they have a diverse board, or is it all old white males? Are there any conflicts of interest in their choice of board members, do they use political contributions to obtain unduly favourable treatment, or do they engage in illegal practices? ESG investing is sometimes referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing – however – this is very similar to CSR - Corporate social responsibility Based around these criteria - an ESG score is calculated – An organisation's ESG score is a numerical measure of how it is perceived to be performing on each of these criteria – Each of the Environmental, social, and governance criteria are given an individual score then it is combined into one The key word in this score is 'perceived' - An ESG score is calculated based on how an organisation is seen to be performing – that is, how its behaviour relating to ESG issues is reported – not what it is actually doing behind closed doors Just as with the building of corporat

Welcome to Finance and Fury - The big question on many investors minds at the moment is if inflation is going to be transitionary, or something that is going to set into the economic framework for the long haul – maybe not for the next decade, but for the next few years at least – if you listen to Central Bankers, the inflation within the economy is transitionary i.e. going to last a few quarters then revert back to normal, if you listen to investment pundits, it is something that could set into the economy for the long haul – i.e. the next few years – so who is right? In this episode – we will look at inflation – an often-misunderstood concept – because when talking about higher inflation it is important to focus on what type of inflation is occurring – as well as what is important to the economy – so we will look at the core concept and types of inflation, the current causes of inflationary pressures and try to see if this is something that is just going to be a momentary shock to the economy and your purchasing power, or if it is going to be persistent for the next few years and something that could really affect not only your own wallet – but also financial markets due to an increase in interest rates, and potentially a dramatic one at that if central banks need to combat inflationary effects similar to that of the 1980s. To start with - It is important to define inflation – as many people have different definitions of inflation and what price increases are actually important to them – I talk to many people about this, it is interesting as people see inflation as something different Now - the very definition of inflation as per the government's measurement of statistics is based around price increases of a basket of goods and services – measured by the consumer price index (CPI) – IMO this is not a great representation – the collection of these statistics can be very biased, based on what is included in the basket and how it is collected – there are 10 baskets in Australia - food, alcohol & tobacco, furnishings, health, transport, recreation, insurance & financial services, housing, education and communication – each of these go through trimming (normalising outliers) as well as hedonics (adjusting for quality increases) – so it is a pure measurement of a price increase and is often an underrepresentation to the actual price increases seen An important point is that housing doesn't represent the costs of your mortgage or the price of buying a home – we will come back to this later – but as an example, the CPI for housing is a negative 0.9% over the past quarter – whilst the price of timber and construction has increase massively over this time period – so take this with a grain of salt What are these price increases, being measured by CPI representing? Goods and services we buy from private companies – which aim to be competitive – a company in a competitive environment won't increase their prices just because money supply has increased – if they do, they will lose business to other competitors – assuming the market is competitive But what creates price increases? Does a company want to charge as much as possible and make a profit? Sure – but what creates a situation where this is not possible? Competition – the more supply on the market allows for competition between distributors, so monopolistic prices cannot be charged (which are always higher than that of a free market economy) Market prices of supply and demand – Particularly at the moment, looking back over the past 18 months – coming from Supply shortages – What have we seen over the past 18 months – small business being shut down – small business has always provided some form of competition in supply – remove this you are left with only an oligopoly of suppliers, especially in the distribution services – on top of this there has also been the issue of direct suppliers, those producing the goods, like farms which have seen shut down – this creates a situation where less competition is present in both the production of goods as well as the supply chains which distribute these goods Also, you have Increase cost to businesses – labour costs of employment have been a major point of contention over the past year since government unemployment benefits kicked in – the best example of this I have seen has been in the US where there is no federally mandated minimum wage – Unemployment benefits equate to around $15USD per hour – so if a business is going to hire someone for $15USD to fill a role, would you take this role if you had to work 9-5, 5 days per week? Do nothing or work full time for the same salary? This brings up the economic cost of your time – say a role was advertising for $17 per hour, would you then work for a benefit of $2 per hour? When compared to not working - probably not – it is the equivalent of trading your time for $2 per hour – a business would need to offer well above market rates to employ people to get the people they need to

Welcome to Finance and Fury. This episode is to look at Central bank digital currencies - Central banks releasing digital currencies is an inevitability at this stage - proof-of-concept programmes are currently in the works across the globe - with more than 80% of central banks looking at digital currencies – The RBA is one of them There is a lot of cover in this topic – we will define a central bank digital currency and go through why central banks are looking at pure digital currencies as an option – We will also look at what is happening in China with their plans for the distribution of the digital yuan – but also look at the alternatives the RBA is looking at Defining the different forms of currencies in the modern monetary economy – physical and digital Physical money is easy - Think of cash in your wallet – either in notes or coins – this is physical money – when you log into your bank account and see digits on a screen – this could be considered a digital currency – but you can still convert these digits into physical money Digital currency is the name given to the electronic equivalent of physical money or cash when it is issued in a purely digital form Digital currency is managed, stored or exchanged on digital computer systems over the internet. Types of digital currencies include cryptocurrency, virtual currencyand central bank digital currency Under current legislation – you can still convert your digital currency into fiat currency, hence physical – you can withdraw digital forms of money – i.e. exchange BTC for AUD, then withdraw this AUD Currently – the digital representation of your physical money can be used via payments technologies such as online banking and electronic financial transaction point of sale – EFTPOS for short These payment methods are linked to commercial bank accounts in your own name, as well as deposit-taking mobile wallets, and gift, credit or debit cards – most people listening would have most likely used this form of payment – transferring the right to a physical currency digitally A CBDC is different to cryptocurrency – or cryptoassets based around the terminology used in legislative frameworks these are government sanctioned and centralised in their production – exactly like physical money - a cryptocurrency such as BTC or ETH does not – it is decentralised A CBDC would still have a ledger – but this would be centrally controlled and fully integrated into the financial payments system Currently - Every single day - Central banks are issuing conventional digital money to commercial banks that can then be exchanged with cash at par value – you go to an ATM to withdraw digital representations of your dollars for physical ones – the internet revolutionised this in the financial system banks used to have to store more physical currency – or at least a paper entitlement to this – to meet the demand of consumer payments - digital was never a consideration – with the decline in physical currency demand – less economic activity is conducted in this manner – so banks need to hold less physical cash - I remember going to Coles with my grandparents when I was a kid – they would take out cash for their weekly spending and pay in cash for everything – because this was how things were done in their day – today – credit and debit cards have mostly replaced cash payments In the current monetary economy - the RBA actually does issue digital currency to commercial banks through the provision of money into each bank's account within the exchange settlement account (ESA) system — However – there is no major central bank that purely issues digital currency directly to the public Whilst most currency that exists is digitised – it can still be transferred into physical currency Plus – you don't get your digital cash from a central bank – you get it through commercial banks The transfer of the monetary system from a physical currency to a digital one would be a form of a monetary reset - Let's take a step back and look at the previous monetary reset that occurred – Under the gold backed currencies – you could convert your paper money for gold at the equivalent pegged value – until this was banned by Governments on the population – in the US from 1933 – but other Central banks could still convert currency for gold under the Brenton woods system – until 1971 when any form of gold standard was abandoned Think of a Central Bank Digital Currency as a similar process of reducing your financial freedoms – you can currently convert your digital money into physical money – but when the nation adopts a pure digital currency policy, this is no longer possible – no more physical cash – everything is digitised – the same as when the population was no longer allowed to convert the currency for the asset backing it – i.e. gold This brings us to a core component of this episode – the People's Bank of China (PBoC) – which is one of the most prominent central banks globally, aims to be the first major central

Welcome to Finance and Fury. This episode we will continue looking at the crypto markets. In particular, we focus on the regulatory frameworks that have been released by the Bank for international settlements, BIS for short. One division of the BIS - the Basel Committee on Banking Supervision - released a consultation paper this month to provide a framework to every nation's regulator of financial institutions on how to treat cryptocurrencies - Now – the Basel Committee on Banking Supervision is the world's most powerful regulator of banking standards and rules – it gets to decide what capital adequacy banks should focus on, as well as what assets should be classified as capital – if you have been listening for a while, you would have heard me mention this group – they are who APRA, who regulates superfunds and banks in Aus take their directions from So this recent release is meant to provide the framework for banks on how to treat different forms of cryptocurrency on their balance sheets - if they wish to start purchasing crypto The big question of this episode is if this is a major win for cryptocurrencies, as it was initially treated as purely based around market price reactions, or is this something that could actually damage the crypto markets through a financial system takeover? Firstly, it is important to note that this paper does not refer to crypto as a currency – such as the name cryptocurrency would imply – instead, they call them cryptoassets – implying that these are assets for banks or for the financial system to hold or trade these as assets – this off the bat could be viewed as an implied intent, where in the BIS's view, existing cryptos will never be treated as a currency in the mainstream – but I wanted to mention this as I will be using the term cryptoasset throughout most of this episode when it is in relation to this prudential paper – please forgive me in advance as cryptoassets will be mentioned a lot Another important point is that this report specifically states that central bank digital currencies will not fall under this legislative framework – which also implies that this is a serious option that they are looking at and will fall under a different legislative framework – as an actual currency, not a crypto asset – which we will come back to next week Start with the introduction to the BIS report – The BIS have noted that over the past few years, they have seen rapid growth in cryptoassets – with market capitalisation of these assets rising – sitting at an estimated $1.5 trillion But while the cryptoasset market remains small relative to the size of the global financial system – there continues to be rapid developments, with increased attention from a broad range of stakeholders – these stakeholders are some investment banks, since banks like JPM, Goldman and Citi have already launched their own crypto-focused businesses – I find it hard to believe that the BIS would view individuals as stakeholders In this report the BIS brings up the normal rage of concerns with Cryptoassets – including consumer protection, money laundering and terrorist financing, as well as their carbon footprint from the electricity usage But the big point of concern they focus on is that, quote: "The Committee is of the view that the growth of cryptoassets and related services has the potential to raise financial stability concerns and increase risks faced by banks." In other words, crypto can be destabilising on the financial system – anything that provides some potential competition is destabilising if you are used to monopoly controls – this happens in all aspects of commerce – if you have a monopoly business operating who can fix prices and provide poor services, then a competitor appears, this is destabilising for your business practices, you will lose customers – so what to do? In most cases they simply buy out the competitor or have them shut down If banks were to start trading crypto using derivatives, then this could also pose a risk to the financial system The report also mentions that certain cryptoassets have exhibited a high degree of volatility, and could present risks for banks as exposures increases – these risks include liquidity risk; credit risk; market risk; operational risk (which include fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputation risks – this basically ticks all the risk boxes beyond political/legislative risk – but to the BIS this isn't a concern, as they impose these risks on the market To that end, the BIS Committee has taken steps to address these risks through producing this legislative framework – and they first started looking at this over two years ago, back in March 2019 – where the Committee published an article on the risks associated with cryptoassets – then in December 2019, the Committee published a discussion paper seeking views of stakeholders on a range of issues related to the prudential treatment of cryptoassets – rem

Welcome to Finance and Fury. This episode we will continue to look at what is happening in crypto markets. After last episode, we are starting a bit of a mini-series on crypto and digital currencies. This wasn't originally intended but I have been doing more of a deep dive into this topic and there has been some timely news articles that I want to cover. In this series, we will look at a few factors in relation to the crypto markets. Mainly governmental and financial institutional adoption of mainstream cryptocurrencies, like BTC. This series will cover the topics of firstly, el Salvador and other potential Latin American countries accepting BTC as legal tender, then Basel Regulations updates on banks/financial institutions accepting cryptos as assets and the implications this has on markets, and then to finish things off, China rolling out a digital currency that has been in the works since 2014. This may change over the weeks if I uncover any more interesting topics, but at this stage, this is the gameplan. But in today's episode – we will be following on from last week's episode where I give my personal thoughts on crypto currencies I mentioned last week that a few small nations may accept and adopt BTC – good timing – on the same day the episode was released - news that El Salvador was proposing the acceptance of BTC as legal tender came out – in the meantime, this has passed into legislation – so we will start the mini-series looking at this development Now - El Salvador has become the first nation to formally adopt a cryptocurrency as legal tender and a handful of other Latin American leaders have indicated that they would follow suit – such as Paraguay and Panama Does this really mark a change in bitcoin's reputation and acceptance on the global stage? Yes and no – Yes for developing/3rd world nations reliant on the US dollar and remittance, but no for any major economy who are standing firm on their own domestic fiat currencies or proposed central bank digital currencies Why has El Salvador made this decision? It isn't as simple as them being the first adopter in a global trend - Let's look at why – as it comes down to the make up of these economies as well as their reliance on not only remittances – El Salvador – small Latin American country wedged between Guatemala and Honduras – the last time there was this much buzz around this region was the football war of 1969, which was fought over a few issues but was accelerated by the FIFA 1970 qualifying matches – but it is a small country with around 7m people living in it But it is considered 3rd world – GDP per capita of $4k v Aus at $55k They are also heavily reliant on the USD – which is another legal tender in the country This is a problem for them as they are a net importer of goods – which means they can run out of USD – in other countries, you can just print more money – but El Salvador cannot do this Like many other Latin American nations - El Salvador's economy is heavily dependent upon remittances – this is a term for funds sent home by citizens working abroad – i.e., an El Salvadorian works in the US and sends money home to family members – then this is remittance Remittances totalled over 20% of their GDP output in 2019 – and had only been growing over time – the economy in El Salvador has been struggling for years – their domestic economic output has struggled due to their internal economic issues, so they have become more reliant on external factors, such as the reliance on inflows of USD into the country to spend – they have also had some major political issues as well which we will come back to later in the episode The Governments move to adopt BTC is a very smart one from their president – when it comes to trying to maximise the remittance levels as well as potentially increase the crypto mining in the country – it works to achieve both ends Currently, remittances are delivered by money transfer services companies like Western Union – these are centralised and highly regulated under financial service regulations – this can be complicated between boarders – some nations disallow the transfer between boarders due to money laundering and counter terrorism financing laws Then to actually make the transfer happen through a money transfer service when it is permitted, it requires an in-person visit to an office and proof of identity for both the sender and receiver In El Salvador - there are around 500 Western Union offices across the country – but most of these are located in populated areas – so some of the poorer individuals living in rural areas of the nation can have limited access Let's have a look at the current state of financial services in El Salvador - around 70% of the population is considered to be unbanked – this means that they lack access to a basic bank account – which is an issue for anyone wishing to save or conduct online commerce – this is why physical cash transactions are facilitated through money transfer services – w

Welcome to Finance and Fury. This episode we will look at crypto markets as there is a fair amount of noise being generated in this space at the moment. Just a heads up that this will be a bit of a longer episode as there is a lot to unpack. I have made my position on crypto markets fairly obvious in the past – if you haven't listened to any of those episodes, I will provide a bit of a summary of where I stand in relation to cryptocurrencies – and whilst markets price dynamics has changed substantially over the past 3 years – my position hasn't As an overview – I am not for or against them – many people have been able to create wealth through trading crypto – and all the power to them – this is great If people can successfully trade coins profitably, then this is fantastic – cryptos offer an alternative form of monetary conversion beyond traditional asset classes First – I have to explain my overall view when it comes to crypto - I like the concept of the blockchain – I also like the concept of cryptocurrencies like BTC – When it comes to the money supply and particularly the control of the money supply – I think they free market should be responsible for this – creating competition for money and with this interest rates changes based around demand and supply dynamics – Where we currently sit is a complete centrally planned money supply based around what a central authority deems as appropriate as not only the cost of money (being the interest rate) but also what the devaluation of this currency should be each year (which is the inflation rate) Put into this perspective – fiat cash is not a great medium of exchange for the population/economy – You are essentially guaranteed to lose money in real terms after record low interest rates minus inflation expectations – but it is great for those that provide the fiat but does this mean I am converting fiat money into these cryptocurrencies – well, no. If people do, then all the power to them – I hope the cryptocurrencies that people are buying can grow in prices at an accelerated pace – I personally have nothing against the crypto markets - But I haven't bought any? Well – there are a number of reasons – but the major one is Legislative risk – As we will look at in this episode – there is a massive potential for crypto markets to accumulate additional money flows – in other words – additional funds are available to purchase cryptos like BTC, ETH, or one of the other 4,000 currencies Everything else being equal – where legislation stays the same, and the interest from the population still continues to rise at the same level as is the current trend - There is potential for cryptos to go in up in value – and go up in value by a large margin – Taking this view – it is a numbers game – if most people in the world don't own any BTC but are interested in buying some, and convert AUD, USD, or other currencies for these cryptos, then the prices will go up – purely based around the numbers who don't currently own crypto - This is the potential major upside for markets – let assume that there are no governments, or central bank controlled fiats – and that these entities even if they did exist have no interest in controlling the money supply – crypto has a lot of upside to it and would probably be the new medium of exchange people would use recently released report on the State of the Crypto Marketfrom Gemini - they polled 3,000 U.S. adults, ages 18 to 65 with $40,000 or more in household income This survey included 921 current cryptocurrency owners and 1,697 consumers who were interested in learning more about cryptocurrency Now – this survey sample size is small – but they have extrapolated this data and estimated that roughly 14% of the U.S. population owns cryptocurrency This number is actually fairly consistent with other estimates from surveys conducted - This translates to 21.2 million U.S. adults who own cryptocurrency – but based around interest in this subject - This number is expected to double over 2021 – going to 42m US adults – let alone the rest of the global population There is currently a large demographic of the population who could be considered crypto-curious – these people would be those who do not currently own cryptocurrency but have indicated that they may wish to purchase some crypto soon This group is significant in size – based around the current market demographics – has the potential to include 63% of U.S. adult population This doesn't mean that every person in this group will buy crypto – but let's say that even 30% do, well this is still a large increase from the current ownership demographic- with this comes additional money flow – hence, more potential to increase the price of BTC If everyone who is curious about buying cryptos, this is fairly bullish - so assuming that everything else stays the same in sentiment – where these individuals are still bullish for crypto, hence why they are looking to purchase – then prices have the potential to r

Welcome to Finance and Fury. This week we will be looking at the Mississippi bubble. I find it a very interesting story of speculation and devaluation – creating a situation of loss of confidence in an early form of fiat currencies –– Lessons to learn from this – I get asked the question a fair bit – what happens to the value of every asset when denominated in fiat currency if fiat currency fails – and it is a good question - But in this instance the Mississippi Company bubble can help to provide some direction for an answer when it comes to what happens when people are no longer willing to sell assets in exchange for a fiat currency – This story is similar to the south sea bubble episode I did – the Mississippi bubble can actually be confused as the South Sea bubble as the collapse occurred in the same year - during this period many millionaires would be created – and the French actually came up with the term millionaire a result of his most famous scheme – but these millionaires didn't last long But the Mississippi bubble is actually more of a currency blunder than a true speculative bubble like the SS bubble – this is where the MB has an additional element to it – that it collapsed the confidence in the very currency used to finance the purchase of shares in this venture through the bubble prices of the assets The term bubble in the world of finance is normally applied to a situation when unusually rapid increase in prices of some financial commodity occurs – can occur in shares, real estate, orange juice, crypt, tulips – anything that has a price and people are willing to speculate on can enter a bubble – but a bubble isn't technically a bubble until the initial rapid increase in price is then followed by an equally rapid collapse in prices Is something in a bubble if the prices go up 1,000% - it may be, but if the price never comes back down then it moves from being in bubble territory to the new status quo The price movements depend mostly on people's perceptions – the money flow – if people think something is worth a lot or think the price will go up further – they will buy The perception is what fuels a bubble – the reality or a breaking in the perception is what causes it to come back to earth – if that reality never sets back in – or the perception meets or creates the new reality – a bubble never has to pop – but sometimes some exogenous force can piece the reality that perception has created – this is the same element with most famous price bubbles Has a lot to do with the modern monetary and financial system Let's start with looking at the history to the lead up to the MSB – We start in 1715 France – where the French monarchy was essentially insolvent – therefore the nation was insolvent (i.e. bankrupt) The French government had spent a lot of money in the many anglo-french wars – most recently on the war of the Spanish succession This is before fiat currency could finance budget deficits – gold and silver were money – if you ran out of these commodities or other nations to lend these to you, then you were in trouble taxes were raised to extremely high levels on the french population but the hole that warfare left in the French treasury was too deep So – what happens to nations when they can't pay back their debts? France began to default on its outstanding debt and people feared for the future of the nation – if you have no money you have army, i.e. no protection from the English or Hapsburgs if they decide to march an army into your nation This was also the time of colonisation - the French controlled the colony of Louisiana which was a vast settlement in the interior of North America – think of the US today – this area was most of Montana, North and South Dakota, Nebraska, Iowa, Wyoming, Kansas, Missouri, Arkansas, Oklahoma, some of Texas and Colorado and Louisiana - France was the first European country to settle this area of North America (1699-1763) – so they ended up with almost 1/3rd of the current US geographic boarders This land mass was much larger than France – but on top of this the French knew little about it – let alone where it was – this was before the days of google earth But many had heard the rumour that this land was rich in silver and gold – which was the currency Enter John Law – was a Scottish financier born in Edinburgh and had talents in both gambling and finance Law was a Scottish exile he killed a man in a duel and fled to France in 1714 – at this time he renewed his acquaintance with the nephew of King Louis XIV, the Duke of Orleans The duke became Regent of France after the king's death in 1715 – under old monarchy rule – a regency was when the rightful ruler (i.e. the male child of the king) was below the rightful age to commence rule – normally at the age of 15-16 – so the regent - served as ruler while the rightful heir to the throne matured – which at this time was five-year-old Louis XV So John Law and the Duke of Orleans got talking – the Duke was looking for

Welcome to Finance and Fury. Today, signs of financial instability that are emerging in markets – why are inflation and rising bond yields affecting fiat currencies – and what this means for markets – modern economy is interconnected and complex – so do my best to break these all down There is a growing recognition that price inflation has the potential to increase significantly in the near future It has already increased significantly in certain areas – timber/wood, food, and petrol especially in the US with the hacking of colonial pipeline The official estimates state that this inflation will be a temporary phenomenon – with it reverting back to limited to an average of 2% p.a. But the markets are more worried about the fact that this may not be a transitional phase in the short term, but that inflation is going to linger for years – hence there is increasing speculation about the need for interest rates to rise – creating further uncertainty in markets and sectors starting to de-risk from growth shares For those who are familiar with monetary policy – if inflation is above the mandate of CBs policy, increases of interest rates are the typical response It is something that hasn't really been seen since the 80s – but markets could panic that this is going to occur and with this – the growth companies that are relying on the lack of discounting of their cashflows in propping up their valuations could come crashing back to earth – specifically the tech sector of the market Where the probability of interest rates being increased is being reflected in the bond yield – in the US – the yield on 10-year Treasuries has more than doubled over the last year, Australia and most of the world is seeing the same phenomenon – all of this is occurring whilst QE is occurring to held artificially lower yields through buying up the additional supply of government bonds on the secondary market – who knows how high the yields would have spiked without QE Historically – and working in a world where fundamentals matter - equity markets have continued to rise during an initial increase in bond yields But Financial markets have become dislocated from fundamental realities – they are now more vulnerable to a change in sentiment – driven from central bank policy – this all requires a revision to fundamental theory – with an updated view to look at what the driving factors are of markets at this stage of the economic cycle Yields rising, or inflation peaking technically should have no effect on equity markets – but it is what economic responses that they point towards that do – in the modern era – CB policy and investor behaviour in response If a central bank changes their mind on interest rate policies – or how much to expand their balance sheet by through QE purchases – markets will react more than they would have historically to something like inflation kicking in – they are reacting to what a central bank will do in response to inflation – not the inflation This is because equity markets are purely driven more by money flows– i.e. money flowing in or out of share – buying and selling – which is the demand of the share market – if it is demanded, then people will buy more, money will flow into the markets, pushing up prices – the reverse is true Money flows can occur in a few forms – in response to the perception about the economy CBs - from policy like QE who are worried about rising yields on government debt Inflation rates and employment concerns – leading to changes in Interest rates - The perceived economic prospects – will GDP be strong, will companies have good profits When looking at some of the current economic prospects - commodity prices are soaring, and supply chains remain disrupted – both of these can lead to supply issues and inflation in prices of goods and services Commodities – inputs to goods and services – when their prices go up, it is passed on to consumers – Supply chains – when they are disrupted it lowers the supply of goods, and if demand stays the same then prices go up Even directly for consumers - oil prices go to petrol – coal, gas – go to power bills These factors on top of the expansions of money supply – which is expected to continue in the future – inflation rates have the potential to spike – if these are not simply transitionary through one or two quarters - higher interest rates may be brought in – which with the amount of debt and additional money supply – threaten to destabilise both financial markets and fiat currencies. For financial markets - The reality is – if interest rates rise – the money flows into assets can reduce – creating a limited price growth and if anything – a price decline For Fiat currencies – all currencies are debt – every dollar is an IOU to a central bank – with inflation, the value of these fiat currencies declines for the person holding it – so inflation for savers in a world where interest rates are zero People are converting their money for dogecoin – this says a l

Welcome to Finance and Fury. This episode is a little outside of the box, the topic comes from a listener, Mario. He asked the question of how does someone both manage and protect their wealth in times of war? and are there actual strategies that one can implement if a war was to break out? So, in this episode we will look at if there are strategies that are implemented as part of managing a portfolio to safeguard against the impacts war has on share markets and other asset classes. Before we get into that – there are some things to consider when looking at this topic – Wars are not all built the same – you can have civil war, boarder conflicts, or even major conflicts like a world war – since WW2 there has also been the potential for a full-scale nuclear war – leasing to a mad max/fallout post-apocalyptic world scenario There are always wars going on – 3 wars saw 10k more combat related deaths last year, 14 with 1k to 10k, 33 other conflicts The major consideration out of all of these - is your country affected? Countries ravaged by war suffer severe losses – in terms of life, disruption of resources, occupations Times have changed – Switzerland used to be considered an independent country – but now the world is interconnected in a way that would seem foreign to those living in through the times of WW1 and 2 Wealth has changed – used to be mostly physical – and financial contracts have changed Back in WW1 or wars before - Those who offloaded wealth – nazis with physical wealth – to avoid it being confiscated – would do so in a physical manner Gold, artwork – this would be transferred to neutral countries like Switzerland Whilst wars are awful – one piece of good news is that you probably don't need to worry about most investments if a war breaks out – especially long term This is assuming that it is a similar style of war that we have seen – if it is a major form of conflict – say the US and the West versus China and Russia – in a nuclear fallout situation – the best investment would be in your own survival – making sure you have your own food, water and power sources – But the good news - if there can be any when wars are declared – is that most financial markets tend to not be negatively affected in the long term Markets don't deal well with uncertainty well – if a major conflict were to erupt with major uncertainty, then the share markets may drop – but markets have seen many conflicts The major wars that affect financial markets have been financial wars – been raging since 2009/10 – with currency wars – but lets say a hot war breaks out – what are the safest asset classes to be in and how should you manage your funds Asset classes to look at – Defensive assets such as bonds are not that safe in times of war – this is because Bonds generally underperformed during times of war – this is for two reasons war tends to be inflationary – you see massive supply shocks, increasing prices - bonds do not like inflation most bonds pay a fixed income and have a nominal face value to be paid back at maturity – hence their value dwindle when inflation rises – so inflation will traditionally drive the price of the bond lower to compensate for this factor governments tend to borrow more during wartime – creating more supply of debt which again tends to drive prices down Historically this has been an issue - but with CBs and QE – this isn't as much of a concern, as long as QE were to increase to soak up any surplus supply – which would depend on the country How well the debt markets go really does depends on who is the likely victor of a war is – Bonds are debt issued by either governments or companies – if a war was to break out and a nations government gets overrun and its domestic companies get destroyed in their output – both see their ability to honour their debts being diminished – making the asset worthless – markets would respond poorly to this – so the price of the bonds would become almost worthless US bonds have historically been the favoured destination for investors since WWII – considered a global superpower – if a war breaks out tomorrow - the US will be the likely winner – not talking about their failed 'nation building' wars – like in Iraq and Afghanistan – there is really no winning those wars Looking at the losers of the war - Germany, Japan, Italy - fixed income had severely negative returns - German bill investors lost everything in 1923 Going back further - German bonds investors lost over 92% in real terms after World War I. Admittedly inflation was virulent in a war-torn world, and fixed income is not the place to be in such an environment. In the chaotic, disorderly environment of the war years in the Loser nations, you can't sell bonds or cash in bills any more that you can trade stocks. So in most cases – if wars break out there is little upsides to bond markets – they can fail at their defensive purpose, and also provide lower returns Shares – these actually can perform rather well through lo

Welcome to Finance and Fury. This episode we'll be talking about latest federal budget that was announced this week - and the implications this will have for individual There were many announcements in the budget – few good things like the reduced tax on innovated products – but we will be focusing on individuals Many of these announced changes haven't passed legislation yet – but very likely they will – the budget for individuals focused on taxation, superannuation and housing Personal Income Tax cuts – not too much has changed here The Government continues its Personal Income Tax Plan with the announcement of a number of measures targeted towards low and middle-income earners – the changes to the tax rates is still expected to continue as planned The aim of this is to provide immediate relief to individuals and support economic recovery by boosting consumer spending Comes from the demand side of economics – allowing people additional income to spend more within the economy to boost GDP – as the majority of our GDP comes from consumer spending, allowing people to keep most of their own money can assist with GDP – but it does depend on how the money is spent Retaining the low- and middle-income tax offset for another year The low and middle income tax offset (LMITO) was a temporary measure introduced – but this has been extended for a further financial year to the 2021-22 income year. The LMITO provides a reduction in tax of up to $1,080 for those earning less than $90,000 and will be received on assessment after individuals lodge their tax return- basically it means you get an extra $1,080 back at tax time – it starts to reduce once you exceed the threshold – but it is still more money in you pockets It is estimated that more than 10 million low and middle-income earners are expected to benefit from the extended tax cut Save the Australian population $7.8 billion in tax - the government expects the extra cash will flow towards businesses, encouraging more employment or investment – boosting GDP by around $4.5 billion in 2022-23 Right away here there is something that stands out – that they don't expect all of these funds to be actually spent – consider the concept of the multiplier effect – where $1 within the economy should lead to more in an increase in GDP – granted that this can take more than a year to potentially materialise – but 42% is expected to be retained by individuals Self-education expense deductions The Government will also remove the exclusion for the first $250 deduction for prescribed courses of education. The first $250 of expenses relating to prescribed course education is currently not deductible. The measure aims to reduce compliance costs for individuals claiming self-education expenses. This is another minor change – but at least if you are taking a course to further your income capacity in your current job you can claim the full amount of your education costs Superannuation – Superannuation guarantee increase – this isn't specifically a part of this budget as it was meant to occur a number of years ago – but the increase in SG is occurring from 1 July to 10% The superannuation guarantee refers to the minimum percentage of earnings an employer needs to pay into their employee's superannuation fund. The superannuation guarantee is currently 9.5%, but will increase on 1 July 2021 to 10% Can provide an additional boost to individuals superannuation – but might have some unintended consequences An individual's superannuation balance is expected to benefit all things being equal – i.e. same wage levels and wage growth – but SG is based around wages Most employers look at total package – what will it cost to employ someone– wages plus SG and any other benefits – Wages of $80k used to have $7,600 of SG on them – total package of $87,600 Now an employer either needs to find an additional $400 per employee or reduce any wage rises by $400 – as the new SG is $8k – this doesn't sound like a great amount in the grand scheme of things – and that is correct – but an employer with 1,000 employees now need to find an additional $400k for this – and this is just the first of the planned increases – meant to increase to 12% - or for someone on $80k this is $9,600 or an extra $2k p.a. This equates to $200k for a medium employer with 100 employees, or $2m for a larger company with 1,000 employees there are pros and cons to this Pros are that at least people are forced to have savings for retirement Examples – someone starting off their career with $50k income – works for 30 years and gets wage growth of 3.5% p.a. on average – assuming super gets 8% return p.a. 5% - $827k in super 12% - $1.044m in super or $217k more The CC cap will be increased as well to $27,500 – this is another change that was already on the cards – but is coming into effect 1 July – the CC cap will increase by $2,500 This means that people can salary sacrifice an additional amount each financial year This is a benefit – allows peo

Welcome to Finance and Fury. There are concerns at the moment when it comes to investing – and that is that markets are at their all-time highs – concerns aren't that markets continue to go to new all-time highs, but that the market falls through in the short term – what goes up must come down – the major concerns are around how far this may go down This episode – want to go through how to minimise timing risks – in other words, how to still invest now and if you see the market go down, minimise any loss but also take the opportunity to profit out of this situation To understand this concept and market timing risks – need to understand the concept of probability – which comes back to market timing risks - I get the question a lot - Is it a good time to invest at the moment? This is at the core of timing risks - the speculation that an investor enters into when trying to buy or sell an investment based on future price predictions – fer examples - I think the market is going to go up so I go all in, but then it doesn't – or I think the market will go down so I hold off, but then it goes up and I miss out - is now a good time to invest an important question – depends on what type of assets you are talking about and how you are going about investing – I always think that it is a great time to invest now – if you are talking about your expected position in 10 years time – it is about the time you spend in the market, not trying to time the market If you invest $100k today in an index fund, the probability that you would be in a positive position in 10 years' time should be a sure thing, based on past performance – future performance shouldn't be determined by past performance – but lets think about the market make up for a minute What is an index – a basket of shares – ASX300 is the top 300 companies listed on the ASX by market cap – you are buying a large chunk of companies in the large cap – but also 250 companies that may rise to be the top performers – overall, these companies should perform positively over the long term – there will be companies that do not, but the majority of the index should rise, and your position in underperforming companies should reduce as the winners take their place – it is all about probability – spreading your risk out amongst many companies to minimise the probability of loss Probability - the branch of mathematics concerning numerical descriptions – i.e. how likely an event is to occur - The probability of an event is a number between 0 and 1 - roughly speaking, 0 indicates an event that is impossible to occur, whilst 1 indicates certainty Flip a coin – you have a probability of getting heads or tails – 50/50 – Flip a coin twice – you have a 25% change of getting 2 head in a row – flip it 10 times, have a 0.1% change of getting all heads – so flip a coin 1,000 times you may see this occur Experience in the market – shows that there is always a probability of losses – but this can be minimised when investing well and implementing strategies if you are concerned about losses in the short term But – it brings up an important point of probability in markets – What is the probability that you invest now and are in a positive position tomorrow, or the next month, or the following? It all depends on timing – which can really be best boiled down in probability to luck in the short term – do you finally pull the trigger today, tomorrow, or next month? A lot of people talk about luck when it comes to investments – wrong way to think about it – Luck – when investing you make your own luck – if you haven't invested in the first place then you see the market go up – this isn't lucky – but if you hold off investing and see the market crash – is this a turn for the better? Or a lucky situation? Technically it is – but all of these situations are viewed on a short-term time horizon – Long term - You make your own luck – you either invest for your future or you don't – those who say that others are lucky because their made money investing are often those who have never invested In the short term – it is anyone's guess what markets will really do – In the short term, I am talking about day to day - month to month, or even sometimes, year to year – but what about decade to decade? It becomes very hard to be unlucky with investing when your time horizon extends out to 10 years markets have a tendency to increase in value over time – the increase in value through a long term time horizon decreases the risks for short term investing But what about the short term? Here is where things get more interesting - Lets have a look at the numbers and probability – in particular, lets look at the ASX index for investing – One good illustration of this point is the holding periods that were positive – from investing from day one and waiting – for these figures we are looking at the ASX index, probabilities differ if you select one individual share, or even 5 individual shares – but for the index 1 day (the nex

Welcome to Finance and Fury. A few weeks ago we went through the NZ government tasking the RBNZ with looking at property prices with monetary policy. in that episode, we went through why it probably isn't going to really work well – politically the perception is that the Government is trying – but for the CB to make housing affordable through monetary policy, their only real recourse is to increase interest rates which would potentially put many households into default – leaving to an oversupply in property and property prices dropping – but this may not actually create 'affordability' – it would create people who have declared bankruptcy, who then have a hard time getting another loan, plus it may lower the household incomes – affordability of property is the price of property measured against the average household income what was mentioned in this episode is that the central bank has basically said as much – and would refer back policy tips for governments to try and implement – this is the other end of the spectrum on the fiscal policy side – such as changes to the taxation system – this brings us back to today's topic – and this is one of the proposals that the NSW government has when looking at property affordability – Major changes may be coming down the pike in NSW for stamp duty reforms – may set the example for other states to follow This episode – we will look at the proposal to remove stamp duty and replace this with a form of property tax – in other words, pay less upfront tax and replace this with an ongoing tax We will also look at some examples of how this would work Most of the information from this episode is from the consultation papers, bot with NSW treasury and a few private To start with - this proposal is nothing new – one paper I was looking at went back to 1996, another to 2016 – Because if anyone was politically/policy aware back in around the 2000s – the proposal was that with the introduction of GST at the federal level, it was meant to be the replacement of stamp duty charged by the states – so the GST gets introduced, then the states remove stamp duty As is with governments – don't like to forego revenues – so GST was a double win for the states – keep collecting stamp duty and then get a distribution from the federal level through GST – which is distributed between the states Before we get into the details of this proposal – let's start at the beginning - What is stamp duty – Tax you pay on the transfer of an asset – stamp duty is triggered by a property transaction and levied on the sale price Stamp duty is also referred as a transfer duty, as it is a transaction-based tax paid on the transfer of property, both residential and commercial. The tax is paid by the purchaser of the property, based on the sale price – includes the price of the land and the building on it – essentially the market value Stamp duty has a progressive tax structure - the tax rate increases as the purchase price increases. first introduced in England back in 1694 under an act to help raise revenue to fight against the French towards the end of the Nine years' war As an English colony this tradition carried – NSW introduced Stamp Duty 1865 Stamp duty makes up a large chunk of every states revenues – NSW has a revenue of just under $32b Transfer duty - $8bn or 25% of the total revenue, land tax was about $4.6bn or 14.4% - but in total the NSW government makes around 40% of their revenues from property, in the form of transfers or ongoing land tax – note that this land tax is not rates – which are levied and collected by the local councils Interesting – one paper I looked at called Fundamental principles of stamp duty – had the revenues of NSW back in 1995 - $2.6bn was the stamp duty collection – but this made up around 43% of the state's revenue back then – today this tax, whilst it has increased by $5.4bn, makes up about 18% less as a share of the total revenue - additional taxes have been introduced since, such as on gambling, other state levies, which have helped to reduce the portion NSW has some history in reforming Stamp Duty - From 1 July 2016, the NSW government abolished transfer duty on the sale of business assets, including intellectual property, goodwill and statutory licences. Why is NSW looking at this proposal – The major reason is that over the past 156 years, stamp duty on property has become a large upfront barrier to entry to getting into the property market – not only getting into the property market, but moving from a current property into a new one - Since the 1990s - Property prices have grown, especially around the greater Sydney area – but on top of this, the tax rate of stamp duty has also grown – creating a compounding effect of the barrier to entry for property Initially the stamp duty rate was 0.5% - but on average now it is around 4% in NSW based on the average property price – it is a tried system – but on average it is about 4% - increase of about 8 times In the past 30 year

Welcome to Finance and Fury. This week the topic is from a listener, Gabriel. That is "how do you change your investment strategy over time as the portfolio value increases? more specifically, how do you see someone building a growth portfolio starting with $10,000 and what would they change when they get to $100,000? What about $1,000,000?" This is a great topic, thank you for suggesting it. Everyone is different- no one right way to go about this – I have clients invested in a similar manner with $300k to $2m – because it is the right option to meet there needs – the only difference is how much is invested in each of the types of investments that make up their portfolios I also have clients with vastly different allocations – but again, this is depending on your needs Some want long term leveraged growth, so we looked at property or geared share funds there are some factors that can be used to help determine where someone should invest – which helps to determine an investment strategy based around the level of funds invested But the best thing to do is look at the end picture – where do you want to be – and build towards that This will help to answer this question better – to answer 'what changes should be made once you have accumulated $100k or $1m', the focus should be more so on what do you need your $100k or $1m to do for you To explain this further – say your end goal is to have a passive income of $50k p.a. - $1m in todays dollars - can fairly comfortably achieve this – but only if the assets generate an income yield of 5% Obviously with cost-of-living increases over the years the nominal value you will need is greater It is great to have $1m, but if this is in cash and you need an income, you are out of luck, as well as if you were invested in one single share that doesn't pay an income, or even gold This is why having goals-based investing helps to determine this question Goals – to help work this out – for long term investment goals, there are considerations to help determine the investment strategy: Return needs – what returns do you need out of your investment? Returns have two components – growth and income – add these together and you get your total return Different assets have different return profiles – some are purely growth, others purely income They also have different factors that affect each of these returns – leverage on property, income of cash versus FF dividend paying shares at the moment Risk mitigation – do you need to protect your downside? If you are starting off with $10k – you would still probably need to protect from absolute losses. If you have $1m and are looking to retire, you might want to do this also, but is much easier to do with $1m compared to $10k: how can this be done? Diversification – ways to minimise your risk, in terms of volatility is to spread the risk out Risks – absolute and speculative – in other words, what is your risk of losing everything versus seeing some downwards price movements that are a natural part of any growth investment? Using the example above, if you buy one share with your $10k, the risks might be high for both speculative and absolute losses Now use your $1m to buy 100 companies at $10k a pop – your volatility will go down and so will the absolute loss potential Now – buy a property for $400k and use the remaining to buy shares – at $10k a pop then Now – buy a property for $400k, $550k of shares and $50k of gold – the volatility of your overall portfolio will decline further Defensive allocations versus growth components – Defensive assets Both of these factors will change over time as well – as you grow additional wealth, you can start to invest in some defensive assets to help secure your position, as well as purchasing additional assets as part of diversification The costs of the ongoing strategy – Different investment have different costs to them Looking at the strategy of buying 100 shares, that would cost you $995 with a brokerage platform like selfwealth – not too bad – makes up 0.1% as a transaction cost But now say you have $10k and want to buy 100 shares for the same diversification – at $100 each, cost you almost 10% of your invested assets to just get into the market Changes to a portfolio – CGT costs from rebalancing Also – depending on How are you going to accumulate the wealth over time can help to determine where to invest – Monthly investing, or saving up and making lump sum investments, or debt repayment and refinancing for equity releases from property All of these combined can help to work out the correct investment strategy – but remember the key factor is the end picture – what these investments need to be able to do for you. This helps to determine: What types of investments to purchase: shares, etfs, LICs, managed funds, property, gold, BTC How they should be purchased – directly, on a platform, personally or inside of a trust Also – as a quick note – any changes to investment strategies don't necessarily mean a c

Welcome to Finance and Fury. Firstly, sorry for the delay in episode, been over a week now – daughter was born last week, so been pretty busy helping care for her and trying to find a time to record in between work – should be back to normal from next week Interesting episode today – as one central bank in particular has now been tasked with the problem of housing affordability – This is the New Zealand central bank (RBNZ) – Can Central banks make property more affordable? If you are familiar with CBs – you would be familiar with the mandates that they get from the government – it is generally to keep annual inflation between a target range (1 and 3% for the RBNZ) and to also support maximum sustainable employment – trying to help job growth But in February 2021 - the NZ government formally added a clause to the RBNZ's mandate, instructing it to consider housing prices in making monetary policy decisions The change has drawn attention – firstly, what this actually means from a policy decision point of view? Interesting – as it has the potential for governments to extend further into CB policy but also – goes in a contrary manner to the prime mandate of CBs - NZ has a history in being a canary down a coal mine - In 1989 it was the first to commit to a specific target for consumer price inflation – inflation target - target helped to lower self-fulfilling expectation of endless price rises that was occurring across most western economies in the late 70s and into the 80s From 1989 to 1991 - inflation fell from 8% to 2% - Soon after, most central banks had adopted targets Why extend the mandate to consider housing prices? The western world we have been experiencing inflation for years since the targets were brought out – not talking about CPI Today the runaway inflation rates are essentially asset price inflation consumer prices have been held in check by globalisation and automation – if anything deflationary fears have existed in regards to this – which is why interest rates have been reduced and, in the process, created easy money – but this easy money has been driving up the price of assets such as shares, bonds and housing Like many western nations - Home prices have risen steadily in the pandemic, and in 12 months through to the end of January were up 20% The price of a typical Auckland home gone to $720,000 Inflation targets were brought out to reduce inflation below this level of price growth In NZ – The prime minister made campaign promises to provide affordable housing – so she has tasked the CB to consider the effects on housing as their policies have helped to push homes beyond reach for the lower to middle economic class – which includes younger first-time home buyers This isn't only in New Zealand – in western nations, homes are considered "unaffordable" (more than three times median family income) in more than 90% of cities The $220tn global housing market is more than twice the size of the global stock market – but the housing market has much additional debt – so the risks of falling prices are compounded by failed mortgages and defaults – making economic downturns worse I do find that there is some bit of irony of this policy - New Zealand's was the first CB with the inflation target – hence, interest rates became a tool to be moved to combat inflation – higher rates for higher inflation, lower rates for lower inflation – this monetary tool initially got inflation in line but over recent years, the inflation rate is below the target rage in many countries (in has been for 4 years in Aus, but not in NZ at the moment) – to help this and to try and stimulate the economy – rates keep getting lowered We are in an era of ultra-low interest rates which may be the inevitable destiny of monetary policy – but whilst CPI was declining, asset price inflation has been on the rise at massive compounding rates over the past few decades as an order of consequences from this - inflates the value of the assets beyond what they might "reasonably" be worth if interstress rates were a flat 5%. Governments worldwide have come to embrace easy money as a way to finance social programs and deficit spending, needing QE to make sure bond yields don't go through the roof – but this has created a negative effect on financial stability and housing affordability. Now the big question - Can central banks really make houses cheaper? Technically – yes – all it needs to do is increase interest rates massively to the point it puts a downwards pressure on property – but this would have some major downsides that are too great to justify this type of policy This becomes clear when considering the extent of monetary policy tightening that would be required to reliably control asset prices - Research from the San Francisco Fed found that it would have taken 8% of monetary tightening between 2002 and 2006 to completely avoid the housing bubble that preceded the 2007-2009 global financial crisis - For context, the federal funds rate has