Finance & Fury Podcast

Welcome to Finance and Fury. Today's episode is lessons from the nifty fifties – bit of a history lesson as well as looking back to lessons that can be learnt from this, to help not make mistakes of the past. This is a particular bubble and market correct that most people wouldn't be familiar with – especially when compared to the 1929, 1989, or 2008 crashes which were more world wide or a complete systematic risk This mini-bubble occurred in the US back in the 1970s – the term Nifty Fifty is an informal designation that was given for fifty popular large-cap stocks on the NYSE These shares were particularly popular in purchases between the 1960s and early 1970s This basket of shares was widely regarded as solid buy and hold growth stocks – they were essentially Blue-chip stocks - your large companies that were considered lower risk The group included names like Revlon, Procter & Gamble, Philip Morris, Pepsi, Pfizer, Merck & Co, Eli Lilly, Coca-Cola, IBM, Gillette, Wal-Mart, Disney, Eastman-Kodak, Xerox and Polaroid – a lot of these are still household-names today, although some, like Eastman-Kodak are no more Some academics credit these fifty shares as being the primary reason the US had a bull market of the between the 60s and early 1970s – But this then turned into a subsequent crash and underperformance of the market through the rest of the 70s and into the early 1980s It is interesting – because when you look at a market/index – depending on the weighted allocation of a basket of shares – the performance of the top 50 large shares on an index that has thousands of shares listed on it is more important than all of the other shares combined As an example – think about the ASX – the top 50 companies make up between 70- 75% of the market cap of the index If these shares have a negative 10% return, but the remaining 2,700 shares have a positive 10% return, results in a negative 5% return to the index – due the weighting of the index – where what is most important is that the companies that make up the most of it perform well Where this gets even more concentrated is on an index like the NASDAQ –55% of the index weighting is held in 10 companies – Apple, Microsoft, Amazon, Tesla, FB, Alphabet A & C, Nvidia, paypal and comcast NASDAQ has done pretty well over the past 10 years – thanks to the rise of companies like Apple, amazon and tesla – Similar dynamics were playing out back in the 60s – thanks to a handful of shares -the NYSE rose significantly We will go through what happened in detail – but it is an example of what may occur following a period during which many new investors start joining the markets, which are then influenced by a positive market sentiment, providing a feedback from further positive returns, ignoring fundamental market valuation metrics in the short term – then a trigger catalysis occurs and the house of cards crashes down Starting at the beginning - the most common characteristic by the companies in the nifty fifty could be described as investor optimism - Looking back in time on the Go-Go Years The 1960s were buoyant years for the US economy and stock market. From the mid-60s the term 'go-go' was used to describe an aggressive way of operating in the stock market, which involved trading for quick profits. Many of these companies were either providing solid earnings growth, or there was the expectations of solid earnings growth in the future This attracted a lot of attention and new Investors came to the market This is actually a key feature of the 1960s that could be easily overlooked – and that is that there was a massive increase in the number of investors in the US stock market Seven times as many Americans held shares by the end of the 1960s when compared to 20-30 years earlier - In the summer of 1970, the US Stock Exchange unveiled a survey showing the country had over 30 million shareholders – population of 200m – so 15% of the population – but it was previously only 4.3m when the population was closer to 150m – which is 3% of the population Chicken or the egg situation – was the rising market the reason for new investors, or were new investors the reasons markets were rising Probably a bit of both – whilst throwing in there the population growth and increased in accessibility to the market As a population grows – there are more people who can invest – as the access to invest increases, the number of people invested will also rise – but what incentivises these people to invest is to generate wealth – so a rising market can expediate these factors One of the major factors in this which shouldn't be overlooked was the increase in access to the market that occurred in the 1960s due to innovation The decade saw the rise of the professional fund manager - It was the period in which managed funds started to be established and saw large fund inflows – by the mid-60s managed funds accounted for around a quarter of all transactions in the market and this only rose over the next 10 years

Welcome to Finance and Fury. Time for value? Looking at the value rotation occurring within the share market A value rotation is a term used to describe a shift in investment behaviour – where investors start favouring value shares instead of growth shares Previous episode – inflation expectations and what is occurring to bond yields – did an episode a while back on why growth shares have been beating value – however a rotation may be occurring – where value investing may start catching up in performance Value investing – buying undervalued companies based around their intrinsic or book value – essentially involves buying beaten-up or unloved shares Over the past half decade – growth shares have been in high demand – hence they have seen their prices go up – blowing metrics like PE ratios through the roof – but this has left large segments of the market untouched and undervalued compared to their growth counterparts Over the past three months – essentially since the start of the year – the mood of the market has shifted dramatically – which may be pointing towards growth shares falling out of favour This is because the prices of many large growth companies have been falling from their previous highs Looking back on the past 3 months – the best performing investment have been the US Russell 2000 mid cap index at a 35% return since the start of the year, so under 3 months in reality – EU shares have also done well – with returns on average of 20% over this time period However – tech has started to lag behind – the returns for this traditionally growth basket of shares is sitting at 15% - this is still phenomenal though – a 15% return in 2.5 months is a good result But why the lag? This group of shares was the cream of the crop – and in the words of House of Pain – rose to the top – so is it that the rest of the market is now just playing catch up, or is there really a value rotation going on? Well – yes – there has been a rotation from growth shares into value companies – hence this lag in tech companies in the past 2.5 months – but the key question is 'Will this continue?' or in other words, was this movement just a chance to buy neglected shares within the market, pushing up demand and their prices, or the emergence of a longer-term trend? And if so, for how much longer? So, in this episode, we will be trying to answer this as well as what would drive the rotation going forward? To do this – we need to look at the state of the market and forecasts - Strong economic growth predicted in 2021 – and beyond the global economy looks set to boom in 2021 – this has been due to the anticipation of the initial hit of stimulus – Think of it as energy being introduced into a system – if you have a lot of glucose, or sugar, you can get a bit of an energy high – but this energy can soon burn out When looking at the underpinnings of growth predictions in 2021 At the moment, massive levels of fiscal and monetary stimulus have been brought to bear on the global economy Levels as a percentage of GDP not really seen since the world wars in government spending – but what is different is that governments are already starting off at a very high debt to GDP level – based around economic theory, technically has less bang for your buck Looking at the US – post WW1 – there was debt of around $17bn, 16% of GDP – then by the start of the great recession and the introductions of the New Deals by FDR – this rose to about 42%, or $40bn, by the end of WW2 was sitting at about $270bn, or 118% GDP By 2020 – debt was $23 trillion and 110% of GDP – now it has jumped to $27 trillion as an estimate and 136% of GDP Now, the US is about to enact a US$1.9 trillion package on the heels of the US$900 billion program just passed in December last year – will mention that the majority of these packages have nothing to do with relief for Covid affected businesses or people – but the market has responded positively On top of this, the Federal Reserve did as much quantitative easing in six months last year as it did over the initial six years from its implementation in the post-GFC measures – i.e. from late 2008 through to end of 2014 Other countries across the globe have also been aggressive with their policy stimulus in 2020 – in Aus we have gone from 46% debt to GDP to an estimated 70% Australia has started to engage in QE – and this is beginning to ramp up as well to help keep bond yields in the target range close to the cash rate of 0.1% The result – investors and markets became bullish – this has become well known – growth shares did very well based around lowering interest rates, funding costs, and lower inflation The outlook for 2021 is considered to be strong – there is a consensus view amongst economists – so take that with a grain of salt - what is now more critical is whether this strong growth momentum can continue beyond this year once the stimulus expectations are priced into the market – then, how strong will growth be in 2022, 2023 and be

Welcome to Finance and Fury. In the last episode I went through the bond market and how inflation expectations being on the rise are having their effects, yield curves starting to steepen. So what will happen to other asset classes? In this episode we will look at this question. If the trend of nominal yields continues, what will be the effects on different asset classes, cash, shares and gold? Before we get into that – quick recap that when talking about yields, it is the returns on bonds expressed as a percentage bond yields are inversely related to the bond prices. The lower the price, the higher the yield, and vice versa Bond yields have been declining since 1982 in a long-term trend – as they were nearing zero, could continue into the negative long term or reverse course – 10-year Treasury yields have fallen from 15.8% 40 years ago There are fears that due to the economic recovery plans for every nation being printing money for stimulus measures – that this could lead to an inflation outbreak – hence, this recently led to a rise in bond yields Happened in most countries – in the US the yield on 10-year bonds were 0.91% at the start of the year – in a matter of a two months they went to 1.49% then 1.61% before declining to 1.42% The Australian 10-year rate jumped to 1.93% and this spooked the share markets Also, important to understand the nature of money flows – and that is that different asset classes compete for your money, as well as institutional money That is where the yields on bonds (i.e. the returns) can affect other investments prices by competing for investors money – supply and demand – if more money flows into one asset class in the expectation of additional returns over another – that is additional demand – so if the supply stays the same, prices should naturally go up Bonds can be seen as a safe harbour – but if bond have a negative yield, people may hold cash for 0% interest rates or Gold instead – so currencies can move or the price of gold also move if people are selling bonds and reinvesting in another safe harbour When making an investment decision – there is always an opportunity cost – i.e. what you forego in not choosing the next best alternative - the opportunity cost of an asset is what you give up by owning it – so the OC for investing in shares could be the yield on a bond – which may be dependent on the risk or return profiles of an investor However – there has been an increase in the amount of money supply – increasing the amount of money that can flow – the increase in the money supply has been flowing into bonds initially through QE – this can then be used for the reinvestment into other assets – where the money flows could be based around incentives of returns This is part of the theory as to why QE can lift share prices as well – super funds or other institutional investors selling their bonds in the secondary market to CBs and then using their new found cash to repurchase other asset classes policymakers have distorted traditional free markets – the efficient allocation of scarce resources To start looking at asset classes - Quickly go through the dollar, or cash in general No surprise to anyone that the real value of cash is generally declining – the additional supply of money naturally devalues cash in each domestic country depending on what is happening to the supply Between countries - There are a million things that can affect currency exchange rates – interest rates, net exports, but the big thing for the value of money that is relevant to this episode is specifically inflation – Cash is used as a Medium of exchange – exchange for goods, services, but also as savings or an investment – holding cash has an opportunity cost – it is actually rather costly to hold cash in real terms if inflation does materialise – imagine getting an interest return of 0.5% if inflation is 3% - negative yield on the money of -2.5% p.a. Central banks have essentially put a cap on interest rates for a number of years – in most countries they say that interest rates wont rise for 3 years - at the same time as rising inflation expectations means that there is an asymmetric risk to the downside in real interest returns All the new stimulus and associated dollar printing by the Fed and other CBs does not bode well for the cash's future - The major thing with dollars is that they will lose their real value – this then in turn incentivises the disposal of this cash into alternative holding vehicles – why save money if you know it is going to lose value – better to buy something with it Relationship between yields and gold The historical data does not confirm that there is any positive relationship between gold and the bond market – over some time periods there is a strong correlation in price movements, some other times there isn't 1970s - the price of gold was rising and bond prices were falling while rates were increasing rapidily 1980s onwards - there has been a long upward trend in bond pr

Welcome to Finance and Fury. This episode we will be looking at what is happening in the bond market, how the RBA is struggling to maintain their targets on bond yields for 3y and 10 year - as well as some of its implications on the debt markets and government. What is going on? over the last few weeks there has been a surprise to the markets – the emergence of a higher 10-year rates on government bonds – the rates went up about 0.45% in Feb and 0.55% since the start of the year This was pretty surprising but it actually does make sense in a way – why? To start with – all we have to do is look what has occurred over the past year – Looking back on 2020 there was an unprecedented level of stimulus policies - both fiscal and monetary – QE, corporate bond purchases, ZIRP, stimulus payments The RBA announced on Feb 1 that they were doing an extension to its QE program that they started last year by a further A$100 billion - They have also said it doesn't expect to increase interest rates until 2024 Both of these are in pursuit of the central bank's yield curve control – as the RBA is trying to target the three-year yield rate at 0.10% The same day as the QE extension announcement, the RBA purchased A$3BN in three-year government bonds This was done in the secondary market and completed on Thursday last week - $3bn might not sound like a lot in the modern era of trillion-dollar stimulus measures - triple the normal amount – the yield on the April 2024 bonds (maturity of the 3-year bonds) declined slightly from 0.13% to 0.125% - decline of about 4% - but then yields soon jumped up to 0.14% before reverting back to their original yield of 0.13% - but remember they are trying to target a yield of 0.1% The RBA is in scramble mode to try and control the yields – through their methods of the Yield Curve Control target of 0.10% on the 3Y Why are they trying to keep rates low? Government funding costs – if you are deficit spending on billions of dollars, the difference between 0.1% and 0.2% is huge The RBAs success and their credibility are starting to fall short on their target - A$3BN of additional QE proved insufficient to get the yield down to the target – as the 3Y Australian bond rate is still at 0.13% - 3bps above It is starting to appear that the RBA's Yield Curve Control is failing as the market is pressuring the central bank's commitment to the point of failure – Free market of bonds – not huge selling of local government bonds in recent days, but there was not a lot of buying. When there is less demand for bonds, bond prices fall and yields rise. So to try and keep yields low – there needs to be more demand which can artificially be created by extensions on QE – or central banks buying back bonds on the secondary market To date though - RBA had been unsuccessful in lowering yields to the levels they want – they have certainly lowered bond yields – but these are still above what they are hoping at the short and long end of the curve – i.e. the 3y and 10y bonds There is naturally an upward pressure on market interest rates – so unless the RBA can get this under control – this will flow through into making it more expensive for Government to borrow – as well as companies to borrow over a 3-to-10-year timeframe This probably won't affect you or I with mortgage rates – these are not priced off the long-term, 10-year bond yields – the rba cash rate is what matters more to mortgage rates But the Aus governments 10-year borrowing cost has jumped to 1.72% – a doubling of the yield since the RBA officially unveiled its QE program last November This upwards yield is ideal for investors, but not for the government – could threatened to unravel the local bond market – issue with compounding debts at higher yields is that at maturity, more bonds need to be issued to cover the payment, think of a balance transfer but every time the interest rates outside of the grace period starts to increase – compounding the risks that is why the RBA took emergency steps to show markets who's boss with the increase in bond purchases – beyond the 3 year bonds, they will take aim at the longer-term debt the RBA said it is buying A$4BN of longer-dated bonds which is twice the usual amount However – similar to the 3y yields, the RBA may sit back and watch as their policy has less and less impact in controlling the yields of government debts, as they purchase more and more the RBA now owns $18.5 billion of the $33 billion April 2024 bond – 3y bonds issued As previously mentioned, The RBA have said they don't expect the cash rate to rise until at least 2024 – but the bond markets are challenging this idea as well - The market is pricing in a jump in rates - with the yield on the November 2024 bond blowing out to 0.36% This has lifted Aus bond rates quite a bit higher than US yields and that means that there will be probably more demand and more buying of Australian bonds - pushing up the Australian dollar The rising AUD also puts pressure on th

Welcome to Finance and Fury. Are sectors of the share market in a bubble, one in particular that comes to mind would be the US tech sector. There have been many bubbles in financial markets throughout history – if enough excitement is generated around some new asset, or commodity that is seen as the next big thing and everyone starts buying – bubbles can emerge in prices covered some of them, south sea bubble, tulip mania – one that may be the most similar is the dotcom bubble – But how exactly is a bubble designed? And what metrics can be used to measure this The traditional definition of an economic bubble – "An economic bubble or asset bubble is a situation in which asset prices appear to be based on implausible or inconsistent views about the future. It could also be described as trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value." However – the intrinsic value – or fair value of an asset can be fairly subjective – especially for new or emerging companies or assets As an example – think about CBA for a minute – the fair value should be one of the easiest to calculate as far as shares go – underlying earnings are well known – forecasts also pretty easy based on the business model and the availability of their financials and stability in their results meeting market expectations Many analysists cover it – the price tends to be around what the fair value is estimated to be – the fair value between brokers ranges from $78 to $90 – and so the price ranges between these – currently trading at $82 There isn't much growth estimated in CBA – what about tech companies – or emerging businesses that are forecasted to have massive growth? This is when bubbles can emerge – nobody wants to miss out on the potential growth in the future – so everyone jumps in today – pushing up the price to what may be fair value in 10 to 20 years But some companies can get to the point where they are still losing money – have many competitors – don't have market share – but yet they are trading as the next big thing – which they well may be – but it is speculation – One company in a whole market doing this isn't a bubble – this happens all the time – you get some companies go up 1,000% - before crashing back down to earth But when a whole sector of the market – or the whole market in general is trading at a massive forward PE – this could be starting to look like a bubble territory I was reading an article that ray dalio published – about how he has a "bubble indicator" that helps to give perspective on each market What is the bubble indicator - What I mean by a bubble is an unsustainably high price, and how I measure it is with the following six measures. How high are prices relative to traditional measures? - The current read on this price gauge for US equities is around the 82nd percentile, shy of what we saw in the 1929 and 2000 bubbles. Traditional measures are estimates like PE, yields and future earnings. Are prices discounting unsustainable conditions? - This measure calculates the earnings growth rate that is required to produce equity returns in excess of bond returns – this looks at the fundamentals of a company based around the discounting rates – i.e. a 10y gov bond. Currently this indicator is around the 77th percentile for the aggregate market. This indicator shows that while stock prices in aggregate are high in relation to the absolute returns they are to provide, they are not extremely high in relation to their bond market competitors. In both 1929 and 2000 this measure was at the 100 percentile- interesting about this is that the real returns on bonds change with inflation expectations as well How many new buyers (i.e., those who weren't previously in the market) have entered the market? - A rush of new entrants attracted by rising prices is often indicative of a bubble. That is because they are typically entering the market because it is hot and don't want to miss out. Many new buyers don't have any experience with markets (hence new buyers) – so the warning signs of a company being overpriced can be missed. This was the case in both the 1929 and 2000 equity bubbles. This gauge has reached the 95th percentile recently due to the flood of new retail investors into the most popular stocks, which by other measures also appear to be in a bubble. How broadly bullish is sentiment? - The more bullish the sentiment, the more people have already invested, so the less likely they will invest more and the more likely that they will sell. The aggregate market sentiment gauge is sitting at around the 85th percentile. Once again, it is heavily concentrated in the "bubble stocks" rather than most stocks. Also - IPOs have been exceptionally hot—the hottest since the 2000 bubble. The current IPO pace has been brought about by the sentiment previously mentioned, as well as the SPAC boom - special purpose acquisition company (SPAC) is a corporation formed for the sole purpose of raising inve

Welcome to Finance and Fury. This episode will looking at infrastructure as an asset class, to see if it can help to provide some diversification for portfolios and decent moving forward. Infrastructure – physical assets that provide services that are essential for us to live our lives. The aim is to invest in assets that if the market booms or busts, it provides some diversification to traditional asset classes. Traditional Asset classes – Defensive – Cash, Fixed interest (gov, corporate bonds, credit) Growth – Property, Shares – Australian or international Where does infrastructure sit – still in the growth category - In my view – can help to provide a real asset can play a role in an investment portfolio – two component for reasons to invest in infrastructure Diversification – infrastructure allows an investment in lower correlation to other asset classes – however, depending on the type on investment purchased, some may have "higher beta and therefore less diversifying" Real use – value – investment in areas that we generally interact with these essential services every single day, gas, water, electricity, transport Traditional infrastructure Transport – seaports, airports, major roads, bridges, tunnels Utilities – Power generation, energy distribution and storage, water, sewage Renewable energy – big asset class moving forward Communication – network towers, satellites, phone networks Infrastructure at the moment is potentially undervalued due to not seeing the same rebound as many other growth investments over the past 6 months – oil prices also went down – the year returns haven't been great – effects are cyclical - there may be an opportunity today from a pricing perspective - the market has marked down real assets and infrastructure at the moment - Lot of money being spent on infrastructure – there is a major need in developed economies for revamping of aging infrastructure, and for new infrastructure projects In addition - emerging markets which have their economies growing as well as their population's wealth increasing, the demand for more and better infrastructure continues to rise But government budget pressures have been affecting their ability and willingness to fund infrastructure projects, creating more opportunities for private capital in the asset class – however, with the invention of green bonds as well as cash rates for funding being close to zero, this could increase the amount of money available to fund projects Benefits – Predictability of cashflow - Infrastructure assets usually have a pretty high level of visibility and security when it comes to their future cash flows. When talking to fund managers, they say that they look for projects that almost have guaranteed revenues – those that are underpinned by regulation or long-term contracts with highly creditworthy counterparties - such as governments – compare this to other companies where their cashflows are not as secure – the valuations can be hard However – most infrastructure could be considered to be a Public Private Partnerships - where the public sector partners with a private sector company - The private sector company develops, constructs, finances, operates and maintains the infrastructure, and the public sector pays for those services -the concessions for the assets are often granted over lengthy contractual periods, which can be over 30 years – so the cashflows can be relatively secure Also – they have Inflation-linked revenues - The revenues that infrastructure assets earn are often linked to inflation - rates of return set by regulators frequently linked to future inflation expectations in in a long-term contract. A competitive advantage – A lot of the time, infrastructure assets have a form of a monopoly in the services that they provide – or in other cases, they operate in markets with high barriers to entry Therefore, the assets cannot be easily replicated and often remain free of the competitive pressures confronting more traditional organisations – so again, the risks that an established project all of a sudden has a new up coming competition are very low – helping to reduce uncertainty risks The Essential nature of infrastructure and correlation – People tend to use these essential services on a daily basis and that utilisation (and returns) can often depend less on the economic climate at a point in time than other investments - Because of that essential character, economic factors often have less of an influence on infrastructure assets than on numerous other businesses, which can assist in delivering stable returns through market cycles infrastructure as an asset class, particularly unlisted infrastructure, has historically demonstrated low levels of correlation with other growth asset classes – can help to reduce volatility of a portfolio The risks of infrastructure Too much leverage and interest rates Debt and the cost of that debt can be a big factor in the future performance of a project – Technically –

Welcome to Finance and Fury. What is stakeholder theory and what does it mean for capital markets and investments? World Economic Forum annual agenda occurred a few weeks ago. One year ago, the World Economic Forum launched a new 'Davos Manifesto' in support of stakeholder capitalism – this year – stakeholder capitalism, or stakeholder theory was at the forefront of many of the agenda's What is stakeholder theory – like many things, the definition has changed over time – Originally - Stakeholder Theory is a concept from R. Edward Freeman (American Philosopher and Professor) when he introduced it in 1984 – it was a theory of organisational management and business ethics – aimed to address morals and values in managing an organisation - The theory argues that a firm should create value for all stakeholders, not just shareholders Since the 1980s - there has been a massive rise in the theory – as well as an expansion on what is defined within the term value and who is considered a stakeholder From R. Edward Freeman - "The 21st Century is one of "Managing for Stakeholders." The task of executives is to create as much value as possible for stakeholders without resorting to tradeoffs. Great companies endure because they manage to get stakeholder interests aligned in the same direction." The issue with this is the concept of providing value without resorting to tradeoffs – is this actually possible? Individuals and companies have to make decisions every day – with every decision there is an opportunity cost – and likely a tradeoff Today - Stakeholder theory is closer to a version of corporate social justice – or in other words, the concept of equity in the world and a merging of company's responsibility for communities (who are technically non-stake holders) To explain this further – Equity (in the non-financial sense) is about outcomes – the fairness of an outcome - is not equality of opportunity – but equality of outcomes unlike equality of opportunity – equity actually requires the different treatment of individuals and different distribution of resources to get to an equitable outcome – if you have $10,000 in shares but your friend doesn't, that isn't equitable, you should technically both have $5,000 – if you earn $100,000 but your neighbour only earns $50,000 – that isn't equitable This is one of the big changes in stakeholder theory – that is the growing support in calls for equity – Under this theory business firms should entertain all kinds of noneconomic goals and outcomes. No longer may owners simply concern themselves with profit or loss, but instead must consider the broader societal implications of everything their business does. Social media has really helped to accelerate this – when looking at the online presence of massive companies – it is all about cultivating an image of social responsibility – PR teams working around the clock to support any cause that is in vogue – Whether corporate leaders concern themselves with social justice out of genuine desire or merely to avoid backlash is an open question – to find an answer it helps to look at what a company does versus what picture they have on Under the original conception of stakeholder theory - businesses have four primary elements when it comes to stakeholders - namely owners, managers, employees (or suppliers), and customers All four have skin in the game – they either have invested money in the company, are employed by the company, require the company to buy their goods/services or in turn, buy this companies goods and services – at every stage each of these elements has their own money or income is involved in the decision-making process – Each of these individuals are making tradeoffs – making decisions based around what they believe will provide them the greatest value Owners/Investors – tradeoff in that they could have invested money elsewhere – but do so as they see value in investing in the company Managers/employees – trading their time/effort for an income – the income needs to provide a value – i.e. enough to compensate for time Customers – have to see a value in what they are buying to exchange money Value itself – think about the value that a company can provide – even a small one – provides wealth to the owners – but based on the value it can provide to the other key stake holders Today - stakeholder theory argues that there are other parties involved, including governmental bodies, political groups, trade unions, communities, financiers, suppliers, employees, and customers – extension to include governmental bodies, political groups, trade associations and unions and communities – which means every person on earth WEF agenda this year: "It is also a system where companies, government, civil society and international organizations are recognized as equal partners, and where they all pursue a common goal: the well-being of people and the planet. It would prevent economic inequality to get out of hand in the way that it did." The di

Welcome to Finance and Fury. In this episode, we are going to look at some of the potential fallouts from the GameStop saga – looking at market disruptions, market integrity and the ongoing implications of potential regulation changes If you want an overview of this – check out last Mondays episode. But in short - Gamers are good at playing games – when they know the rules The rules of the financial game are starting to be more understood by people online - Some people on reddit were paying attention to the Form 13F filings in the US for hedge funds – have to be lodged each quarter– saw that GME was heavily shorted by a few funds, The one firm that received the most attention, Melvin Capital had heavy short positions The price of GME has come back down a fair bit from its high point last week, was sitting at around $60 on Friday last week – but there was a gradual increase from around $18 at the start of Jan to around the last week of Jan – when the price started to sky rocket – went up over $400 – triggered a short squeeze where funds were trying to get out of their short positions by buying back the shares – but there either went enough shares, pushing prices up further or you had to accept a massive loss Even buying the shares back at $60 would still result in a big loss – most got into the short positions between $4 and $10 There are some estimates – hard to get a total for all the funds that lost money – but Losses total losses were estimated to be around $70bn from short positions within the hedge fund community – Melvin Capital lost around $13bn of their capital – loss of around 53% in the fund So in this episode – I want to go through the nature of this market disruption, and the greater implications of this – from the market integrity point of view as well as potential regulatory responses To start with – discuss the nature of Market disruptions – through innovations One view that I have about this whole saga is that the disruptions are due to innovations – both human and technological It is a bit of a paradigm shift – humans are adaptive creatures – if a group of online investors managed to push up the price of a company, where some made some decent money, while causing massive losses to institutions, what is to stop this from happening again? When looking at the evolution of humans and technology, it can help to paint a picture of what may happen next in financial markets – the basic trend occurs as follows: Disruptive companies or trends start- normally start small or at the low end of a market – these start out with a focused/niche group Existing powers that be (companies or groups in the social dynamic) ignore this new competition – mainly because it is small – so either poses no threat to the loss of customers or there aren't enough people to affect change Over time successful trends or disruptor climb the value chain – with companies, they offering better products and services, with social groups, it also provides value – community or prestige Eventually – these disruptors grow to a point of being legitimate competition - the existing powers that be either fail or adopt the disruptor's models, and the whole cycle starts over again Much more to this cycle – but when viewing the recent rise in retail trading through this model – it is following a pretty classic disruption model The emerging disruptive trend in markets – coming from retail investors in combination with technology – have access to low/no cost trading platforms as well as chat sites/social media that binds them together – so they can move trades as one They have been overlooked by the powers that be – relatively small -but when taken at the aggregate level, especially now with stimulus checks coming in – they each have an additional $2k ($1,400 more coming on top of the initial $600) As a group – the common knowledge of gambling and gaming is relatively strong Therefore, it is pretty easy to assume that this style of behaviour will grow and have further influence on financial markets The big lesson about disruption – is that once the ball gets going, it rarely stops – unless diverted – which is where 'market integrity' will come into this - If this does continue – what are the risks of short squeeze a large credit shock can traverse through the market - how can last few weeks squeeze activity affects the rest of the (institutional) market? It all comes down to the leveraged nature of trades Aside from a broker/hedge fund not being able to meet margins calls or close out a position - most of the hedge fund industry is financed – in doing so, its beta is close to 1 from their net exposure x leverage In other works - if your (long-short) exposure is just 10% of gross values but you are levered 10x then your ultimate NAV beta is still about 1 Trouble is - even the largest brokers will only allocate so much 'regulatory capital' towards Prime Brokerage; after which they will raise the cost of financing Morgan Stanley and Goldman (the t

Welcome to Finance and Fury. In this episode, we're going to cover the GameStop saga. It's still ongoing at the time of recording this, so new information may be out by the time you listen. I wasn't going to cover this topic – I saw this first pop up either Monday or Tuesday last week – looked like a funny story – retail traders sticking it to hedge funds – but has evolved over the last week to something much more – and has been making headlines everywhere – in this episode – want to give a quick recap about what is going on, between the initial rise of the GME shares, the market interference by Robinhood, why this went on and the greater market implications, looking at short selling and hedge funds in general – so lots to covers To start with – what is the GME story - GameStop – GME – brick and mortar game retailer – owns EB games GME price history – Over the years brick and mortar retails have lagged behind – Steam, amazon, many online gaming services – Back in 2013 the price was around $50 USD – by the end of 2015 – trended down to $35, 2017 was in the $20s, then by the start of 2020, was around $4 – then with the lockdowns – many people thought this would be the final nail in the coffin – go the way of blockbuster – Many things have happened since them that are positive for the company – new billionaire investors/board members who have come aboard with expertise in e-commerce – which is where gamestop needs to head to survive – then new PS5 and Xbox came out – prices started to go up – but funds stared to double down on shorting positions – So by the start of 2021 – there were around 71 million short positions taken – to put this into perspective – GME only has around 70 million shares – but around 20% of these shares are owned by insiders (CEOs, board members, etc.) – on top of this – managed funds and indexes own a large chunk as well – this takes the number of available for trade down to around maybe 30 – 40 million Short selling – if you think the price of a company is too high or is going to go down – or is already trending downwards – you profit off this through 'shorting the share' You borrow the share off a broker or market maker – you then sell that share – taking the cash – you then wait – and if the price goes down – you buy the share back at a lower price, return that share from the lender and make a profit in the difference – As an example – Share A is trading at $2, I think it will go down – so I log into my brokerage account and apply for a shorting position – some fund which wants to hold this company for a while will then lend me this share, I sell it – then a few weeks later the price goes to $1 – I buy this share, return it to the fund and make a profit of $1 However – the net profit will technically be minus the borrowing costs – this is what can make this trade very risky – the fee to do this may normally be a few percentage points to the lower end of 1% - for some large companies is about 0.5% - so off this trade I will pay $0.1 so have made a $0.9 profit – still not bad But - Say you short a share – and the price goes up – well, why not just hold on for a long time and wait, hope and pray that the price comes back down at some point? Well – because you have to pay an ongoing fee for this – the fee is dependent on a number of factors and will change over time – but lets just say, that if the prices goes up – this fee gets larger This makes shorting closer to gambling in the short term that you are correct on your position - That is what shorting is in a nutshell – So as a quick recap - hedge funds were shorting GME – price started to go up – the hedge funds doubled down to the point there were around twice the number of shorted positions to available for purchase shares – People on Wallstreetbets realised this – companies like Melvin capital management was going to short on GME – Wallsteetbets – subreddit – has about 2 million members – but has a wider reach in the investor community People in these forums investors online on reddit decided to put a squeeze onto these firms – These investors banded together and started to buy these shares Market cap at around $4 per share is $280m – went to around $1.4bn at $20 per share - so if you get 2 million people are they each buy a few shares, say $200 worth each on a nil brokerage platform like Robinhood – then that is $400 million flowing into this share – If they then buy all the available shares – so 25-30m in total and hold onto these – pushing the price went up massively in a short space of time and limiting the supply of shares to buy back to exit the short positions – this triggered a short squeeze – Short squeeze is where people with a short position desperately try to buy the shares back to exit the position – they will still lose money but hope to cut their losses But when there aren't enough shares to go around – the price goes up massively – This is what happened – price had a gradual increase – from Aug when the good news was

Welcome to Finance and Fury. This episode on about how to invest in Asian markets and how to avoid some of the biggest pitfalls in these markets – I have covered the Aus market, and the US market in detail, but haven't covered much on a giant portion of investments that are available – that is Asian markets Why would you want to invest? Number of people in this region is around 4 to 4.5 billion people – or over 50% of the world population Along with this – comes the companies that provides goods and services to these individuals Has the potential for market returns – how? Companies performances are based off supply and demand - Diversification – considered emerging markets – has growth potential that isn't as correlated to issues in the west Countries – and their respective markets – go through the list – some of the market caps may be a little old - hard to get up to the minute data on these Tokyo Stock Exchange – Japan - June 2020, the exchange had over 3,700 listed companies, with a combined market capitalization of greater than $5.6 trillion Shanghai Stock Exchange – China – around $6.72 trillion – maybe around 1,200 companies (hard to get estimates) Shenzhen Stock Exchange – China - $3 trillion market cap - maybe around 1,700 companies (hard to get estimates) Other nations close to China – HK, Taiwan Hong Kong Stock Exchange – Hongkong - Market capitalisation was $6.5 trillion at the end of December 2020 – 2,600 shares Makes sense that this is around the same size as the Chinese markets – go through why in a minute Taiwan Exchange – Taiwan – $1.5 trillion, 900 listed companies Singapore Exchange – Singapore - $650 billion – 700 listed companies Bombay Stock Exchange – India - $2.5 trillion market cap, with 5,500 listed companies National Stock Exchange – India - $2.5 trillion, 2,000 listed companies Korea Exchange - South Korea - $2.1 trillion market cap, with 2,400 listed companies The Stock Exchange of Thailand – Thailand - $500 billion, 600 listed companies Indonesia Stock Exchange – Indonesia, Jakarta - $600 billion, 700 listed companies These have been some of the bigger ones – there are plenty more – but in the interest of time – move on But in total – out of these markets – there is a market cap of just under $32 trillion and 22,000 listed companies available for purchase – As comparison - Australia's market cap is around $1.6 trillion USD, with around 2,400 listed companies – so these Asian markets have a market cap around 20 times larger and 9 times the number of companies Some of the growth potentials over the past few decades may look huge as well - China – probably one of the biggest rises in economic growth and wealth in human history – opening up their free markets – anyone would be crazy to not invest in the Chinese market, right? However – it isn't all rosy – Within the Asian markets – there can be many pitfalls – to start with – China is a good example – and how companies that surround China can also be filled with landmines of companies – to start with – a simple explanation of the problem would be to say that China's listing process on the exchange is over regulated and then beyond this, it is not regulated enough – that is where out of all the markets mentioned above – china stands out for one major reason Stock exchanges around the world are mostly non-government companies – they are a market place provider – exchange in shares – Think of these companies as a service providing company – allowing you to buy and sell shares through an exchange – brokerage accounts allow for the transactions to take place – but the exchange itself allows for market pricing – where all brokers, i.e. buyers and sellers can come together As an example – the New York stock exchange, or the ASX – all regular companies – all ironically listed on their respective exchanges that they provide these services for – you can buy ASX shares on the ASX In china however – the Shanghai stock exchange is a government agency – the government sees this as a public service which they wish to handle – in theory they are a communist country – in my view, this is only in name – closer to some form of authoritarian country that is not as far left as communism on the economic scale – In relation to their share market – this does creates a few issues – The CCP has control over what companies get listed and those that don't – these companies can earn profits – which is why I don't think that China is communist in anything but name There are high levels for barriers to entry to markets in general – there are requirements on listing in every country – If you want to list on any market in the world – each exchange – i.e. the company that is providing the exchange service as well as the regulator, say for instance the ASX and ASIC – they have their set rules that you need to follow to be eligible to be listed – meet a certain market cap, conduct an audit service – Have a third party – normally an investment banks do book builds to w

Welcome to Finance and Fury. Positive wealth mindset, or a growth mindset for your finances To start with – lets imagine that you've hit the lotto jackpot! Say you win $20m – it is a lot of money – enough for any person to reasonably retire on So, now that you may be able to be considered FI - what are you doing with your time? Where are you living? And how are you living your life? This might be pretty hard to actually think about for some people - it depends on much time you've actually spent thinking about it before If you had $20m of financial resources at your disposal - how would you spend your time? and what would you do? and would all your problems be solved? For a lot of people – these aren't the focus when it comes to fantasising about winning the lotto – it is on how this $20m would be spent The same goes for FI in general – the focus can be solely on the target of what we need to retire – and not on the rest of the picture – what we will be doing – This is where having a mindset not only to focus on personal growth but also financial growth is very important Going back to the lotto winner - With $20m – if you invested the full balance – you could reasonably generate around $1m of passive income p.a. (assuming 5%) – after taxes – may be closer to $524k of income (not assuming any trust structures are implemented) Does this now mean that this individual is now financially independent? FI is a two-sided problem to tackle First - it doesn't really matter how much money you have, it more so matters how you much you need to have - what would you do with your independence? And how much would that cost? This first focus is about defining what independence actually is. And that's an issue to really tackle because if you are just aiming for that million-dollars-a-year of income, and it's only going to cost you $80,000 then financial independence is almost something that may never be achieved - if you think it's a million dollars a year This brings in the second part - how much you actually have – or believe that you can have – back to the economic problem – finite resources for the potential of unlimited wants These unlimited wants can get in our way – and cloud our mindset when it comes to FI and wealth Very easy these days with social media and the internet – can see how the top 1% of the 1% live Money provides ability to have independence but creating a picture of what your independence looks like is the best place to start – which is all about having the right mindset in place A trap that a lot of people can fall into when winning the lotto is not being in a wealth mindset when they win the money – think of it as a money maturity – if you have been able to accumulate $3m over time, then getting another $3m lump sum likely means you have the right mindset and knowledge to deal with these additional funds Examples of people who win the lotto - you get a lot of money meeting all your goals for financial independence – if you win $20m you've likely got all the FI - but that's a lot of responsibility in your hands in one day. unless you've got the habits formed around money and really fully prepared for receiving that level of responsibility, it can actually go pretty wrong without a plan. It's actually almost impossible to prepare for - so last minute - to get such a large level of funds and to actually change your mindset and be ready to reach that financial independence If you are going from being broke to now having $20m at your disposal – this can create a very uncomfortable feeling – we are hedonic and revert back to our normal state of being – for someone without money – and if this is their mindset – then their subconscious thoughts can turn into actions to try and get rid of this money as soon as possible Our mindset can be our best friend - or our worst enemy I'm sure many people out there are familiar with the potential for our own self-limiting beliefs – we can be our own worst enemies Our tendencies for obsession or Rumination can get in the way of focusing on the positives or what we can achieve – Rumination is from our brains focusing on one bad factor and repeating this to ourselves - Has your head ever been filled with one single thought that just keep repeating? These tend not to be good things - tend to be sad or dark – regrets that we have – rumination is a cycle where we focus on the bad more than we do the good If this becomes engrained, this habit can be dangerous – the more we focus on the bad the more we continue to focus on the bad The issue is that we can't just turn it off – and tell ourselves to stop thinking about the bad side of things – or what we might fail at or have failed at financially Ironic process theory - White bear or pink elephant - Trying to avoid thinking about it makes you want to think about it more. If you are constantly thinking about the bad financial decisions you have made – can lead to further self limiting beliefs – which translate into actions that tur

Welcome to Finance and Fury, I hope you are all going well. Today we will be going through how to avoid financial distractions. This episode is a little bit of a follow up from the previous - as one of the comments I made was a little oversimplified – that was that if you simply spending less and invest these funds – you can achieve more in your financial future – It is not as easy as it sounds – it is very easy to say to someone spend less and invest more – but to actually achieve this as part of a goal can be almost impossible without the right tools to reduce discretionary or non-essential spending So in this episode – we will outline some of the core reasons behind spending habits and some ways to hopefully hack these in your own lives to help reduce needless spending and instead redirect these funds into towards your financial futures When I talk about spending - Not talking about needed or essential spending- but those additional spending items that can be made on impulse rather than as part of a plan This whole episode comes back to the economic question – of having finite recourses – but yet unlimited wants – but the real issue is the wants that we don't know we want until we want them – bit of a mouthful – however: the age of the internet and social media marketing has really redefined wants Think about the availability to promotions that we have to put up with – advertising everywhere and the temptation to purchase at out fingertips Facebook, instragram, amazon, ebay – all have massive market places – has increased our access to the offers put on place on an exponential scale – Before the internet – you would need to go into a local store and be tempted to buy something Concept of window shopping – looking through the window which provided a trigger and temptation – but now that window is right in your own home or wherever you are with your phone – that black mirror of a smart phone has become the new window shopping and with this – the temptation to buy has increased at an incredible rate – as now – rather than you needing to be in front of a specifics shops window – which you would physically have to travel to and be limited in choice to what that window contained – now any store across the globe is in your hands at any time of the day, on any day of the week access to technology is a great thing – when used correctly – however – marketers and social media companies know how to manipulate people very well through cues and reward triggers we are pre-disposed towards that fuel addictive purchasing habits Hence - In the modern era – our wants can definitely outweigh our resources – creating additional problems or barriers to the economic question But at the same time – we have been the wealthiest any societies have ever known on average – but our resources can be sapped by up in some pretty tricky ways – leaving us no better off long term - So in this episode – want to lay out a game plan and strategy to help curb some spending habits and instead redirect spending to your long term self-prosperity The first step is understanding Distractions and temptations Story of Tantalus – ancient Greek story - most famous for his eternal punishment - he was made to stand in a pool of water beneath a fruit tree with low branches, with the fruit ever eluding his grasp The catch was that if he reached for the fruit – it would rise out of his reach – but at the same time - the water he was standing in would always receding before he could take a drink – so he was condemned to the afterlife – to be always hungry and always thirsty – hence – his economic problems were never being met But we are different from tantalus – we are not dead – someone who is dead technically doesn't need food – unless they are a zombie searching for brains But we can learn from Tantalus and his temptations – is very similar to our modern situation – for the vast majority of the population – we may not need the things we crave – but yet still crave them – for tantalus – it was food and water – but he was dead – hence he didn't need these things – but still was triggered to yearn for these items – for us it may be a new TV or computer, or a new piece of clothing or any item that technically we can go without – due to social conditioning through social programming from advertising or other impulse triggers – we can crave these items and trick ourselves into thinking we need them If you care about your financial future – you need to become less distracted or tempted from the temptation of purchases Easier said than done - We all have temptations - mine are computer games For me – I love strategy games – either RTS or grand strategy games –Games are addictive for me – but why? Well - get to progress in an online world gives same feeling as doing it in real life - Also competition – beating others – I can build an empire and thrive online I think I have a special kind of autism that helps with repetitive tasks – but I got good at these games –

Welcome to the Finance and Fury and the new year, 2021. Hope the start to the year has been good for you all – as in this episode we will be looking at how to work on your financial goals through the year through turning these into daily habits Last episode - Stared off with a question; looking back on the year, are you in a better or worse financial position? We also went through some foundations on setting goals – but importantly – narrowing these down to 3 major goals that are of your top priority The reason for narrowing this down is due to the topic of todays episode – that is actioning them You can set all the goals in the world – but to be in a better financial position this time next year – you need to be able to implement these – through taking some action based around the plans that you set – to make sure you're always moving forward. Time can be broken down into the following: Past – What has gone on – All of your life events to this point Dictates a few things – Behaviours and habits We all have habits creep in over time – Positive feedbacks Positive feedbacks can be a negative outcome for us long term – if you take heroin – that is a positive feedback based on your neurochemistry – but the more you do the more your life may not end up in a positive place But like any addiction – you can form good habits as well – through doing a few small positive things that form feedbacks as a reward system over time Present – The now – What are you doing? Most people financial security comes from income from employment What happens if this was to go today? Is there enough to survive? This is where setting goals and having actions are what you do in the present – But undoing some bad habits may be needed in the now All in an effort to get a better future Future – This is where you want to be – which is why you need goals to know want to achieve, as this needs to be defined Plans and Goals Start With the one goal – breaking it down SMART – or What, How and why? Implement it and adjust along the way – Over time (30 – 90 days depending) it will become a habit Then implement the next goal on the list Your future is determined by your actions from now up until that point All three time phases are important – understanding your past behaviours – as these determine your current position – then planning for the future and taking action now The long term can be negotiated with But if you hit the future are aren't where you want to be, where does that leave you? That is where further self doubt kicks in – Unrealised expectations Not many people stick to new year goals – Why? there can be too many, normally people thing this is good, to have a lot of goals But if these are similar to last year and you didn't make it, why might that be? Hard to go from 0 to 100 overnight – Inertia – something continues in its existing state (rest or in motion) unless it is changed by external force Hard to start a train and get it to top speed – takes a while Same for us – once we get set in our ways – very hard to change them If you have been in an investing mindset – or a mindset to So from your top 3 goals – select just one – the most important to you now and set a timeline to be on the road to achieving this over the next 30-90 days – Be it cutting back on spending, monthly saving or investing, etc. Then once the habits for this goal are in place – move on to the next But if you are Looking to start – even with the first goal – Finding Motivation is not a good concept to look towards - What people search for is a moment of inspiration to get the ball rolling It rarely if ever comes – Why? Motivation comes from a positive feedback loop – do something good, dopamine is released in the brain, you then want to do this again We are creatures of habit – and we form habits from feedback loops of receiving dopamine – every addict has this feedback loop – heroin, alcohol – but you can use this to harness motivation as well Think about it, you don't need to find motivation to indulge in anything – Because your brain is wired to give positive feedback when you do these things you already like. If someone is an alcoholic then they may go out of their way to get a drink – there can be justifications made behind actions – but at the end of the day they will beg, scape or steal to get a drink - Part of the problem - bad things compound as well So as how do you motivate yourself to invest or achieve a goal, be it financial or not? Finding a spark of motivation probably wont work If you wait for moment of inspiration to get the ball rolling you may be waiting a long time. It's because motivation comes from a positive feedback loop – you work towards something that is meaningful to you – then dopamine is released in the brain, you then want to do this again Small action = dopamine = want to do larger actions All about starting small – if your goal is to save $2k per month, but you are currently spending more than you earn and are in CC debt from buyin

Welcome to Finance and Fury. I hope you all had a good Christmas – if you are like me might be a few kg heavier. This episode – be looking at making new year plans – new years is upon us – many people have new years resolutions. To start with - looking back on the year, are you in a better or worse financial position – been a tough year for a lot of people But in todays episode - how to be in a better financial position this time next year Going to look at how you can always be ahead on finances compared to last – through planning and then next episode is about how to act on those decisions Because - like compounding of investment returns over the years, the little things you do in your own personal life compound over time as well This can occur in both directions – both backwards and forwards What are your financial goals for this year? Or new year resolutions? Maybe you haven't thought about them yet – the new year may be a few days away – or already occurred by the time you listen to this – either way - By the end of this episode you should hopefully be able to think of at least 3 and something to put in place to help improve your financial life Now - Financial goals are related to 'what you need money for'. Many goals may relate to your personal life - Most people have goals that related to other goals outside of their finances When looking at financial goals – these will also vary between individual to individual – broken down between short and long term Short term goals, this could be saving for a deposit on a home, getting out of debt, or saving for a holiday Long term goals, I find that these are mainly around financial independence, or things that take a long time to achieve like a passive income. I meet a lot of people with goals – but most of the time these are conceptions about what they would like to achieve – not technically a concrete goal There is a difference between saying that you want to retire financially independently – versus saying that you will retire at the age of 60 with $100,000 of after tax income derived from a portfolio of shares, superannuation and an investment property Even this can be broken down further – with an allocation to each – where the IP will generate $20k after costs, the shares $15k with FC to offset the tax and the remaining $65k coming from super To achieve this though – you need to get down into the nitty gritty details But like most things – this doesn't happen overnight – can't just click your fingers and be in this position out of hopes and wishes – some work needs to be put into it But the first stage is planning – planning on what you want and how you are going to get it – The first stage of planning is clarifying what you want – which comes back to goals Looking in the short term – and relating to this episode – it may all be about being in a better position in 12 months' time compared to where you are today – but What does this look like? What you can do – In general terms – there are categories which most fall Reduce tax, save money, build wealth – start investing, Increase income – Salary, investments Hard to generalise these things – but at the same time – each of these are simply a wish list – not actual goals – hence why setting goals around these is important If you wish to reduce your tax – by how much – and is it possible – then how will you achieve this? Of if you wish to build additional wealth – by what mechanism will you achieve this by? So - What are your financial goals? Not many people stick to new year's goals. There can be too many, normally people think this is good to have a lot of goals But it can be a determinate – too many goals can create information overload, decision fatigue and many other psychological conditions where the easiest solution it to just do nothing different We are creature of habit – hard to implement 20 different changes to our behaviours overnight Hence – why every year, or every month – it is a building process – to create a better you – someone who every month is more on track to achieving financial goals Our wants – in other words – out idea about the wish list of goals that we may have – can be infinite – but this is simply a wish list – not actual goals Goals need to be things that you actually want to achieve and are willing to sacrifice to get there Hence why limiting these at the initial stage to a few key goals is important - The real issue is the follow through It's hard to go from 0 to 100 overnight, it's a lack of inertia. Something continues in its existing state (rest or in motion) unless it is changed by an external force So as an Example: say you have 10 goals down now, and they are all new things that you wish to implement in the new year Invest in shares, reduce your tax, buy your first house property, generate $50k of income of passive income in 15 years from investments, provide for your kid's education, buy an investment property, then buy another investment property, protect your wealth w

Welcome to Finance and Fury. This episode is about what is momentum investing and can this be the best investment strategy in a world where fundamentals mean nothing? Over the past few years – value managers – or those that try to estimate the fair value of a company and base their purchasing decisions around this have struggled to provide alpha – Alpha is the returns above the benchmark – or the index – and those active managers trying to provide value through buying undervalued companies – or those that have had short term losses – so their prices are below their fair valuations – have failed to see the rebound in prices expected from following this strategy So returns have been minimal One alternative strategy which has provided better returns over the past few year on average has seemed to be buy those companies not based around fundamentals but with momentum – i.e. what others are buying and hold these for a while to ride the wave up What is momentum investing - is a system of buying shares that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period – Seems antithetical to the age old saying of buy low and sell high – as here you are looking at a strategy that is selling low or buying high – based around the returns over a 3 – 12-month time frame – Now – there is no single consensus that exists about the validity of this strategy – but recently it has been a viable strategy for a handful of shares – At large - economists have trouble reconciling this phenomenon – I am someone in this same boat – For standard market theory - when using something like the efficient-market hypothesis – momentum strategies shouldn't be able to provide much in the way of alpha – however there are two main hypotheses have been used to explain this effect in terms of an efficient market - The first - it is assumed that momentum investors bear significant risk for assuming this strategy, and, therefore, the high returns are a compensation for the risk – in other words – more risk, more reward However – at the same time - Momentum strategies often involve disproportionately trading in shares that have a high bid-ask spreads – everyone is trying to get into them so the buyers have to buy above a price what they may otherwise wish so it is important to take transactions costs into account when evaluating momentum profitability The second theory assumes that momentum investors are exploiting behavioural shortcomings in other investors, such as investor herding, investor overreaction and confirmation bias - Hence – from this theory – there is a greater downside – that through buying into a share that has risen significantly over the past 3-12 months may result in greater long-term losses – Reminder – that there are plenty examples of this – A2M is one – others in the market – but those companies that seem to be having a massive rise in prices (which does result in returns) off speculation – what can eventually fall apart Looking back in time – the history - Richard Driehaus is sometimes considered the father of momentum investing – similar to how Benjamin graham is considered the grandfather of value investing but the strategy can be traced back before Driehaus – and in the previous market participants view - this strategy takes exception with the old stock market adage of buying low and selling high. According to Driehaus, "far more money is made buying high and selling at even higher prices." There are some reasons as to why momentum may become more of a viable strategy to trade moving forward Over the years though – technology has improved – so has the availability to trade – In the past – going back 30 years, especially before the internet – only professional investors, or those with access to brokers or other professional investors guiding the way could generally buy shares – and back then – with these gate keepers leading the way - buying a company with a negative -100X PE may be considered crazy - But from the late 2000s - computer and networking speeds increase each year, there were many sub-variants of momentum investing being deployed in the markets by computer driven models – not only from within broker models but from without – as access to trading became available to everyone Some of these operate on a very small-time scale, such as high-frequency trading, which often execute dozens or even hundreds of trades per second So not only is it that more people can now buy shares – but computers and algorithmic trading can occur – for an AI – they may not care about fundamentals at all – if the price growth is there through momentum – they will jump in as well – pushing up prices further So this increase in access and technology may have given a rise to momentum investing – essentially every one has access to jumping on any bandwagon of shares Although this is a re-emergence of an investing style that was prevalent in the 1990s – just a side note - that ET

Welcome to Finance and Fury – Vanguard bringing in some disruption to Australian markets - If you haven't heard of them – Vanguard are the world's second biggest asset manager – dealing in index funds and ETFs Vanguard – have almost $9 trillion of funds under management world wide company's incredible rise since being founded in 1974 by investor Jack Bogle – providing low cost access to indexes – originally with managed funds but recently been branching out into ETFs But they have recently been branching out into platform services on top of asset management – little while ago - came out with the Vanguard personal investor platform Low cost account to access Vanguard investments - an Account Fee of 0.20% per annum, based on the total portfolio value of your account, including any cash held, capped at $600 per annum, per account A lot of the wholesale funds have high minimum buy ins – about $500k in some cases – so going through a platform gets around this – was third party platforms but Van have come out with their own Now they are is gearing up to disrupt Australia's superannuation industry – this is a pretty big play from such a behemoth as Vanguard It all started when they announced that they will return tens of billions of dollars it now invests on behalf of super funds They are ceasing managing bespoke investments for Australia's superannuation funds – trustees outsource the investment management of the underlying assets – especially for index fund investments All as Van prepares for a disruptive second push into superannuation – first was taking over management of funds – not be direct super providers seeks to manage super accounts directly with potentially lower admin and investment fees This is big for vanguard – it is a lot of sacrifice initially to make what they likely estimate to be better fees long term Vanguard abandon up to $100 billion in investment mandates from third-party fund managers – this has been a core part of its Australian strategy since entering the market 20 years ago – manage the investments of super funds Now they want to enter the market directly and similar to the VPI platform, offer super as well Van is the second largest holder of mandates from not-for-profit funds in Aus – pretty much the industry superannuation sector The fact they have given this up – good indication of how seriously they are taking this push into the Australian super market One of the main reasons to do this and abandon their management of other super funds investments is to avoid any conflict of interest - if Vanguard to push ahead with its plans to launch an APRA retail super fund while managing the money of competitors Whilst they likely wouldn't do it on purpose – but if their competitors underperformed on the money that they were managing compared to their in house assets – raise some questions They have some history with super – It previously launched a super fund shortly after entering the Australian market, but transferred the management of it to National Australia Bank's MLC Wealth business in 2012. Some additional competition is needed – the trend over the years and what will occur in the future is a consolidation of super funds – so less competition – has its benefits – covered this in an episode a little while back - But the Aus super sector is sitting at about $3 trillion of FUM – and this is likely to continue to climb massively – Not likely to be any time soon that they come into super – may take them a year or two – if not more – It is a rather comprehensive process of applying for a superannuation licence and entering the market At last publication – Van said it was "tracking well" - with an intended launch date of mid-2021 for its retail superannuation product – but this could be delayed slightly – but still within the next year to two – but it still is a lengthy process – few reasons: Firstly – they cant easily abandon the super industry - Vanguard Australia managing director said - would not be "abrupt", giving clients up to 24 months to find another manager or bring investment functions in-house So super funds and other investment managers have 2 years to try and replace Vanguard – they have a fiduciary duty – cant just walk away Secondly – lots of due diligence and compliance that needs to be accounted for – government agencies like APRA don't work that quickly – so this may take a bit of time However – they will try and ramp up their direct service offerings – The managing director said - "We will push hard into the strategy of improving outcomes for individual investors, whether that is through a direct relationship or a financial intermediary, typically a like-minded adviser," It plans to stop providing portfolio services to third-party institutional investors, but continue to offer off-the-shelf pooled investments like Van managed funds or ETFs to investors Again – this is a big initial sacrifice for them to make - Institutional mandates and the fees they make from this have fo

Welcome to Finance and Fury. Today we'll look at how to get the right investments in super. Because super funds take care of it for people – a lot of people don't pay attention – so in this episode want to explain what to look for and how to help determine if your investments in super are appropriate – Not advice – seek advice if you are unsure What is super? Most people think of superannuation as just something your employer pay in to so that when you turn 60 you can access it. Even though your employer pays into super, that is your money! 9.5% on average don't care and why would you right? out of sight, out of mind and decades away from becoming relevant. Technically – superannuation is just a vehicle for investments that are held in a concessionally taxed environment Like having an investment account that pays only a 15% tax rate on income when compared to your marginal tax rate The only downside – is the preservation rules – where you can access it if you desperately need the funds There are different types of accounts that allow access to different investment options Super is a vehicle to invest funds for retirement – A car is a vehicle You can get a Mazda, or Mercedes but the aim is to get you from point a to b! Like cars there are different types of super accounts with different features What are your options: Retail – A Master Trust is a superannuation fund in which a large number of members deposit their money. The trustee of the Master Trust pools the money together and purchases interests in the underlying investments, typically managed funds. The value of the investments of each member incorporates the fees, franking credits and some taxes from the underlying investments. WRAP account – External super trustee but you have control over investment decisions You get a cash account Then you select third party investments – Managed funds, Direct Shares, LICs, ETFs Industry Industry super funds are multi-employer funds (employer associations and unions). Investments - limited to around 10 multi-sector investment options (eg. Growth, Conservative, Balanced) – as well as single sector investments – in an asset class Regardless of the type of account that you have - The real cost of super is opportunity cost – doing nothing now will hurt long term - Any problem ignored long enough will grow – until it is too late Pay attention and make it work – don't regret the future That is why setting up the correct investments and paying at least some attention is very important Again – the core concept for investments in super is that it is a Tax effective investment account – if you are investing for the long term, why not use? Comparison - Same investment of 10% p.a.: Compounding returns of 8.5% p.a. vs 6.1% p.a. $20,000 over 30 years = $231k vs $118k – or almost double the money Superannuation investments- Will be looking at the industry fund sector – what most people have and have covered WRAP accounts in another episodes: "What types of superannuation accounts allow you to control your investments?" Industry super funds – Not a lot of transparency but it is getting better – so it can be hard to actually know where the funds are invested – For shares – there is transparency – other investments like property, infrastructure, alternatives – harder to know Investments - Depends on account. Mostly - Premix – Conservative to high growth – Based around the asset classes that are invested in – cash, FI, property, infrastructure, shares, alternatives How much to each asset class will determine the classification – 100-90% to growth – probably the most growth pre-mixed option the super funds have The default used to be Balanced – but for someone who has 30+ years of investments ahead = might not be correct. normally a lifecycle strategy – as per your age and account balance Below the age of 40 – you might be in a higher growth investment – then after 40 they start to scale you back – This might not be appropriate – you might be in your 40s and still want to be a higher growth investor Also – most have single asset class investment options – shares, bonds, property, etc. These can be used to help beef up or reduce the allocation to asset classes Example – if the pre-mixed options don't have enough growth – then you can select some additional share allocations – say 80% to their growth option and then 20% split between Aus and Int shares Considerations when determining the right investments for super - Time horizons and goals based investing – investing is a long-term game – super can be even longer – due to the preservation rules – The longer the time frame – the longer you have to recover from any volatility losses Hence - Time in the market becomes a thing– the longer you have the funds invested, the greater your long term returns could be – Trying to guess markets and switch from high growth to cash and back again can result in lower long term returns – so keeping your super appropriately invested based around your go

Hi and welcome to Finance and Fury. Just a quick announcement today. Only going to be doing Finance and Fury Monday episodes for the rest of the year. There is a lot going on with work and life in general and I just need to cut back a bit on the episodes. Had to make a decision on which episodes to cut out, so will still be doing the Monday episodes focusing on personal finance. If you send a question through – might not be answered for a little while Just wanted to let you know Speak to you next week for the Monday episode.

Welcome to Finance and Fury. This episode will be about using your own home as part of a wealth accumulation strategy Some strategies that I plan to do First – what is a home – a lifestyle asset – is still technically an asset as it has a value – as long as someone else is willing to buy it off you I personally have never really seen a home as a financial asset - it technically losses you cashflow when it has a mortgage – and even when it doesn't from a mortgage if this has been repaid – with rates, body corporate, ongoing maintenance costs for upkeep on the property Classification – Can you live off it? anything that doesn't make you a passive income but instead loses you cashflow cant be used for financial independence Property ownership is expensive – mortgage is normally the biggest expense – PI loans eat a lot of cashflow – but the P component can be treated as forced savings that you can't use But does decrease your I payments over the long term However – whilst your own home is a lifestyle asset – it still has wealth/equity in it - What is home equity? Wealth inside of your property - Most homeowners build this over time with debt repayment as well as property price growth - which is calculated as the total value of your home minus your home loan. The equity in your home increases as you continue to pay down your loan. And if your property's value increases, your equity also increases. Not advice but a strategy – Create a separate loan facility as an investment loan to release this equity for investment purposes – Debt – Leverage – Borrowing money to invest – Agree or not - $100k is more than $50k? – it is – Borrowing to invest allows you to Increase value of what is invested Technically your net wealth hasn't increased initially – but over time this ideally can change Returns come in percentages – the greater the level invested - greater nominal returns at same percentages We are locked into same percentages for ASX – Different values Rich getting richer – more to increase at same percentages Does debt go up with inflation in value? No, you pay interest instead Why you borrow to invest in something that grows, not keep in bank account. Time goes on, your investment increases, debt doesn't. Borrowing funds to invest is a strategy known as leveraging. Good Debt – If you borrow to produce an income, normally deductible interest. Plus if you invest in something that grows, you should have a higher total return over the long term than what Bad Debt – this is the PPR loan - principle of increasing the size of an investment expected to get long term capital growth. Leverage works better from growth and not cash flow. Having it is neutral cashflow position to slightly positive is the aim to maximise leverage – especially for property Pay back loan - Lower LVR = Lower multiple of growth, but lower repayments for cashflow. Increase loan with value = Increasing multiple of growth, but higher repayments. How it works when investing outside of property Options Home equity - Borrowing equity to buy shares, or managed funds Debt recycling – borrowing more each year and using the income from investments to pay down bad debt How to start Example: Property – Initial purchase and building equity Utilise equity of $100,000 to purchase a property for $500,000 Borrowed funds – LVR 80%. Three years - 8% growth return = $40,000. Growth return on the equity of 80% - $32,000 in available equity In addition – you will have repaid some of the loan - $375k in value by this stage as well with standard monthly PI repayments – ($25k) - so in total there would be $57k of equity available Next step – deciding on how much to utilise of this and how to invest it - May not be worth it to borrow the full amount again – Taking the property back up to 80% loan may just cost you additional cashflow – Interest payments – Have to repay interest on the borrowings. The borrowing of funds against a property for investment purposes. The process involves having the home revalued – so the valuation may not have additional equity How to invest and where to invest – How to invest the funds – lump sum, DCA, or monthly investments – example of these options Lump sum – putting the $57k into the market at one time DCA – breaking up the investments for 5 months - $11,400 p.m. Doing monthly investments moving forward from the account - $2k p.m. for just under 2.5 years Aim is to try to minimise risks and maximise possible return – as the funds are borrowed, want to take some additional conservative approaches – such as DCA - Where to invest the funds – want to be diversified This is just a home equity investment strategy – taking it to the next level – it would be a debt recycling strategy Debt recycling works similar to the home equity release for investments – but you do this every year Involves refinancing and increasing the size of the investment loan each year and investing the funds In the previous example – PPR loan would be $365k – so a further $1

Welcome to Finance and Fury, the Furious Friday edition. In this episode we will look at the concept of a one world currency and if one single currency could actually work for the world? There has been an increased level of discussion around this topic over the past few years – especially with central banks looking to adopt digital forms of currencies over the next few years However – these are based on the individual country's central banks - There are about 195 countries – depends on who you ask – but working off the UN numbers – there are 195 At the same time - There are 180 currenciesrecognized as legal tender in United Nations (UN) member states Abut 15 of these UN recognised nations use some other nations currency already as their legal tender – like the USD as the global reserve currency However - excluding the pegged (fixed exchange rate) currencies of the 180 – which there are about 50 – which also peg themselves to the USD - there are only 130 currencies which are independent or pegged to a currency basket In other words, there are free-floating exchanges – with exchange rates between different currencies – If you want to learn more about this – if you haven't listened did an episode called: Looking at the factors behind the AUD/USD exchange rate movements. However – In the current financial system - these currencies are a digital form of fiat currency – This doesn't include alternative medium of exchanges that have been used and are currently used – like gold – or crypto – Technically – a medium of exchange is anything that can be used in an economic transaction as long as someone will take it – it can technically be treated as a medium of exchange But the major forms of what is referred to as Currency is meant to be the legal tender that makes trade possible – in other words – what governments allow us to use within our domestic boarders These forms of currencies are meant to make transactions easier within the economy – and for everyone within the economy – which is us If you are in Australia – you will use AUD to buy goods or services – if you are in the US – USD, if you are in Germany, you will use the EUR But is having 180 currencies of which 130 are floating exchanges complicating matters? If you wanted to travel to Europe – you can't use AUD to buy goods or services – have to transfer AUD to EUR – vice versa this begs the question - Wouldn't a one world currency be best? 180 different currencies with foreign exchange rates for each can and does increase the complexity of an already complex international economy So, wouldn't replacing all of these currencies with just one global currency be the optimal solution? This line of thinking was the whole point behind the implantation of having a Euro in the first place – A single currency zone to make it easier to travel and do cross boarder trade it isn't just about ease or simplicity for travel or trade – but was about minimising transaction costs – Banks charge costs and services – there are also risks involved with currency exchange risks which we will come back to in a minute So why not expand this concept further – beyond simply just being implemented in the EU – why not do it worldwide? Some at central banking communities as well as think tanks think so – Mark Carney, Bank of England governor, has proposed the creation of a global digital currency as a way of stabilising global financial systems and protecting international economies from trade and currency wars He has made these viewpoints widely known - Speaking at a US Federal Reserve conference - Carney said that a "Synthetic Hegemonic Currency" (SHC) governed by the public sector (governments) and backed by a number of central bank digital currencies could replace the US dollar as the global reserve currency, and that this would be preferable to the alternatives, such as the Chinese Yuan/Renminbi World already has a reserve currency = USD – maybe not for long – SDR (special drawing right) is essentially a SHC A global currency wouldn't just be implemented overnight – it would have stages and steps – have to get a cashless society – then have digital central bank currencies – then use these as a basket of currencies to replace the global reserve – like the SDR – then eventually – unlike currently where an SDR can only be used by monetary officials – it may be implemented and used by the public at large This sounds very nice in theory – I mean - Why not have one currency that everyone in the world works off? First – lets have a look at money actually is - In The Wealth of Nations, Adam Smith defines money by the roles it plays in society – there are three primary roles that it plays A store of value with which to transfer purchasing power from today to some future time – it retains its value - A medium of exchange with which to make payments for goods and services – i.e. people will accept it for providing physical goods or services A unit of account with which to measure the value of a

Welcome to Finance and Fury, the Say What Wednesday edition, every week answering your questions. This week we answer Stephen's question: "Hi Louis, I saw an article about purchasing a home inside of a family trust for asset protection. I'm just wondering if you have seen this done before and if you think it is a good idea?" Thanks for the question – this episode – look at purchasing your own personal place of residence inside of a family trust – and what the pros and cons of this strategy are - because in short – it is definitely possible to do, but if not done correctly – it can put you in a worse position Quick note – I'm not a legal expert – if you are considering this – important to get expert advice on this – this episode will just be discussing the general gist of the concept – and potential ways to avoid some of the major cons Firstly - What is a family trust – or discretionary trust – family trust refers to a discretionary trust set up to hold a family's assets – set up as a different owner of assets than someone individually owning an asset – On a family trust – you have the trustee which is the person that owns or controls the asset Corporate or individual the beneficiaries of the trust are the person(s) for whom the asset (e.g. a property) is owned – Have other entities like the appointer – power to add and remove the trustees - A family discretionary trust is probably the most common type of trust if someone was wanting to invest in a property The trustee can use their discretion to distribute the trust's income and assets to the beneficiaries, allowing the family members to take advantage of tax benefits It also provides asset protection – if you are a director of the corporate trustee – technically you don't own the assets inside of the trust So you can own lifestyle assets like you own home inside of a family trust - Quick note -this doesn't work for a SMSF – it is inside the superannuation environment and to hold any asset here – it needs to meet the sole purpose test – This is that any assets are for your retirement solely – so buying a property to live in inside of this structure breaches this and you cant live in it However – there are some Issues and considerations that need to be made for owning a property inside of a family trust – owning property in a trust for asset protection purposes will usually mean that you lose its tax-free capital gains status as well as creating land tax implications Not normally an issue for investment properties – as CGT is payable anyway as it is an investment given it gets an income However – losing this on a PPR could be a major deal – buying a home for $600k and then a decade later selling it for $1m may result in $200k of additional assessable income being taxed at marginal tax rates (getting the 50% CGT discount) – may result in around $94k of tax payable at the highest MTR Looking at the CGT exemptions - Can a family trust claim a CGT exemption for the principal place of residence? Technically – the answer is no - as the trust is not a natural person it fails to meet the PPR CGT exemptions – so normally if someone wanted to claim a CGT exemption for a principal place – this would fail and CGT would be payable upon the sale of the property – Even the ATO on their website have the following: Generally speaking, the main residence exemption does not apply to the sale of assets held by trusts, as a transfer of a CGT asset to or from a trust will create a CGT event. Therefore, transferring the title of the property from a trust to personal names will also create a CGT event ATO rules - Generally, if you are an individual (not a company or trust) you can ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence (also referred to as 'your home'). To get the full exemption from CGT: the dwelling must have been your home for the whole period you owned it you must not have used the dwelling to produce assessable income any land on which the dwelling is situated must be two hectares or less, and you must not be an excluded foreign resident at the time the CGT event occurs. However – in the income tax assessment act - Paragraph 160 ZZQ12(a) requires that a dwelling be owned by a natural person And a family company or family trust is not a natural person for these purposes. However, where a beneficiary of a trust is absolutely entitled as against the trustee to the dwelling, an exemption may be available to the beneficiary if the dwelling is the principal residence of the beneficiary. So this means there is a way around this – but it can be complex and costly to achieve A Main Residence Trust can be created – it is like a discretionary form of trust, under which an individual is given a limited form of interest sufficient to attract the CGT Main Residence Exemption – in other words – the beneficiaries of the trust who reside in the property are given absolute entitlement To do this –

Welcome to Finance and Fury. This episode is about a bit of personal story "Why I finally bought another property and if is this a good financial decision?" So – if the episode title didn't give this away - I have recently bought a property – well - technically not true – we purchased land – and are building on this for a home to live in – so I wanted to share my story and thinking on this decision – hope it can help others who are in a similar position or thinking to myself To start – if you have been listening for a while – you may know I have been fairly bearish on property for the past few years – I have been talking about property over the past few years – based around the metrics – the financial aspects of property didn't make much sense to me personally – Property in Australia is some of the most expensive in the world – when compared to household incomes Not the most expensive in the world - But when comparing Australia to other nations that also have very high property prices on average – one major difference is the amount of available land that we have compared to them It does change from region to region – city to city – for instance – Hong Kong and Singapore Both of these nations have very high populations – and very limited availability of land supply Most housing is high density apartments – if anyone has been to these places you would know what it is like Interestingly - China has started to emerge with a number of cities being in the top 10 list – but they have a massive population – and people have been moving into cities over the past few decades to look for work Process of urbanisation that most developing nations go through – Australia has certainly gone through our own form of this – where over the past 100 years we have gone from a situation where around 60% of the population didn't live in cities – to now around 85% of the population living in cities But the interesting thing with Australia is that we don't have that many major cities – especially when compared to our land size This comes back to our history – settlement style living only really started here over the past 200 years – unlike parts of Europe – or the US which was over 150 years before us So, this has left us with a situation of limited cities and with this – high demand for housing in one of these – especially Melbourne and Sydney – with limited supply of available land and high demand in a few major cities – prices go up We also have a high population growth rate – especially through immigration – so prices go up further – to the point there are affordability problems for many younger Australians I sold my last place in 2017 and have been renting since It just made financial sense – so I made the decision – invested the proceeds of the sale – moved close to the city and rented an apartment Didn't keep much in the way of cash – except for some emergency funds -I don't like cash – Especially at the moment I have been concerned about a property correction in Australia for a few years now There are more risks in the housing market and economy than there have been for many years. Household debt is extremely high and even a small rise in interest rates will put a lot of people under pressure, forcing many to sell and others to dramatically cut back their spending. This could lead to forced sales will see even more properties on the market – with the increase of supply – could see prices fall further You don't have to be an expert to see the clear risk of a downward spiral that could occur from a property slump – where increased interest rates could lead to lower spending, reduced spending leads to job losses, which leads to mortgage defaults, which lowers home prices, leading to even more spending restraint and defaults – becomes a quick downwards spiral – like what happened to Japan in the 90s or Ireland after the GFC Given that in Australia we have had an extreme run-up in household debt – and household debt to GDP at the same time – this has been reflected in increasing home prices – given that it comes from debt – and not real economic growth – increased the fragility of prices so there is certainly a high risk that Australia will experience a home price fall at some point – but when? Who knows – and there is no guarantee it will happen However – whilst some cities may be in a bit of a property bubble – but it doesn't mean the whole country is And it seems like the Government and monetary policy officials are trying everything in their power to keep property prices high – so at the very worst – we may see a decline in property prices – but this mainly would occur within the over demanded regions Beyond this – there may be a stagnation in property price growth for a while – depending on the area So buying a home may be a surprising decision – was a hard decision to come to terms with May not have been the optimal financial decision – explain why soon – but was it the better overall decision? – well it was – as not everyth

Welcome to Finance and Fury, the Furious Friday edition. In this episode – we will be going through the potential changes to the current Responsible lending laws that may occur next year – as these laws will either be watered down or completely removed - As it stands - The government has plans to reform responsible lending laws to reduce "the cost and time it takes consumers and businesses to access credit" These proposals are part of the Federal Government's economic recovery plan - to allow people to borrow more money without having to meet the current eligibility requirements – like serviceability of loan repayments So there are likely going to be some pros and cons to this – both for the individual and the economy at large – so lets break this down further To start with - what are the current responsible lending laws in Australia These are set out in the The National Consumer Credit Protection Act 2009 – these laws went into place after the GFC – to try and avoid a situation like what the US had with their lending environment – where people who couldn't afford loans were still given them – it is a system of greater individual responsibility where it required individuals to assess their borrowing capacity – but ASIC stepped in as part of consumer protection It went into force at the start of 2010 – and it outlines and legislates how lenders (such as banks or credit unions) must act when they are assessing loan applications Essentially, it means a lender must only give a loan if it is suitable for the borrower. Importantly, the existing rules put the responsibility on the lender to ensure the credit product is suitable Whilst this was in legislation – it wasn't really enforced well up until the start of 2017 – and things started ramping up in 2018 and 2019 – as Banks were forced to start Looking at actual expenses – forced by ASIC introduced changes to the National Consumer Credit Protection (NCCP) Regulatory Guide 209 'Credit licensing: Responsible lending conduct' (RG 209) RG 209 does stipulate – basics - source of income, fixed living expenses (rent, repayment of existing debt) and variable living expenses (food and utilities), Also - "reasonable inquiries" into Entertainment, takeout, alcohol, gambling, tobacco, ATM withdrawals – however these reasonable inquiries In the past – Went off the HEM benchmark Looked at where you lived, single/couple/kids/etc, income and estimated expenses based on categories of lifestyle – Student, Basic, Moderate, Lavish – what would most people say is their expenses? Average – basic is the average right? Example – couple living in a major city with combined incomes of $160k p.a., assumed monthly expenses are $3,060 p.m. – Any annual earnings above $240k p.a. – Expenses capped at $4,040 p.m. assessment The new assessment that started around 2018 started to reduce borrowing capacity - ANZ economist estimated that household borrowing capacity has been reduced by about 30% due to increase in requirements on the banks in the past few years – but then the banks hurdle rates for assessing servicing got changed from the standard of 7.25% to 2% above the current variable rate – so at this stage around 5.5% or so – changes from bank to bank – helped to rectify things a bit So the banks still need to make reasonable inquiries and verify their financial situation the government has decided it's time to amend regulations again in a bid to reduce red tape and increase the flow of credit – Some of the justification for this is to try and boost economic growth – but will it? Time will tell – but it probably will at least help property prices – come back to this So how exactly could the responsible lending laws be changing The proposed change to the law would see responsible lending obligations removed from the Act - if passed by Parliament – it would come into effect from March 2021 Around the same time as the bank holidays would be ceasing on a lot of households – as well as the jobkeeper and seeker payments The plan, according to the government, is to remove the obligation on lenders to ensure that loans they issue are suitable for their customers This is primarily on the mortgage side of things – where there is collateral if the borrower defaults – This isn't going to be updated for smaller amounts of credit or consumer leases – so things like credit cards, personal or pay day loans Ironically - the government actually plans to strengthen the legislation to protect consumers from what they call predatory lending practices of debt management companies around the same time – so personal loan or pay day lending companies However - for those borrowing money on property – these changes would implement what could best be described as a "borrower responsibility principle" – as lenders would be able to rely on the information provided by their customers and lend based around this – rather than conducting their own reasonable investigation Whilst these laws may get watered down - the governme

Welcome to Finance and Fury, the Say What Wednesday edition. This episode is all about answering the question – "What is going on with the US election?" You might think that there is a simple answer – that Biden is the president elect – hard to think he isn't when we have the media calling him that so it must be true, right? Well he isn't - to be clear – Biden has won nothing at this stage - whilst he has been called president elect by the MSM – and the associated press has called the election for Biden – this is rather deceitful – it isn't up to them to call At this stage - unless a candidate concedes - the election remains in play until December 14th when states cast their electoral college votes and each secretary of state certifies that the vote is valid – all of this could end up at the Supreme court to decide – if this happens Trump has a decent chance of winning but until they weigh in – there should have been no official declaration of the election results – Again – whilst the media has called it – it is not up to them – but the media is trying to get it into people's mind that biden is the president elect – even though he isn't Biden even gave a press conference in front of a sign of the Office of the President elect – this office doesn't exist – his PR team must have printed it out – So to recap - unless Trump concedes between now and mid-December – which isn't likely - Biden hasn't won anything, no matter what the media tells you So with this in mind – lets take a step back and assess what has occurred with this election and how it may play out from here – based around the legal standings and not just the media's spin Because based around the presidents that exists due to previous dodgy elections – and there have been many – regardless of what you might be told - it is highly possible that Trump will end up winning the 2020 Presidential election At the moment - the MSM is trying to get people to ignore the voting irregularities not only with this election but past elections in the US - There have been few times in the past where an election has swung in the opposite direction from where the media has officiated – election of Truman was one – in 1948 Chicago Tribune ran a headline that Dewey Defeats Truman – which turned out to be not the case once the election was decided – as well as the 2000 election between Bush and Gore – where votes in Florida were thrown out due to them not meeting the legal requirements – which flipped the state and Bush turned out to win – as well as many cases in the US gilded age So what is going on with the 2020 election – First it is important to know how the US election system works – It is based on the Electoral College – not a popular vote – The Electoral College is the group of presidential electors required by the Constitution to form every four years for the sole purpose of electing the president Each state appoints electors according to its legislature, equal in number to its congressional delegation – where each state has a different number of electoral votes – Georgia has 16 votes, PA has 20, Texas has 38, CA has 55 – in total there are 538 electors and to get an absolute majority - 270 or more electoral votes are needed Why does this matter? Well – Biden is 20 votes above the majority – but the results of 6 states are currently in question - Georgia, Pennsylvania, Nevada, Wisconsin, Michigan, and Arizona – where the margins are very close and some irregularities have occurred – this is 79 votes in total – What are the claims – that voter fraud occurred – but this doesn't exist – but election fraud does – every election likely has some element of fraud to it or at the very least – glitch related The Heritage foundation has 1,298 proven cases of election fraud – with 1,121 individuals being criminally convicted, with the rest being convicted in civil court – There may have been fraud that occurred this election – but at the very least there are irregularities – despite what the media is saying – many have been proven Lets go back – on the night of the election – Trump was ahead by what appeared to be an insurmountable amount in Michigan and Pennsylvania – 8 points or hundreds of thousands of votes, was up by more than 600k votes in PA in a state with 6m total votes with 85% of the votes counted – he also had a massive position across Georgia, Wisconsin – again – what would be considered enough to be called – as many other states with that margin had been called for Biden – like WA, NY, CA ,etc. Then overnight – when the poll counting was meant to be closed – the gaps all of a sudden disappeared and by the end of the next day of counting – these states had flipped – This alone is a possibility – mail voting results did favour Biden – but in the states with the strictest vote counting requirements – especially when it comes to mail in ballots – like Florida – which had Biden slightly wining – ended up being off by 4 points of 400k votes So this turn in the resul

Welcome to Finance and Fury. In this episode I want to discuss and clarify the concept of needs versus wants – especially in relation to spending habits Needs and wants - Each of these terms can be very subjective – as what is a need for one person may be a distant dream, or simply a want for another – where they have no means of actually achieving the essentials of another person So in this episode – we will go through how to discover and clarify the differences between what your wants and needs are The aim of this is to help quantify spending habits – helping to explain the differences between essential and discretionary spending habits Again – what is someone's essential spending habit may be a distant want, or what would be considered incredible discretionary expense for another person in a different situation – or with different goals or life focuses First – lets look at some different ways on how to then define these terms – of wants and needs When talking about wants versus needs – this could often be discussed as essentials versus discretionary spending – However - Here is where things get murky – One person's essentials could technically be another person's discretionary spending Not everyone will be the same – whist the general classifications for these types of expenditures may be similar – we are not Essential expenses are expenses that are required for living – In addition, essential expenses may be broken down into fixed expenses and variable expenses Fixed Expenses - are expenses that are the same each month. Examples include rent or mortgage, car payments, car insurance, property taxes, home insurance, and school costs. Variable Expenses - are expenses that vary each month. Examples include car maintenance, gasoline, food, electricity, heating gas, phone, etc. Non-essential expenses, or discretionary expenses are the extra things you spend your money on Non-essential expenses include most of the things we technically don't need, and most often includes many items where we can waste money the most But these definitions are so vague that it is hard to quantify exactly what should be essential and what is non-essential – Or said in another way – what is an essential for your cashflow expenses and what is discretionary on top of this – and what could be better spent elsewhere – such as paying down debt, or investing to build towards financial independence This is important to clarify as soon as you can – it can help to reduce your discretionary spending habits through life – There is a thing known as the hedonic treadmill – this is where if you derive happiness from spending habits – which is very easy to do – you may be stuck on a treadmill that is constantly increasing in speed – which eventually – regardless of your fitness you may struggle to keep up with the speed at which you are running To look at this further – if you start out your career and are earning $50k p.a. – you might be going from earning nothing – now all of a sudden – you can afford somewhere to rent – might be with some room mates – as well as buy some new clothes – go out and have dinners and some nights on the town – by the end of the year – your $50k after tax, which is about $43.6k p.a. may be all gone – so no savings left Then next year – you get a pay rise – to $60k – which is $50k post tax – you realise you have more money – so you move out into a place with no roommates so you are covering the full rent – you go out to fancier dinners which cost some more money – now at the end of the year – still no savings – Repeat these habits for a while – say 6 years in the future you have done well in your career – and you are on $120k gross income – or about $88k net of tax – you all of a sudden are living in a much nicer place – eating the best foods, having a nice place to live, going on holidays regularly The question is – are you any happier? The answer is normally not – you do have a better quality of life when measured by a consumeristic point of view – but after a certain point – does spending $200k on a dinner benefit you more than spending $30? From a point of perception, it may – that is where we do attach a higher value things that have a greater cost to them – our brains ways out of feeling cheated from spending hundreds of dollars on food and a few drinks when we could have achieved the end result – i.e. being full and a little drunk for $40 Think about it – someone might think that they need an income of $200k p.a. to cover essential expenses – or in other words – to meet their needs – as this is their accustomed lifestyle – as opposed to other individuals who only require $30k to meet their needs So – how to get off this hedonic treadmill and help clarify and cement what your essentials and non-essentials are – to help you move forward in financial independence – as if you constantly spend what you receive in income – you may have a much harder time of this - Typically – essential spending is broken down into th

Welcome to Finance and Fury, the Furious Friday edition. In this episode, I want to look at a core concept of economics – the need for monetisation/value of objects for them to exist – that is – that profits are a factor that help to maximise most outcomes in society This comes back to the very concept of a free market versus socialism – Profits or placing value on things is often pointed to as an evil of the free market – there are some merits to this – especially when looking specifically how the modern financial system is structured The financial systems quest for never ending profits has created a lot of risk – leading to economic ruin when bubbles pop This can often be conflated to include the profit drive of a sole trader, or someone who owns a small business – hence all drives for profit can be painted as selfish or evil However - in this episode I want to argue the opposite point – that profits or monetization is the very key to a functioning society – and often leads to the best and most ethical outcome – when compared to those taking equality of outcome as an ethical standing in modern society This focus will be mainly on the free market side – not the centrally planned side to the economy – such as banking/lending – or BIS economic policies But it will be focused on incentives – as profits or earning an income provide an incentive to humanity to strive for more To start with – we will look at the recent PETA protests at the Melbourne Cup For those outside of Australia – we have a major race every year – called the race that stops a nation – Happens on the first Tuesday of November every year – so this happened last week by the time this comes out At this event – there were protestors – advocating against the horse racing industry – saying that it was cruel You might think that it is cruel – racing horses – if a horse breaks a leg – it often has to be put down But in relation to horses - Think about how far we have come as a society – What did horses used to be used for? – they were an essential part of most every day activities - Transportation – they were used to get around – either for wealthy individuals – or for merchants for transportation of goods from village to village – could carry carts and many times the number of goods a person could Force multiplier in production/agriculture – they could be used to lift heavy items – in construction through pully systems or for ploughing a field – at a much quicker pace than what we are able to War – one of the major forgotten points in history – horses were a major tool in warfare – where if you didn't have cavalry – and your opponent did – you were at a massive disadvantage Horses were essential – they helped to maximise utility – in other words – they helped the value maximisation that could occur – both at the individual or industry level – which increased economic output and the utility of society For transportation – they could get your around quicker than walking – hence they save time – maximising utility When used in industry or in agriculture – they could help to lift heavy items, work ploughs on the field – much better than what humans could do In war – they were a force multiplier – much better to have mobility on calvary for flanking, or charging to break an enemy, as well as inflicting casualties on the route – so they maximised the utility of the rulers in their probabilities of winning a battle in the medieval periods – the Mongols were the best example of this – able to conquer all the way into modern day Europe – around Prague on the back of a horse – didn't matter if they were outnumbered – horses certainly maximised their utility – ironically provided one of the sources for their demise as well with the fermented (i.e. alcoholic) horse milk – but even in WW1 cavalry was still used but what happened? Industrialisation happened – by industrialists in the quest for profits – previously – being a horse breeder – or horse merchant was quite a profitable trade – demand and supply – there was often a massive demand for horses – whilst their supply was in limited supply – so they were often well cared for – a farmer could only normally afford one horse – hence they took great care of the animal However - Individuals over time came up with innovations to make horses obsolete from the activities that they used to provide additional value to the owner Transportation – James Watt help to industrialise the stream engine – used in trains for mass cross country transportation, Samuel Brown in 1823 helped to invent the first internal combustion engine, later redesigned by many – then provided on mass by Henry Fords Model T by the early 1900s. For industry – there have been many individuals and companies that have come up along the way – all enterprising individuals – in search for profits - to get us to where we are today No different to the horse breeders or merchants of the past – where they would increase the stock of horses in an effort to pr

Welcome to Finance and Fury, the Say What Wednesday edition. This week's question is from Ruby. "I was speaking to my husband and we want to help financially prepare our children and I am just wondering if you have any strategies to help with this?" Thanks for the great question - Depends what you mean by preparing for your kids financially – Two ways to view this – the monetary side - i.e. them having access to funds or having expenses covered for how they value money – which comes back to the financial education side of the equation In my view – giving kids all the money in the world without the educational side can set up children for a worse outcome in life – without understanding value of money it can create – Talked about how to do this in a previous episode - Why is talking to your kids and family members about money so important? – where it was mainly about misconceptions – and using monopoly as a good tool as opposed to the zero-sum game it instils How to educate children financially – As a parent, you have the power to shape your child's relationship with money – many things that can be done to help improve their financial education Why –nobody else will help to confer this information and thus Teach them about value of money – Kids don't understand value of not just money as a medium of exchange – but that their time has valued attached to it – I don't think some adults know that either Financial education for younger children is all about Instilling the value of money– one of the best ways to secure their financial futures – slightly different to a form of financial education that an adult would have – teaching asset pricing models, etc. In a way – if you can cover the basics - this education is better than a gift of money – You could give a 15-year-old $50k – but if they don't understand money – then this can be gone very quickly – however – if they understand money – this could be a great step in the right direction One of the best gifts that I received was this form of informal financial education Can be hard for kids – they are essentially socialists – thinking that everything should be free at younger ages – Everything is technically free to them – the younger they are – everything is normally provided for them How to do it First major step is just talking to your kids about money - You don't need to be an expert to teach kids about money There is a taboo surrounding talking to kids or anyone about money – some people think that it is rude Depends on the intent – if someone comes up to you and asks how much you earn or have just to brag that they have more – that would be rude But talking to family – or even friends about money – if the intent is right – then that shouldn't be shunned Just start a conversation about money when the opportunity comes up at home or when you're out These chances will come up all the time - Your kids will naturally ask you for the things they want. It's hard when you have to say no. Talk about how we all have limited money and we need to carefully decide what we spend it on One client had a good strategy for this – her daughter really wanted to go to uni – so we were setting up education funds If her daughter asks for something at the shops – then she lays out the opportunity cost – that the money would otherwise be going towards university costs for her - This can help kids to understand that money can be finite compared to wants – Wants versus needs – the economic problem – how to maximise utility with finite resources Whilst income and wealth can grow – it is technically finite compared to the potential for unlimited wants that people can have This conversation can expand to the concept of how you earn money – the exchange of your time at work for money The concept of priorities can come in here – where you have to spend time working to provide Reinforcing needs versus wants – all about priorities – Break down goods into essentials – housing, food, bills, clothes – there is always a choice – Have your kids make some choices – discussing the differences between needs and wants – If you ask your kids once they can comprehend the differences – should be spend money on keeping the house (through mortgage repayments) or on new toys? Gets them to think about money – To reinforce the concept of essentials versus wants – can help through explaining where money gets spent – Going through the weekly budget - Use everyday situations to teach your kids about money, including where it comes from and where it goes When out shopping - can teach your kids how much things cost by showing them different prices for similar items, how to compare deals, how to work out which items are better value, how to work out price differences and discounts If you have the time – which if this is important – there should be time – ask them which item is better to buy? For the essential expenses – talk to your kids about bills and expenses – Relate this back to the concept of exchanging time

Welcome to Finance and Fury. This episode will be explaining the dollar cost averaging strategy. It seems to be a pretty simple strategy – but one hard to get right – so want to run through it and when to use it in further detail What is a dollar cost averaging strategy – DCA for short It is breaking up investment timing - Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount that they wish to invest across periodic purchases The aims of this is to reduce the impact of volatility on the overall purchase of investments in the short term It is the concept of taking out the short-term probability of market volatility from investment decisions It is a hard question – when to purchase an investment – today, tomorrow, or wait a few weeks and hope the price goes down The concept of DCA is to take this short-term guessing game out of the equation – if the market does down next month then great – through doing DCA you are picking up more investments at a lower price That is where nobody knows when the correct time to purchase investments will be – market volatility in the short term is anyone's guess – In the long term – you can have a degree of certainty that investments values will be above where they are today – but in the short term – the truth is that it is anyone's guess Due to the nature of the share market – demand and supply in the shorter term is outside of any fundamentals – you might have a great company based around fundamentals- but it lags behind in price – hence has a lower return But this strategy is meant to expand upon the single investment into a share holding into a greater range of investments In dollar cost averaging – you need to decide on two parameters the fixed amount of money to invest each cycle and the time horizon over which all of the investments are made For example – do you invest $100k over 10 months, at $10k a month or 5 months, at $20k p.m. The shorter a time horizon - the strategy behaves more like lump sum investing What is a DCA strategy in practice – the dividing up of a lump sum investment into incremental investments As an example – say you have $100k of cash or funds available for investment purposes - By dividing the total sum to be invested in the market - that $100k into equal amounts that you then put into the market at regular intervals - a DCA strategy seeks to reduce the risk of incurring a substantial loss resulting from investing the entire lump sum just before a fall in the market The amount to invest in the monthly increments can vary widely – you could invest $25k for 4 months, $10k for 12 months or $1k for 100 months There is massive variance in the number of monthly investments which can be implemented – can do anything from 2 to 1,000 months However - Dollar cost averaging is not always the most profitable way to invest a large sum If you are investing $100 each month for 1,000 month – you might be worse off then if you investment the $100k in month 1 This is due to the investment returns of the market versus the opportunity cost of holding these funds in cash If you think about it – what is the longer term expected returns of the share market – maybe between 8%-10% - so if you are holding the majority of these funds in cash this whole time period – you are missing out on returns This doesn't mean you have lost money thought participating in a DCA strategy – it is simply that your returns wouldn't have been if you invested all the money on day one – If you were investing $100 p.m. for 1,000 months – that is a little over 83 years – so you can see that this form of DCA will miss out on a lot of the potential returns As the concept comes back to minimising the risks of short-term volatility – whilst still trying to maximise on long term investment potentials The DCA strategy is all about minimising the potential downside risks of making investment from cash Cash is seen as a defensive asset class – no volatility in investment returns – Hence taking additional risks on from defensive funds does have additional risks – of which- the DCA strategy can help to minimise these The DCA strategy best works when the markets undergoing temporary declines because it exposes only part of the total sum to the decline – but that is where this become a guessing game – is the market going through a short term decline – or a structural decline? That is where the DCA strategy can shine – if the DCA is for 12 months- then most of the decline would have been purchased into So this technique is so called because of its potential for reducing the average cost of shares bought. But this strategy depends on the type of investments purchased As the number of shares that can be bought for a fixed amount of money varies inversely with their price, DCA effectively leads to more shares being purchased when their price is low and fewer when they are expensive. As a result, DCA possibly can lower the total average cost per shareof the investme

Welcome to Finance and Fury, the Furious Friday edition. Two weeks ago on Furious Friday, we went through an intro to the great reset. This episode we will look further into this topic, at some of the proposals and break these down further. I managed to talk to someone involved with the WEF in the interim which provided some good insights If you haven't heard - The great reset is all about resetting the economy and society – resetting in the way that a handful of individuals at the top of entities like the WEF, UN deem to be in the world's populations interest To start with – we need to get to the bottom of the best way to actually think about the economy - it is useful to think of an economy in real terms versus the purely financial terms I have said it many times in this podcast that the real economy is what is important – and that is you and I – our economic interactions, where we work, what we buy or how we consume or save, every one of our interactions at the aggregate level is the total sum of economic output – The economy when left to its own devices for economic growth can create a situation where the whole is greater than the sum of its parts Through specialisation and effects of real economic growth leading to a greater output overall – all about an equilibrium being reached over time through having free economic interactions Everything that is a final product tends to have a greater value when compared to the sum of its parts – we process martials and they are transported and transformed into other physical goods, which are transported from point A to point B and consumed– Think about a pencil – there is a good essay called I, Pencil – by Leonard Read – talks about the complexity in making this – where no one person can actually produce a pencil – the gathering of the components and the trying to turn these components into one item as simple as a pencil – quote from it – "The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me (the pencil) into being. No trace of such a person can be found. Instead, we find the invisible hand at work." This is very much akin to the metabolism that maintains a living body – which is a very complex system So when we are thinking about the economy – important to think of the economy as total system which encompasses the total body of humanity - all cultures, nations and families of the world and how they function on a day to day basis – Where economists and elites then step in – this can be very dangerous – their first step is that our economic interactions then gets measured – analysed and statistical representations are created – based around the models that are chosen by them – and what they choose to include or exclude in these models – hence we are relying on their interpretation of data and statistical measurements to get these aggregate economic indicators then – a handful of people analyse these data sets – then they believe that they know how to best maximise outputs based around a statistical representation – even though they had nothing to do with the output in the first place – However - they have studied for years and have come up with theories and therefore know better This brings into question the concept of economic specialised knowledge versus common knowledge – no handful of individuals can know what is best when compared to the common knowledge (each of whom have their own forms of specialised knowledge, which may not be economic) However - Even though economists or policy makers haven't lived the same life as you – they still think they know what is best for you - they have different priorities and different personal economic situation – most of the people coming up with these plans are very connected and affluent individuals – on very good salaries that are not going to be affected by their proposals – if anything they will get more income Disappointing to see economists and policy makers believing that humans are stagnate representations of the outputs of these measurements They forget that humans are dynamic – we adapt – and tend to try and maximise for our own situation – there are lagged time periods depending on those who adapt first and those that actually never adapt They very nature of adaption comes back to creative destruction through a technological progress – however – those with the most power often don't want this – their products are at the top currently – they are in power – in addition – for policies to work as intended there needs to be as little adaption as possible – the assumptions are based around individuals being stagnant after all so creative destructions that are population driven through the supply of new goods and services get stifled – And a greater focus is on demand – if no new supply beyond monopolies can exist – then you have to work with the existing supply and the only path to economic growth is seen through demand side That creates a situation that actuall

Welcome to Finance and Fury, the Say What Wednesday. This week the Question is from Emma. "Hi Louis – Would like to get your opinion on if it is a good time to buy a property to live in or if it is better to continue renting? We have saved up for enough of a deposit to buy a property for around $600,000 and have been planning to buy for a while. But do you think that property prices are set to decline? Love to hear your thoughts." Great question – one I have been battling with personally for the past 18 months or so – in this episode – we will be looking at renting versus buying – Pros and cons to each – to what degree Depends on a number of factors – Costs of owning the property – versus renting Ongoing costs – BC, rates, etc. Mortgage repayments – Size of the loan and Interest rates Price of property – obviously the higher the price the more it will cost in loan repayment – as well as more deposit that needs to be put down In looking at these factors – also need to consider the Opportunity cost – what is the best next use of the funds – relevant to the deposit amount and the ongoing cashflow that either owning a property or renting use But also – lifestyle goals and if you actually would prefer to own your own home versus renting So we will go through these in details First – looking at the current state of the property market – It has been hot – the prices are up in a lot of regions – especially properties that have some land Large demand in a lot of areas – lower than average supply – Creates a more competitive environment for property So for those looking to get into the property market for the first time – makes it hard Another reason – interest rates are down – so prices go up Demographic trends – apartments in city centres may be on the down People are flocking out of cities – harder to get locked down So getting into the market is at a high water mark – depending on the type of property Brings another point in – will prices go down? Hard to say – originally they would have – but there have been plenty of government run initiatives to help boost prices – In addition – the affordability of the loans has been helped with bank holidays and interest rates going down – For anyone who bought a property before this helps – The bank holidays are coming due – have been staggered out so there may not be a major impact on prices Prices may go down in the short term – but if you find the right property – and plan to live in it for years to come – may not matter as much – still don't want to overpay - State of the rental market – There has been a shock to the rental housing market – there has been a reducing demand for rental properties at the same time as supply has increased People moving out of apartments There has also been an economic impact on the renters themselves – based around the RBA stats - Job losses have been much more pronounced for younger workers, who are more likely to rent homes Due to border closures – which have reduced international arrivals - The number of vacant rental properties has increased as new dwellings have been completed and some landlords have offered short-term rentals on the long-term market, particularly in inner Sydney and Melbourne. Government policies have supported renters and landlords. Rents have declined, partly because of discounts on existing rental agreements and it is likely that rent growth in many areas will remain subdued over coming years. But longer term – The RBA see net overseas migration is expected to slow considerably, further reducing demand for housing over the coming year. Treasury forecasts that Australia's population will be 1.5% lower by June 2021 compared with pre-COVID-19 projections, equivalent to around 400,000 fewer residents A decline in population growth of this magnitude would result in a decline in rents of around 3 per cent nationally over the next few years, compared to pre-COVID-19 expectations, based on a model that uses historical experience So there is an expected reduction in rents – so for these continuing to rent for a while there may be a benefit for rents being lower However – the RBA projections around this show that the number of apartment completions is expected to lower – is on a down trend in most major cities – so over time the market will equalise to reduce the oversupply – and rents may once again have an upwards trend Looking at the numbers – The numbers for renting is pretty simple – what is your weekly rent – some other expenses – like water (depending on the agreement) and electricity – But the weekly rent is the major cost of renting – Scenario – if someone is renting for $500 p.w. – what is this the equivalent to in a mortgage? Depends on the interest rate – but assuming 2.8% - A mortgage the size of $528k – with a 30 year term you would be making PI repayments of $500 Assuming there is a 20% deposit – means that the property value would be around $660k (deposit of $132k) Bit of a rule of thumb when looking at prope

Welcome to Finance and Fury. Things seem to be calming down – markets have recovered somewhat – the US election volatility has been minimal – may see some short-term movements this week This episode – How to overcome investment uncertainty and start investing! The truth is that if now is a good time to invest comes back to time scale – Nobody can tell you if it is a good time to invest today compared to tomorrow – probability is almost like flipping a coin As you expand the timeframe out – probabilities of being up increase – One month – probability goes up slightly – 60/40 One year – 75/25 10 years - 100/0 That is why investing is for the long term – when looking at if now is a good time to invest – the question should be is now a good time to invest compared to 10 years in the future Given that if done well – investing today can likely put you in a better position in 10 years time - What stops people from investing? The common reasons I see - Fears and misconceptions – investing is dangerous, get rich quick These are some driving factors for uncertainty Not knowing what to invest in Not knowing how to invest in it Not knowing the benefit of it Not having enough to invest The last one is a self-determinant from the previous 4 – And a form of financial procrastination creeps in through having uncertainty – then over time – if you never invest or save funds – you wont likely ever have enough to invest If you fear, don't know, what, how or why, then you won't allocate any resources (money) to it If you don't know what to do, or how to do it, then you aren't likely to bother If you don't know the benefit – of realising that at some point – you will need to give up working There can also be uncertainty about how much you will need to have and when you need it by – Look at retirement - if you are uncertain – and then get certainty – that can be daunting if you think something is a long time period off, or if it is too large a value, you may procrastinate as well – Why invest for retirement in 30 years? What is the point of trying to save a $110k deposit for a home? Most things that become larger – also become harder for us to achieve - $110k seems like a lot – but $70 per day for 4 years – at cash rates Uncertainty is a part of life – there is always going to be uncertainty – not just when it comes to investing – Those little questions that leak into our self talk – should be take a new job? Should we buy a particular house? This level of uncertainty – and not working through it can lead to procrastination Procrastinating is a part of humans and creeps into our lives without really consciously thinking about it. One of the worst parts about procrastinating is that we justify this behaviour as well using some very clever tricks: Avoidance and distractions – Looking for other tasks to do instead of taking action on what we need to. Blaming – We external events as the cause of why we delayed in doing a task. Denial – We can tell ourselves that what we are doing is more important now, or that we will do what we need to do tomorrow. Comparisons – Other people haven't gotten round to do this, so why should we? Uncertainty can lead to procrastination – and it can provide a good self excuse – if we are uncertain we can convince ourselves that not doing anything is the best option – which it sometimes can be – but if then the decision is delayed or the uncertainty is not turned into certainty – excuses can come in - while these may make us feel better in the short term, all that they do is delay the inevitable pain we will feel Beating ourselves up mentally – not getting to where we wanted Retiring with very limited options in income Achieving any tasks comes in a few phases - The first is having a goal, then uncertainty will come into it – then a plan can be put into place – but procrastinating can get in the way of taking action at any stage Acting first – saves pain – why an action plan is important - Make an action plan – Members section of the website – have a lot of workbooks, calculators to help The longer we delay, the greater the pain we feel from procrastinating – in addition – the more we over think a situation – the greater the levels of uncertainty can be – information overload and decision fatigue – However, the longer the time is away until we absolutely must take action, the less pain we feel delaying. It is funny however, as generally as soon as you go over the breakeven point you will see that taking action isn't that painful at all. Have you ever had a small task to complete, delay it for a few weeks then when you get around to doing it, it only takes you 10 minutes? So the act of delaying causes more mental pain in most cases than just taking action. How to get over any hurdle for investing? Is it the first one – Fear and misconceptions = making a bad investment – should be afraid of – I would be – a double or nothing investment – but that is gambling and not investing If you have been listening enoug

Welcome to Finance and Fury, the Furious Friday edition. In this episode we will not be looking at the great reset further, that will be next week, but instead we will be having a look at how financial markets compare to the betting markets – in relation to the upcoming US election Decided to cover this topic pretty last minute – bit we will be finishing up the great reset next week – it is just that this topic is very topical at the moment -with the US election in just a few days – I find this to be an interesting topic – covers so many elements – from behavioural science to supply and demand – especially in the context of how the US population will vote versus how individuals - both inside and outside of the country are betting To clear one thing up - I don't gamble – some of my friends love it – personally I don't – don't like the odds normally gambled twice in my life – one year when I was at the Melbourne Cup and another time in Macau – beyond that I don't gamble However – have been intrigued by the US election due to the discrepancy between the betting markets and the predicted odds of the election results There is a lot going on with this topic – which we will break down in this episode - Quickly – have to do a PSA – in not endorsing gambling in this episode- there is a difference between investing and gambling Gambling has absolute loss levels that I don't like – if you put a bet on one person to win and they don't – well you lose everything Investing – when done well this isn't gambling – it is taking calculated risks but isn't the same as taking an absolute risk Example – If I put $1k onto team A to win and they don't – I lose my money – if I put that $1k into an investment fund – if it loses it may lose by a market decline – but it isn't an absolute loss unless the companies that are invested in lose everything – i.e. go bankrupt The probability between the scenarios is vastly different – not only does investing in one company carry a small absolute loss risk – depending on the type of company invested in For example – the Absolute loss of investing into a start up with a bad track record is higher than investing into a blue-chip company like WOW But if you are investing your $1k between 40-50 companies through a managed fund – which screens for these forms of absolute loss scenarios – your probability of losing your $1k are very close to 0% Sure, you can lose in volatility risks through investing in managed funds – but this can then rebound as you still have money in the game – unlike in gambling This is due to that the returns in Financial markets is due to the combination of the income returns plus the price movements of assets (volatility) – and this second factor works off demand and supply If a share is highly in demand – above its supply – the price will rise – has little to do with the fare value However – the payoff for investing versus gambling is different due to the larger absolute loss potential for gambling Think about the following scenario – if you put $100 down on a scenario that gives you a 50% chance to win $200 – but a 50% chance to walk away with $0 – your expected return or payoff is $100 – or no real return If now – if you be $100 and you have a 34% chance to win $300 and a 64% chance to walk away with $0 – your payoff is $102 – or about 2% return The payoff – it is the expected return that you will receive from a scenario – between winning and losing For investing – your payoff is the expected return over a longer-term forecast – i.e. a 8% return p.a. -gambling is different as it is based around a single event that has the event based payoff – it is not a long term strategy When looking at the Betting markets – work off similar dynamics in one way – but they are based around the probability of an outcome – in conjunction with the level of betting on the market Explaining this further- the payouts are based around the amount of money on one side versus the other – and then discounted to the market probability of an outcome - this is a market force in one way But the market is heavily influenced by the odds given – which changes the behaviour of the individual when betting – If you can bet $100 and only stand to make $105 – what is the point? As the saying goes – most people like to have a punt – hence the long odds still setting bets on them even though the probability may seem low You can have one person put a bet on team A to win with $1m and then 1m people all put a $1 on team b – In this case it is likely that the odds point towards team B to win well either way the bookies lose – they have to pay a certain amount depending on the odds – if it is $4 for team A or $1.50 for team B – they are still losing money – either $3m or $500k – bad outcome – So the bookies have an incentive to offer odds that are attractive but will hopefully make them money – But What does this have to do with the US election That is where I think the bookies have it wrong in this upcoming electio

Welcome to Finance and Fury. The Say What Wednesday edition. This week we're continuing the Question from Phuong - Part of the question from last week that wasn't covered. "I heard about the Government's plan to build some gas station? do you think this is green energy and does it help with economic growth?" Last Say What Edition episode – went through the future energy plans that Governments have – a lot of this has to do with CO2 emission reductions In this episode – be focusing on the Australian Government's plans – looking at one section of the budget for economic growth and that is the focuses on the Gas industry the Government wants to reset the east coast gas market and create a more competitive and transparent Australian Gas Hub – aim to do this by "unlocking gas supply, delivering an efficient pipeline and transportation market, and empowering gas customers" Goals are to make energy affordable for families and businesses and supporting jobs as part of Australia's recovery from the COVID-19 recession – so we will break these down First step – answering the question on is this green energy? If defining green energy as not renewable – but lower CO2 emissions – depends on the benchmark – if more Australians start using gas as rather than coal electricity power – than yes When looking at the Green energy – focus is on Co2 Emissions – however not pollution – but the measurement of CO2 emissions – side note – in an ideal world – we would all live in a pollutant free world – however this can never be whilst humans exist – especially if people are measuring CO2 as a pollutant – because you are polluting every day by just breathing – the world population is just under 3 billion tonnes of CO2 every year in breathing However- coal has come a long way in getting pollutants like mercury and other toxins out of the coal – but still produces CO2 So lets compare natural gas co2 emissions per kwh to the other sources of power – The carbon intensity of electricity varies greatly depending on fuel source – but as a rough guide: coal has a carbon intensity of about 1,000g CO2/kWh, oil/petroleum is 800g CO2/kWh, natural gas is around 500g CO2/kWh, while nuclear, hydro, wind and solar are all less than 50 g CO2/kWh – So if the plan is to replace more of the coal industry with gas – then yes – it is a step towards a 'greener' form of energy In Australia - Coal accounts for about 75% of our electricity generation – this is then followed by gas at 16%, then hydro at 5% and wind around 2% This doesn't include households use of Solar – but what is commercially provided However – if coal accounts for 75% and is emitting 1,000g CO2/kWh – by replacing this with natural gas – would reduce our CO2 emissions by about 37% Out of these industries – the one at the greatest level of risk is the coal industry if the policies continue to focus on low CO2 emissions industries for the electricity industry – also important to point out there is a difference in the electricity industry and the transportation/car industries with electric vehicles - However - The oil/petroleum industry overall isn't in that much of a risk at this stage - Just to clear one thing up – whilst the energy industry is moving towards solar and wind – and other forms of renewable energy - the petroleum industry isn't going anywhere – Petroleumis the main source of energy for transportation – accounts for about 92-95% (depending on the country) in transportation power – will take decades for the majority of cars to be EV – takes time and not everyone can afford an EV at the moment - However - Even if every car in the world goes to EV – and there is no need for petrol in fuelling cars, trucks or boats in transportation – not going anywhere – part of plastics – if you look around the room – it has been part of the majority of products that are produced – so maybe the petroleum industry adapts - Even the road that these EV cars will drive on has petroleum in them – asphalt uses about 350k barrels of oil a day – or just under 128m barrels p.a. So to answer the question on if Natural Gas is green energy –as a measurement of CO2 emissions - compared to coal it is – but compared to nuclear, solar, hydro or wind – it isn't Moving on to the Australian Government's plans for a Gas Hub – and if this can provide economic growth Model is similar to what the US has – the aim is to create a transparent and liquid financial gas market – This is based on the Henry Hub that is based in Louisiana – at the end of the pipelines that flow all the way up to Alberta in Canada Under these hubs - Gas is available at any time, at a clearly visible price for transfer anywhere around the country. With hedging on offer on futures markets, buyers can take decisions on long-term investments in their own operations knowing that a key fuel will be available and what it will cost. Now the federal government is taking steps towards delivering an open and competitive hub model like Henry Hub in Wallumbill

Welcome to Finance and Fury. In this episode we will be looking at where to invest in the current economic environments for yields, or passive incomes in the current environment. Best place to invest for yields changes, a lot of this has to do with market environments: Major market changes have to do with a few factors – interest rates, property prices, and dividend policies When looking at the financial markets in general – there are many different places that you can normally get an income – but the fundamentals of these changes with economic conditions – so we will do a deep dive into these and look at what the better places are likely to be to invest over the next few years for a yield return on your money General disclaimer – not intended to be personal advice Before we get into it – have to define what a yield is – it a representation of the income that you receive from your investment – measured as a percentage All you do is take the income that you get each year and divide this by the value of the investment - If you invest $1,000 – and get $0 of income from this – your income yield is 0% If you invest $1,000 and get $50 of income from this – your income yield is 5% If you invest $1,000 and get $100 of income from this – your income yield is 10% Now that that is out of the way - Looking back over time at the yields from markets – through breaking this down from asset class to asset class Asset classes – An asset class is a grouping of investments that exhibit similar characteristics and are typically subject to the same market dynamics – easy way to categorise different investments You can have asset classes like cash, fixed interest or bonds, property or real estate, shares or equities, as well as alternatives like commodities, futures Cash - it wasn't that long ago that keeping money in the bank account or having a term deposit would yield you 5% p.a. – that is a decent income – when looking at yields in a safe asset – one that doesn't lose capital value in the short term – 5% p.a. looking back is a pretty good income But today – 0.35% to 0.70% p.a. depending on the timeframe of a term deposit is the best that people can hope for – most savings accounts don't pay anything in interest incomes – so cash is not the best place to hold money at the moment if you do need an income – it is still a good place to hold funds if you need funds for expenditures – or emergency reserves – being a few months of total expenses for emergencies- but there are better places to look Fixed interest – newly issues fixed interest and the income that is paid from these assets is highly correlated to the current cash rate (or interest rate) When government bonds are issued to the market – they tend to pay a coupon yield that is very close to the cash rate – so if you buy a government bond for $100 – you are likely to get For a corporate bond – you are likely to get a slightly higher coupon rate from the corporate bond – due to a risk premium – risk premium is where you get an additional return due to the additional risk that is carried with the investment The additional risk here is a default risk – Governments are considered safe from default when compared to a company – so companies typically have higher coupon payments than the cash rates due to this Either way – the coupon payments on these bonds is correlated to the cash rate – hence at the moment – if you are buying newly issued bonds – your income yield is likely to be low You could also buy existing bonds that were issued a few years ago when interest rates were higher -bonds have the fixed coupon payments at the time that they are issued to the market If you were to buy a bond that was issued 10 years ago – you might be getting a coupon payment of 5% -7% - which is a good income based around the face value of that bond But due to market dynamics – the price of that bond is going to be higher than the face value – to the point that the annual yield on that bond until maturity is going to be very close to the current yield on a bond – for instance – for a bond issued 10 years ago at $100 and paying a $5 coupon payment – which is a 5% yield – today you might be paying $120 for that to the point that where it matures in 5 years' time – the net yield on holding that investment is likely going to be close to 0.25% p.a. in real terms So both cash and fixed interest are not providing much of a yield at the moment – looking at the future markets – not likely to be providing one over the next few years either – This has created a situation where people looking for yield need to move up the risk curve – initially – investing in growth assets to look for incomes that aren't as tied into the interest rate cycle as defensive assets like cash or fixed interest are – there asset classes are traditionally property or the share market Bit of a side note – most of the alternative asset class markets don't provide incomes – commodities work off growth returns – so no yields there –

Welcome to Finance and Fury, the Furious Friday edition. I hope you are all going well. This episode is all about "the great reset". It sounds like some weird, out there agenda, but it is carried out by some of the most influential organisations on earth. I want to look at this further and explain what the plan for the great reset is. Now - The Great Rest is the theme of the upcoming World Economic Forums 50th Annual event in January 2021 From reading the initial proposals – it seems like a pretty radical plan to completely re-work the mechanics of the entire global economy It is such an extensive agenda – it would have taken years to actually put together – a lot of this ties into the SGD with the UNS agenda 2030 – covered these in length in the past - but the great resets proposals surprisingly tie into the economic shutdowns of 2020 due to Covid Not the overall plan – the plan really has little to do with COVID19 – but it is being used as the justification as why it is urgently needed Klaus Schwab the founder and executive chairman of the WEF – "The pandemic represents a rare narrow window of opportunity to reflect, reimagine, and reset our world" – come back to this point in a minute The WEF is not alone in wanting to reset the global economy – they are working with the UN, International banks and partners of the WEF – being the global industrial and technology giants The World Economic Forum's 'Strategic Partners' are its top-tier group of 100 global organisations - This group includes major global banks such as Barclays, Bank of America, Credit Suisse, Deutsche Bank, Morgan Stanley and Standard Chartered Bank – goes without say that this group yields immense financial power Their partners also include major technology and communications companies such as Huawei, Publicis – the oldest and one of the largest marketing and communications companies in the world, Omnicom – another massive global marketing, public relations and communications companies – then you have other players such as Microsoft, Google, Facebook This is an important point to ponder on – why would the WEF have strategic partners involved in the flow of information and spinning information through public relations/advertising? Between Google (and YouTube) and Facebook – this is how 85% of the world's population get their information/news Then they are enlisting the help of the biggest communications and marketing companies in the world (Publicis and Omnicom) – to help provide the spin on the information about the agenda. Why? It seems like the teams are in place – with their strategic partners to help with the financial side as well as the PR/information dissemination How do they actually want to reset the economy? This is where things get a little murky – they have no defined plans about how - but simply what – this is always a concerning point – How is the most important factor – what is simple – you can have the what to be that there is greater equality – but if the how is to make every equal in having nothing – then this isn't a good outcome But it seems like their aims are to band together to create the new normal that we are hearing about – a world that works as they plan it to work Statement from the WEF - the world must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions. Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a "Great Reset" of capitalism. So it is a movement to reform capitalism and as previously mentioned - These are not the ramblings of teenagers – but some of the most powerful and influential think tanks on earth – with companies that control almost all of the information flow of earth And in essence – they are calling for what could be best described as a form of new corporate Marxist principles – having governments and entities like the UN to team up with already powerful companies to enact the change that they think we need – based around centrally planned ideologies They are claiming that capitalism has empirically failed – due to inequalities - but in my opinion – it technically has but due to the evolvement in the market by these very entities – through over regulating and creating barries to entry and an environment where to get to the top as a company – you need politicians and corporate welfare That is where there is a distinction between a free market and capitalism – capitalism in its current form has failed – but that is not at the feet of the free market – but a subverted market that turned into a form of crony capitalism But their ideas to reform capitalism by returning towards a planned economy is likely to exacerbate the current problems the world economy faces – A planned economy is a type of economic system where investment, production and the allocation of capital goods take place according to economy-wide economi

Welcome to Finance and Fury, the Say what Wednesday edition. This week is another great Question from Phuong. "What do you think about the future energy plans for Australia and the world in general? I heard about the Government's plan to build some gas station? do you think this is green energy and does it help with economic growth? I know we have some share in Uranium and lithium. do you think Australian Gov will ever consider nuclear energy?" Thanks for the great question – pretty big topic – a lot of governmental energy policies are focused on climate change and CO2 emissions - Covered a lot of the background to this topic in previous episodes over the years – some of these were titled: What is the real danger behind Climate Change? – went through the history of the climate change narrative – from back with global cooling in the 60s and the organisations behind constructing the narrative and who benefits Climate Agreements – An effective CO2 reduction strategy, or a money-making scheme? – looking at the financial incentives and economics of climate policies for big business Pay more in taxes, electricity prices and costs of goods, or the climate will change! - focusing on why CO2 is presented as the culprit and what this leads to in your everyday life – in this I did look at the better already available solutions that are being ignored Global Infrastructure plans in the name of climate change - Why then are the recommendations focused on changing Government accounting practices and risk-measures, along with opening the floodgates for redistribution spending? So if you want some more context – recommend going back and searching for those titles - However - In this episode – look at what is green energy, and what the future of the energy market in Australia may look like and why – versus what I think is the optimal outcome – next SWW episode – look at if the Aus Government plans, called the Gas-fired recovery can help with economic growth and the green energy plans What is Green energy – it is considered renewable energy – Renewable energy is energy that is collected from renewable resources - which are naturally replenished on a human timescale – these include under the definition energy sources such as sunlight, wind, rain, tides, waves, and geothermal heat – but why not gas and oil? A lot of people think that these are finite – lingering fallacy from the peak oil theory initially from 1956 – but the geologist who came up with this worked for Shell and was probably trying to create artificial demand for oil – which worked – However – there is a lot of information that actually backs up the idea that Earth is actually an oil-producing machine – the idea of oil being a fossil fuel – getting its name based around the assumption that oil and gas comes from decomposing dinosaurs and organic material now seems ridiculous – this the label is a misnomer – all the research from the last decade found that hydrocarbons are synthesized abiotically In other words all the data implies that hydrocarbons that make up oil and gas are produced chemically from carbon found in Earth's mantle – that is self-reproducing Science magazine and Nature magazine have released studies on this - calls the product of this process an "unexpected bounty " of "natural gas and the building blocks of oil products." – which the earthy naturally produces on an ongoing basis – oil and gas reservoirs replenish themselves The definition of human timescale is where the definition of renewable is narrowed down - Oil and Gas actually renews the reservoirs over time – we aren't running out of oil and gas – they are technically renewable energies by the definition if you take human to be a generation or more – Engineering and Technology magazine says "with the use of the innovative technologies, available fossil fuel resources could increase from the current 2.9 trillion barrels of oil equivalent to 4.8 trillion by 2050, which is almost twice as much as the projected global demand." But that number could even reach 7.5 trillion barrels if technology and exploration techniques advance beyond the current projections – so oil and gas are naturally renewable this nomenclature aside – there is the argument of environmental damage and CO2 emissions When it comes to the future of energy – what is considered green energy in the form of renewables with solar and wind is a major the key policy focus from the unelected global entities like the UN, world bank, WEF and their likes – but the focus is on the reduction of CO2 emissions In the UNs Agenda 2030 – Started in 2015 – a part of this is the Paris Agreement – tool used for countries to meet the sustainable development goals through reducing carbon emissions you have Sustainable Development Goals 7, 9 and 13 which focus on this topic of what they consider green energy– SDG 13: Climate action - "Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in r

Welcome to Finance and Fury. In this episode – want to look at the proposals for the superannuation industry overhaul – released in the latest budget – as there are some pretty big changes – In the budget – the super system is likely to be in for a shake up due to the reforms proposed But this time – unlike previous proposals – these changes are going to be affecting Industry funds/my super accounts – unlike WRAP or SMSF accounts which have been a major focus of a lot of legislation over the years Unlike the things such as Stronger Super reforms proposed by Labour – which were in favour of industry funds – these bit of legislation from what I can see are not in favour of the MySuper industry reforms previously implemented – called the Your Future, Your Super package The Australian super industry is massive - $3 trillion superannuation system and it is the fourth largest in the world –it manages the retirement savings of 16 million Australians The aims of superannuation is to help Australians fund their retirements in a tax effective manner – after the age of 60 and fully retire – tax free incomes from allocated pension accounts We have grown to be a large super industry when compared to our population due to the legislated employer contributions – other countries like the US have a matching system – but it isn't legislated for individuals to actually contribute to a 401K plan A lack of real oversight and guaranteed inflows has created a pretty docile industry superannuation environment – it wasn't until 3 years ago that if you worked with some government departments that you could actually choose a different super fund to their default provider Created a situation where Australians superannuation funds can take advantage of them and not the other way around At the same time – the super systems complexity and the major onus on the individual to pretty much be an expert to understand the inner workings of the funds means that most people put it out of sight and out of mind - the lack of simple and clear information is holding back more members from finding the best product for them – so it is put into the to hard basket and most members end up in the default fund selected by their employer – as that is the path of least resistance A review of superannuation was conducted – and the following are some of the major structural flaws – Funds with underperforming products are not held to account – goes without say that small differences in fees and returns translate into large differences in retirement outcomes – for better or worse – because they accumulate and compound over time – super is a working lifetime timeframe for most people – 35+ years on average Treasury analysis of APRA data shows that many superannuation funds are consistently poor performers – I see it in reviewing clients industry accounts all the time – especially since the MySuper products have been implemented - 21 out of 77 MySuper products underperformed their own performance benchmark – which are sometimes 3-4% above the cash rate – so all they need to do is get 4.5% and they meet their goals These underperforming accounts hold around $100 billion in assets across 3 million accounts and charge $1.2 billion in fees – or roughly 1.2% in costs A lack of competition, disengaged members and embedded inefficiency means Australians pay higher fees Many Australians are disengaged from the superannuation system - many Australians find superannuation complex and are disengaged from decisions about their retirement savings – following the path of least resistance – due tot is being compulsory have carrying different taxation rules to what the individual normally experiences – it is seem as foreign and treated as such – creates a lack of competition – if you don't know the difference between super A and B – then employer choice super is the major driver for the choice of the individual – a lot of people do pay attention – but this comes back to low fees – but the fees that are directly charged as small in most cases – as the indirect fees are higher - Without strong competition, all members end up paying more in fees and accumulating less retirement savings The Productivity Commission found that two-thirds of members do not actively select a superannuation product when starting a new job – the majority of people do not make active decisions about their superannuation until they are close to retirement. The Productivity Commission found that fees in Australia are high by international standards - in part reflecting the absence of member-driven competition – but I would add that the fact that super contributions are compulsory – Since the Stronger Super reforms under labour – that introduced MySuper in 2014 - the average annual fee of MySuper products has increased – by approximately 13.6% since June 2014 – at the same time MySuper products have increased in scale from $362 billion in June 2014 to $731 billion by June 2020 The average MySuper product in 20

Welcome to Finance and Fury, the Furious Friday edition. In today's episode I want to explore the effect of monetary inflation (in other words the increase in the money supply) on GDP growth Covered GO compared to GDP in Wednesdays episode this week - To go one step deeper – want to look at the fact that nominal GDP looks to be directly inflated by additional money introduced into an economy – essentially in the form of credit – therefore - GDP growth is simply a reflection of additional money introduced into the economy And if this is the case - GDP is really not a good macroeconomic tool to use to make policy decisions – as it gives no real indication as to the underlying health or real growth of an economy – as it can just be artificially inflated whilst having debt elsewhere that offset the real growth This may come as a bit of a surprise – it did to me when looking at some of the figures – as it is rare to find any economists covering the relationship between monetary expansion and GDP Yet – there is a pretty strong relationship between the money supply growth (measured by M2) and GDP growth over the past few decades since Fiat currencies were implemented worldwide – Especially when Government spending (both as a component of GDP) is now funded through an increase in the monetary supply by fiscal deficits – which are funded through the issuance of bond and in turn these are now funded through CB programs like QE The corporate side isn't too much better – you have massive zombie companies that have funded investment through the issue of debts Under normal circumstances - how should the economy grow based around classical economic theories? If you have listened to this podcast for a while – it shouldn't come as any surprise that I fall into the supply side of economic thinking – and as part of classical economics thinking – there is a thing known as Say's law – also known as the lawof markets That is that creation of a product creates demand for another product by providing something of value - which can then be exchanged for that other products – it relies on production being the source of demand in a market economy, goods and services are produced for exchange with other goods and services – this is known as "employment multipliers" – these arise from the production of goods and services and do not come from the exchange of these goods alone This goes back to the concept of GO versus GDP – many businesses in the economy exist to be business to business services – that form parts/components that go into the final output that GDP gets measured So there are many economic interactions that don't get measured So through the market – with additional companies being in demand to produce additional components for other companies that provide goods and services – additional employment growth can occur – with this comes additional incomes and the cycles of consumption can go on So through the process of creating many different types of economic activity - a sufficient level of real income is created to purchase the economy's entire output, due to the truism that the means of consumption are limited by the level of production with regard to the exchange of products within a division of labour of different employees working in different businesses - the total supply of goods and services in a market economy will equal the total demand derived from consumption during any given time period However - For this type of economic functioning to be present – there are some assumptions that need to be present - flexible prices—that is, all prices can rapidly adjust upwards or downwards – this is the price of the exchange medium as well – which is money Goes into both interest rates as well as wages in economic activity – both of which are set with floors no government intervention – which doesn't exist So this theory quickly falls apart – but it is important – as it can only holds true as long as governments don't regulate the function of businesses and the consumers exchange – as well as monetary officials – such as central banks messing around with the medium of exchange - the money Now comes an important question – why does an economy need to grow? Especially when measured by GDP? Does it matter that GDP goes up for you? Compare the economies of Japan and Qatar – looking at GDP per capita – Qatar has had a rise in GDP – very oil rich nations - has $69k USD per capita – however - Japan $41k USD per capita – but Japan's average net worth is double that of the average Qatari – and living standards are higher in Japan – in a relative economic sense – so who is better off? But total level of GDP – Japan has a GDP of $5trillion USD – Qatar has a GDP of $190 billion USD – the per capita GDP figures are different due to the population levels In classical economic terms - A healthy economy is not one that "grows", but one that does not have its production and consumption interfered with. If the money is sound and its quantity un

Welcome to Finance and Fury, the Say What Wednesday edition. This week the question comes from Todd. "Hi Louis, I just saw Steve Forbes talking about how Gross Output (GO) is going to replace Gross Domestic Product (GDP) as a measure of how well the economy is going? I was wondering if you agree with Steve on GO? I had heard in the past that GDP was not perfect, but had been used because it was the best option available. Are there problems with GO that will also cause problems when trying to use this measurement to judge the health of an economy? Love to hear your thoughts?" Thanks for the question Todd – is an important question – So in this episode – we will look at if the replacement of GDP with GO is a step in the right direction – to be upfront - its replacement isn't a perfect solution as an economic measurements – but there is nothing that is perfect when talking about economics –as Economist Thomas Sowell says - "There are no solutions, there are only trade-offs; and you try to get the best trade-off you can get, that's all you can hope for." As we cannot achieve a perfect outcome – we will look at if GO a better trade off to measure economic output when compared to GDP First – go through the basics of GO and compare this to GDP In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services It is a much broader measure of the economy than gross domestic product (GDP) GDP is limited mainly to final output (finished goods and services) that are consumed in the economy – not total output Most people are familiar with GDP – or at least have probably heard it mentioned – even though it might not have much bearing to their own lives – But indirectly it does – as it is the standard for what economists and policy makers focus on when looking at economic growth and deciding what policy responses to make – there is an increasing focus on it – especially now as it is the measurement of a recession Looking back – Following the Bretton Woods conferencein 1944 - Both GDP and GNP became the standard measure of economic growth that was implemented - But it has its limitations – and this comes back to the reason why it is used - simplicity – relatively easy to measure – at it takes the net results of economic output – but because it is simple – it is a flawed way to look at economic output Covered the issue with Government stats earlier in the year – episode was called "How accurate are economic statistics and do they really matter in our daily lives?" If a computer is sold – then the end result is what is measured – minus all the components that went into making it – so those companies that produce processors or RAM for a computer aren't included – as these are component parts of the final product – the final product and the component parts can often blur between one another – If your CPU breaks down and you buy a new component – then this isn't added to GDP – even though it is technically an increase in economic output If this computer is then resold later by a business such as cash converters – it isn't counted as part of GDP as it is not new output – even though it is an economic transaction GDP ignores other sections of economic output – these areas are known as the informal economy – making up about 60% of economic activity as an estimate – they aren't included as it is hard to track down and these activities are normally not included in GDP figures GNP is a little more complete than GDP figures – adds the component of Z of net foreign income – so if you have a company that operates internationally – it counts the net balance of foreign income from operating internationally – while it might seem more complete – it is even more flawed – as it is influenced by the exchange rates and the health of other nations – performance of other nations may not be indicative of the performance of the domestic country that GNP is accounting for But GO is equal to the value of an economy's net output – which is the measure of GDP plus that of intermediate consumption Conceptually - intermediate consumption is equal to the amount of the difference between gross output– normally measured by the total sales value in an economy and net output (which is GDP) So in other words – rather than taking the net output of the economy – you can take the total sales revenue of companies as the Gross Output – very simplistic way to think about it – but that is the general gist of the concept As an example – take the US economy - total intermediate consumption represents about 43% of the gross output of an economy – so this means that if GDP was $1 – GO would be $1.76 When looking at the actual figures – gross output in the United States is estimated to be $37.2 trillion, compared to $21.1 trillion for GDP The Australia economy generates an estimated $3.8 trillion in output – GDP is estimated to be about $2 trillion dollars – so this means the intermediate consumption is about 47% of Gross

Welcome to Finance and Fury You might have seen the budget that came out last week – in this episode we will be looking at the bringing forward of the tax cut – but also using this as an opportunity and what to do with it The budget and the tax cuts – The Government passed its Budget tax cuts last Friday, after bringing forward major cuts slated for July 2022 to July 2020 So this tax cut will be back dated –people will get a refund at tax time or the PAYG will be adjusted for lower taxes for the rest of the FY Around 11.6 million Australians are set to get some benefit There are about 12.6m employed people in Australia – so this affect the majority of the working aged population Obviously if you earn less than the $18,200 threshold – you don't pay any taxes so when taxes are cut – cause you don't pay any taxes you don't get a reduction in what you pay – if you pay nothing then it is hard to reduce this beyond zero Who will be affected – based around the taxable income thresholds Earning up to $37k – tax relief of up to $510 – for 2.4m income earners Earning between $37k and $48,000 – get tax relief between $510 to $2,160 – for 1.8m individuals Earning between $48k to $90k - get tax relief between $2,160 to $2,295 – for 4.6m Earning between $90k to $126k - get tax relief between $2,295 to $2,745 – for 1.5m Earning above $126k – get $2,565 in reduced tax So with the tax cuts - You will likely have more money due to the tax cuts – Why the Government has done this – Treasury estimates that reducing the personal income tax burden on Australians through this measure will boost GDP by around $3.5 billion in 2020–21 and $9 billion in 2021–22 and will create an additional 50,000 jobs by the end of 2021–22 – based around big assumptions Demand side economics – that people will spend – two ways to achieve – give people money directly or indirectly allow them to keep more of their money through tax cuts – so tax cuts are in Hence why they are giving out cash payments to pensioners - got some economists saying that vouchers should be employed instead – spending forced rather than people saving This tax cut pretty predicably been slammed though – canned a 'Perverse outcome' of tax cuts Analysis by The Australia Institute found that the top 20 per cent of earners will receive more than 40 per cent of the benefit of the tax cuts – reading some of the comments from The Australia Institute senior economist Matt Grudnoff "It is clear that most of this tax cut will go to those who are far more likely to save it. Saving the tax cut is made worse during an economic crisis," "People who are worried about losing their job are not keen to spend. Any additional money they get is likely to be used to pay down debt and increase savings in order to create a buffer against the growing uncertainty that they are feeling." Grudnoff also noted that a large amount of the tax cut flowing through to low- and middle-income earners is temporary, in the form of the low- and middle-income tax offset. However, the tax cuts for high-income earners are baked in. "This leads to a situation where low- and middle-income earners will pay more tax next financial year than they pay this year. Effectively they face a tax increase next year when compared to this year." Technically not true – the LITO is increasing to $700 from $445 It is the Low and Middle Income Tax offset that is in place for the next 4 financial years - A duel income household of two individuals earning $60,000 each will benefit by a tax savings of $4,320 annually when compared to the 2018 brackets , while another childless household where one is a low-income earner and the other is unemployed would see a benefit of $500. And a household with no children where both adults are unemployed would see no benefit from those policy measures. "Meanwhile, high income households gain the most from tax cuts." – however – not proportionately – Someone earning $40,000 p.a. will get a 21.4% reduction in their taxes Someone earning $80,000 p.a. will get an 11.3% reduction in their taxes At $140k p.a. they will get a reduction of 6.1% in their taxes paid Someone earning $200k will get a reduction of 3.8% in taxes The tax cuts cap out – the most someone will save is $2,745 – at earning $120k – Someone earning $200k will save less – at $2,565 p.a. But comparing $40k earnings to $200k - tax savings of $1,060 to $2,565 respectively – So someone earning $200k will get around 2.5x more tax savings than someone earning $40k But after the tax savings - $40k will pay $4,467 in taxes – or about 11% of their income in tax Someone earning $200k will pay $67,097 in taxes – or 33.5% of their gross income is paid in taxes The narrative can be spun anyway - Looking at the tax cuts What to do with this new money? – many options – you could spend it – that is the hope of economists – But there are other options – doing what Mr Grundoff doesn't want you to do – that is use it to build additional equity through paying down

Welcome to Finance and Fury, the Furious Friday edition. Last week – went through the rise in billionaires in favour of additional socialist policies – went through why I think this is the case - I think that most of the billionaire class are in favour of calling for socialism due to it giving governments more control over the economy – and hence increases their political influence over the economy to benefit themselves Not true socialism – but a socialism lite version to help create additional barries to entry and to help monopolies the markets further More political power – greater ability for lobbyist to influence policy at the state and federal levels – hence additional benefits for the companies that they control through gaining additional corporate welfare Plus – the policies that will be recommended in the form of what those on the left want – like additional taxes will unlikely affect them – at least proportionately when compared to others – Taxes – they can move their wealth (or move away themselves) or employ tax minimisation strategies – like charities that their own relatives are the leaders of – to amas tax free wealth that gives out the minimum 1% requirement – so they appear to be philanthropic and get to save tax – win win – even paying out 10% is better than the standard company tax rate In todays episode – want to look at another potential benefit for the billionaires who are pushing for socialism and have the power the flow of democracy into this way of thinking – whether it be political or informational influence – through the owners of the platforms like Amazon, FB, Google (youtube) And why they are in favour of concepts like UBI as this will also benefit their companies The first step – killing the competition – Through having additional taxes and regulations on businesses you can kill the competition You can see many billionaires talking about how they think companies and the wealthy should pay more tax But they never put their hand up to actually pay it – they could if they wanted to – but why don't they? It is rhetoric – to get good PR at the least and at the most – have a greater burden on those these taxes will actually hit – the millionaire class and or the upper middle class That is where these regulations normally land – in the business world this is on the SME disproportionately when compared to massive multi-billion or companies worth over a trillion dollars The greater the level of state control – the harder it is for new up and coming businesses to be competition to those already established Plus – those that do pose a threat can be bought up – even though it might go against any anti-trust regulations – as a massive conglomerate company you can buy up any companies that are competition Can provide the political funding to have bling eye turned away from these laws and the effects But killing the competition starts to deteriorate the economy over time – With this – comes lowering employment opportunities – due to less companies – and people have less income – to spend on businesses Comes greater rates of poverty and the blame for economic woes gets placed at the feet of the free market – not the regulations that create the issues – The greater the power centralised entities have over any economy - in other words the more control they have – the worse the economic conditions for the population – this can come from Governments or companies – So the economy gets messed up – the younger generations get born into an economy that blames capitalism – they see economic inequality as the cause and not as a symptom – even through our economies are some of the more free economically in the world and with it higher level of living standards – so they look for policies that have been implemented in some countries and that have resulted in the deterioration of economies to be become some of the worst in the world The pipe dreams that this time it will be different never lose their appeal Younger people who use products of billionaires – they can also ironically like socialism – even though they consume like capitalists – just because people are telling them they can consume more through getting free money from the Government So you have this weird sort of bedfellows – younger people and billionaires together – both loving the concept of UBI there are any number of reasons for this – covered on Weds the concept of technological unemployment – this has been a big driver for things like UBI – particularly by the CEOs/owners of some companies that are those responsible for getting on the bandwagon of automation – look at any massive company – Amazon, Apple, Microsoft, Google – all on the forefront of removing humans from the working force - Amazon with drones to deliver, apple with robots for automation, google with self driving cars or their subsidiaries like Boston dynamics working on humanoid robotics – list goes on – as I went through on Weds – this is a natural cycle of creative destruc

Welcome to Finance and Fury, the Say What Wednesday edition. This week's question is from Phuong. "Hi Louis - With strikes happening at Sydney's port recently and worker asking for pay rises, do you think that Robot will eventually replace human workers? And what are future job for younger generation, do you think?" Thanks for the question – brings up a great point – in todays episode – look at the rise of the robots – does it pose a danger to the employment sector and what the future of employment may look like To start with – look at the rise of robotic workers – in automation study from Oxford Economics - Robots could take over 20 million manufacturing jobs around the world by 2030 – over the next decade – about 14 million of those were estimated to be in China alone Perspective – 7.8bn population – about 5.15bn aged from 15-65 – working age – 20m is about 0.4% of this working population – or about 0.04% of the population each year China has an economically active population – or in other words – employed individuals of 776m – so 14m being replaced over 10 years is about 1.8% - or 0.18% p.a. To give a comparison – say this was happening in Australia – which it isn't at the same rate – due to the roles that robots will be replacing in the next decade – Oxford Economics also found the more repetitive the job, the greater the risk of its being wiped out – so these jobs are very limited in Aus – but lets say that we will have the same replacement rate of positions but in Aus it would be the equivalent of 22,700 jobs being lost each year – lots of jobs – but we have just had much larger job losses – ABS said that 594,300 people lost their jobs in April this year due to the shut downs - ABS estimated another 227,700 jobs were lost in May – people have gone back to work – but many jobs are still lost – greater number than would be replaced over the next decade by robots in two months still out of work so over the next 10 years – does sound like a lot of people but perspective is important – wont be massively disruptive as this transition will be gradual – I don't think this will be as large as disruption as people think – that is because we know about it as a likely possibility – when people are saying something will happen people can adapt – we are very adaptive – Technology changes and the resultant unemployment are a part of creative destruction within an economy – which is a part of the cycle – it is the unknown and massively disruptive technological shifts that create turmoil – even in employment – like a lockdown that puts people out of work People may think that robots replacing jobs is going to be a huge issue – and it may be – I may be way off the mark – but I think it will have less of an impact in the long term – as people can truly adapt Technological change is an economic concept that includes the introduction of labour-saving "mechanical-muscle" machines or technology – automation that replaces the human's role in production within the economy That technological change can cause short-term job losses is widely accepted – but the view that it can lead to lasting increases in unemployment – structurally – the views are mixed - Participants in the technological unemployment debates can be broadly divided into two camps - the optimists and the pessimists Optimistsagree that innovation may be disruptive to jobs in the short term, yet hold that various compensation effects ensure there is never a long-term negative impact on jobs – with new technology there comes new employment pessimistscontend that at least in some circumstances, new technologies can lead to a lasting decline in the total number of workers in employment. The phrase "technological unemployment" was popularised by John Maynard Keynes in the 1930s Should be noted that the Oxford Study comes from the pessimists of the group – some of the economics here think that half of human jobs will no longer exist in the future – which may be true – but they neglect that new jobs come up along the way Yet the issue of technology and machines displacing human labour has been discussed since at least Aristotle's time – he lived around 350BC – so this has been a long running concern – that is because there have been many technological shifts through our history – examples of changes to working conditions – Just as horses were gradually made obsolete by the automobile, humans' jobs have also been affected throughout modern history Historical examples include artisan weavers being replaced by the introduction of mechanized looms – but these jobs were replaced over time – and clothing over time because cheap and available – people only used to have one or two sets of clothing Before electricity - cities and streets were lit by gas and oil - in the early 19th century, gas lamps were first installed in the dark foggy streets of London and other cities and spread throughout the world – and someone had to light these gas lamps at night, then extinguish them in

Welcome to Finance and Fury. This episode – be looking at one of the simplest ways to potentially generate alpha and outperform the broader market It's been a decade since financial markets have become increasingly centrally-planned by central banks and with this - disconnected from fundamentals Hence – traditional analysis of shares based around their fundamentals may not provide outperformance – however – I think it is still important to understand which are good companies to buy into Looking at fundamentals and understanding these and their implications in the broader sense can be hard – takes many years to learn But what if there is an even simpler strategy to beat the market and generate alpha? That is where there is one interesting strategy from some quants – released an article called "Can quants make money by tracking the Fed books?" Runs through trading alongside the Fed's balance sheet – as this seems to be the dominant price setter in markets Been talking about this emergence in a few episodes recently – but interesting that some quant traders are now implementing this Looking at the influence the Fed has had on share prices - Monetary policy has the ability to influence asset prices – a lot of evidence that low interest rates and accompanying expansionary in monetary supply creates rallies in assets with risk - monetary contractions can create market retreats been more obvious since the GFC - market reactions appear to have become increasingly aligned and dependent on central bank actions – especially that of the Fed This is in part due to policies such as QE – as well as forward guidance from CBs – with statements like to the effect of supporting markets by any means necessary – increasing speculation and the dive head first into those assets that will be supported In 2008 – the total assets on the Fed balance sheet have expanded from $2.3tn to about $7tn today – this is a growth rate of over 200% Over the same time - S&P 500 rose from 900 to about 3,300 -growth of about 270% Over the shorter term – this year specifically – From March the Fed was sitting on about $4.7tn and this has grown to the previously mentioned $7tn figure – a growth of about 48% the S&P 500 over the same period has returned about 42% There is definitely a correlation here – but there is likely a causal relationship as well due to the flow of money into the markets that comes with the Feds balance sheet expanding – injecting liquidity as they would call it But how predictable are asset returns based on prior Fed action and can this be used as a tool to outperform the market? Technically – Fed policies have to be transparent – hence they can be market-moving – if traders are paying attention – so there is likely a first mover advantage here – Looking at what the quants wrote as their trading strategy – or what they are looking at - simply following the Fed They first go through the observation of the correlated movements between markets and the balance sheet of the Fed – have many charts showing the relationship between the growth of the Fed balance sheet and a variety of risk assets They note that the sheer scale of unconventional monetary policy does seem to have also made asset returns more predictable, and performance appears increasingly contingent on central bank actions. This provides a potential opportunity for investors. Fed has committed to maintain its asset purchase programmes "at least at the current pace to sustain smooth market functioning", and with ultra-low rates expected to at least until 2023, according to the Fed, it is clear these unconventional monetary policies are going to remain a key driver of markets for some time. The quants note introduces a simple tactical alpha strategy that uses the growth of the Fed balance sheet to measure the degree to which monetary expansion is supporting risk-asset rallies The strategy - implemented in the context of the classic long-only equity/cash decision (buying and selling shares) – "provides supportive evidence of market predictability and the potential to utilize measures of unconventional monetary policies in designing systematic strategies" This means that to outperform the market – you can follow the growth of the feds balance sheet – as they note based around their simulations – doing so "generates a sizable outperformance with a reasonable success rate" Important to point out that this model is illustrative - provides a framework to extend to analogous risk -on/-off They did run some observations on if the relationship between the Fed causal beyond what is correlated – presented the correlation of weekly growth in total Fed balance sheet assets with lagged and subsequent returns of the S&P 500 index – what they found: "The negative correlation between lagged stock market performance and current growth in Fed assets (left-hand chart) means that stock market declines increase the likelihood of Fed action in the form of balance sheet expansion. On the other h

Welcome to Finance and Fury, the Furious Friday edition. This episode – be looking at the weird combination between socialism and billionaires that is emerging – especially focusing on why billionaires are increasingly becoming in favour of socialism? Or additional government controls over economic function Interesting development - Wouldn't think that these two worlds would collide – the only time I could think of socialism being used in the same sentence is to take away the billionaires money – which is has been – but why would some billionaires be in favour of this? technically – if a country was truly socialist – they wouldn't have any wealth – or would they? In this episode – try to puzzle this out further to make sense of it and to see why they might be in favour of it - To start with – look at the concept of Socialism for the rich and capitalism for the poor This is a classical political-economic argument which states that in advanced capitalist societies – the more advanced the country the more there is wealth – the more governments can exist – and with larger governments comes the ability of additional policies – Hence – these state policies can assure that more resources flow to certain sectors of the economy - in the form of transfer payments One of the most commonly raised forms of criticism are build around the fact that the more political the economy becomes – the more it allows for the flow of resources to go towards certain large corporations This allows for the process of privatize profits and socialize losses - The argument has been raised and cited on many occasions. May have heard this from mostly individuals on the left – those But they take their anger out on the 'rich' – which is such a generic term – what is rich? We are all rich compared to someone living in the 3rd world – that is where movements like the occupy wall street movement was misdirected in their energy and efforts – they were pointed in the wrong direction – as their solutions would have caused more of the same – giving the government additional power over the economy – wanting redistribution to take from the top to give to the bottom The concept of socialism goes on large spectrums – All the way – Government controls all means of production – which has never worked well Part of the way – what most people might think of – is social policies – like social security In either case – governments need more authority – either to control all of the means of production – or to have the ability to tax or raise funds through deficits to fund their policies There are lots of criticisms of free market principles – but with Governments acting the way they do now – there is no free market – so calling a county capitalist when it has a socialist style monetary policy – where a semi-state or even private company in the case of the Fed control all of the money – isn't truly a free market – I have plenty of criticisms of the current economic system – but I don't blame the free market – I see that the free market got hijacked by the one entity that have greater control over it than the sum of individual choices in optimisation – that is Government – they create the rules in which the market has to operate – and the more rules – the less free But that is where people can use free-market rhetoric to go one of two ways – what is happening in a lot of politics is that it is being used to justify imposing greater economic risk upon the non-billionaire class – SME – through additional regulations – however – billionaires and large companies considered TBTF are being insulated from the rigours of the market by the political and economic advantages that such wealth affords These two things are not the same – and neither is technically free market This form of free market is socialism for the rich – where they have levels of state protection – that is part of why I believe that some of the billionaire class and politically powerful want to have a nanny state – But for the end result of when one is in trouble the taxpayer will bail them out – this is where the too big to fail scenarios of the past decade plus are a good example – seeing more of that now with the Fed buying back corporate debt off the market to further bail out the largest companies on earth – and over this time period whilst most individuals wealth and incomes have declines – select billionaires who have been the recipients of this have seen their wealth skyrocket A lot of this comes back to the concept of Corporate welfare The term corporate welfare is widely used to describe the bestowal of favourable treatment to big business by the government The definition of corporate welfare is sometimes restricted to direct government subsidies of major corporations – this doesn't include tax loopholes and other forms of regulatory trade decisions - which in practice could be worth much more than any direct subsidies – but are indirect due to policy decisions Subsidies considered excessive,

Welcome to Finance and Fury, the Say What Wednesday edition. This week's question continuing on the from Raj in last two weeks episodes – interesting topic on how factors affect the real economy – which is us – so this episode will to continue on a similar line –will focus on the remaining factors that can affect the real economy - fiscal deficits more and then the real inputs to the economy, like forex, oil prices and trade imbalances All previous factors – like interest rates can affect our lives and hence affects the real economy – influencing the decisions we make – similar – the yield curve – whilst not directly affecting our lives - can indirectly affect it by decisions that banks make – such as what interest rates to charge or pay on fixed rate loans or term deposits respectively Before we go on – important to remember that the real economy is the combination of our economic interactions – so it is almost impossible to forecast the degree to which one factor is affected by the other – but you can get an idea about in what direction they are affected - Fiscal deficit – what does it mean – The government is spending more than it earns and gets into debt – The actual effect on our lives - All depends where the money is spent – For the individual – public debt in the fiat economy is progressively becoming less relevant to our day to day lives – Back before fiat currencies – a public (Government) debt may have been a concern – as taxing the population was one of the only recourses to dig themselves out of that hole Today – every country is in debt – and they can just keep issuing more debt as all money is debt – so just have a CB create more money and use it to buy the debt of a government – hence lending them the money When the money comes due – then simply issue more debt to repay the principal – almost like a balance transfer for the individual on credit cards – but on a much larger scale and can be done essentially indefinitely – until confidence and CBs ability to print money ceases So the major determinate on how deficits can affect the individuals in the economy and hence the real economy depends on where the money is spent – major spending areas: Infrastructure – can improve our lives and daily functions – helps to improve the economic function as well But the degree to which this has an affect is hard to measure – covered episodes on infrastructure – called "Can public infrastructure spending help to boost a depressed economy?" – mixed bag – and comes back to the same question on how well the funds are spent – white elephant projects – or dig a whole to fill a hole – Even at the moment – lots of talk that shovel ready projects need to be implemented to help the economy through additional employment – but how? Those out of work are predominately in the hospitality and service industry – everyone I talk to in engineering an infrastructure are already busy – so are people who work in hospo going to go out and all of a sudden go and start working on fixing roads? In theory it might sound good – but in reality, the transaction of the economy doesn't function this way Fiscal stimulus – additional welfare/social security payments - This comes back to demand side economics – the individual has additional money to spend in the economy – so growth is meant to materialise Also falls into MMT – that government should monopolise currency and control the flow of a lot of the capital to maximise economic conditions – but this is theoretical - Other economic factors - some specific ones mentioned in Raj's question - forex rates, oil prices and trade imbalances – which either directly or indirectly are determinates of the real economy - Oil prices – this is an interesting one – for the individual it might not seem like there is much impact beyond what it costs to fill up the car each week – so look at this first Petrol bills are a component of a weekly spend for most households – but how much depends on how far you drive – but also the cost of the petrol The Australian Automobile Association's (AAA) March 2019 Transport Affordability Index reported the average two-car Australian household (two adults, two children) pays $68.99 for fuel every week – this is equal to about $3,500 per year for a family in fuel costs This is back when fuel was averaging between $1.3 to $1.4 per litre – equal to about 51 litres each week for the family so if petrol prices goes down to $1 – then at the same usage of 51 litres – this means the family is spending $51 on fuel for the week – or about an $18 savings per week (26% reduction) – or a savings of $935 p.a. So this in theory can go towards other spending within the economy – however – it could also go towards debt repayment Especially when debt levels are very high – so people may consider that additional savings should go into debt repayment – which doesn't boost the economic output – Also – in the measurement of inflation – this lowering of price is deflationary – if it is pers

Welcome to Finance and Fury. This episode we'll take a deeper look into the RBA property market models and how different inputs affect prices. Potential models that give the ability forecast future growth of the market based around assumptions – from a study by the RBA - A Model of the Australian Housing Market Not set in stone – it is a best guess model – the accuracy is built around the assumptions – But the RBA built an empirical model of the Australian housing market that quantifies interrelationships between the factors that drive property price growth Looking back over the past 30 years - the Australian housing prices have increased on average by 7¼ per cent per year – since the inflation-targeting period since the mid-90s - by around 7 per cent per year - However, these averages mask three distinct phases: During the 1980s, annual housing price inflation was high, at nearly 10 per cent on average, but so too was general price inflation. In real terms, housing price inflation during the 1980s was relatively low, at 4 per cent per annum compared with 4.5 per cent during the period from 1990 to the mid 2000s, The 1990s until the mid 2000s were marked by quite high housing price inflation, of 7.2 per cent per annum, on average, in nominal terms – but 4.5% in real terms Since 2010 - Annual nominal housing price inflation over the past decade was lower than either of these periods, at a little over 5 per cent on average - and 2.5 per cent over the past decade in real terms So what are the major factors and how much do they have an effect on price Wont go through the whole document or all the RBA papers – but give a summary In this RBA model – the findings They find that low interest rates (partly reflecting lower world long-term rates) explain much of the rapid growth in housing prices and construction over the past few years. Another demand factor, high immigration, also helps explain the tight housing market and rapid growth in rents in the late 2000s. A large part of the effect of interest rates on dwelling investment, and hence GDP, works through housing prices. The Australian housing market shows strong relationships between interest rates, investment, rents and prices. The RBA paper combines these relationships in one – hopefully realistic – model. The model provides internally consistent projections for housing construction, prices and rents. It estimates responses to interest rates, allowing for feedback between quantities and prices. It helps explain historical developments and some of the key relationships that they found include: Interest rates, income and housing prices have strong and clear effects on residential construction. Dwelling completions and changes in population explain the rental vacancy rate. The vacancy rate has a strong and clear effect on rents. Interest rates, rents and momentum have large effects on housing prices. Housing prices and construction are mutually determined, so examining bivariate relationships in isolation can be misleading. Some of these observations are not new – but this paper examines these relationships What are the model outcomes – responses to variables - bring the equations together Responses to Interest Rates – Shows that a cash rate change that is expected to be long-lasting feeds one-for-one into long-term interest rates and the user cost of housing - but the temporary change having much less effect. As interest rates drop – so does user costs - Changes in the user cost give rise to similar, but lagged, changes in the rental yield (lower the cost the higher the net income from property) - which involves substantial increases in housing prices The combination of lower interest rates, higher housing prices and higher income boost dwelling investments – which increases the number of dwelling stock as well as rental vacancy rate Rents initially rise due to the income boost from lower interest rates, but as extra supply builds, they begin to fall. The signs of the effects on vacancies and rents both vary with time and with the expected duration of the shock. Since 2011 - the cash rate has fallen from 4.75% to 1.5% (3.25% drop) – at the time of the report last year – since then obviously lower to 0.25% - the user cost has fallen from almost 5 per cent to around 3½ per cent (1.5%) The decline in the user cost reflects a fall in long-term real interest rates (only be half), which in turn reflects falls in global rates and expectations that the decline in rates will be persistent. The model estimates that the reduction in real interest rates accounts for most of the subsequent boom in dwelling prices and a large part of the boom in dwelling investment – increasing the supply of property The increase in housing supply boosts the vacancy rate and reduces rents. However, these effects are offset by the effect of higher income, with neither the vacancy rate (bottom left) nor rents (bottom right) being much changed on net. Responses to Population Growth - Reflectin

Welcome to Finance and Fury, the Furious Friday edition. This episode is a little different – it is some of my commentary about the political division that is starting to emerge – especially in America – but also how to avoid it in your own lives and also prosper through it Populations being divided It is a natural part of any cycle – and in a pretty natural occurrence in the world at large – there is nothing new to people thinking differently – but to what degree and the degree to which this gets played out in society in a physical manifestation does differ Covered cycles in the Fourth Turning episode as well as the K-wave theory episodes – and the political spectrum of society works in similar cycles – its almost like it is interwoven between the seems of each generational turning – going back to the 1920-30 – things were pretty crazy – then calmed down – before picking back up Started to see the emergence of everything in modern society being politicised - from race, sex, economics – even a virus Very useful from a politician's point of view as it is a natural progression for them to pander to a base – as the population becomes more divided – you shore up more of your voting base – picking sides if you will So politicians have nothing to actually incentivise them to focus on a reduction in the escalation of the tensions in the population – if anything – many would prefer to increase tensions – especially in the US where voting is not mandatory – you need to energize your base to get out and vote for you – nothing will energize someone like an us versus them mentality – But we see a lot of what happens in the US - so this mentality spreads here as well Look at the basic psychology of any cult – or cult like group – the first major step is painting a picture of an enemy – whether it be real or imagined – a group soon falls apart without this core aspect – hence division is important – for a cult it means that people will remain within the group and be afraid of those outside the group But does it actually help us as a population? If anything – and what is fairly evident – it polarises us – divided us – and pits neighbour against neighbour – so in sort it doesn't When everything that people pay attention to is politicised – or everything reported on in the media is politicised – is it any wonder that there is political division and hence division in the population – whether it is by design or just an acceleration of a political cycle doesn't matter – it has the same outcome – that groups of the population are at one another's throats Yuri Bezmenov – talks about subversion – KGB defector – the easiest way to destroy a country is not through military force – you let the country destroy itself – political subversion takes a generation or two – but through making people divided in a nation – through removing any long-term goals and focusing on one social issue after another – can easily have a country implode Hence someone's political leanings and with – their outlook on life can create a further division - especially in a society which is meant to pride itself on differences – such as multi-culturalism which would naturally bring with it differences I don't know how many people have seen the irony here – the fact that we can all look different - but don't you dare think anything different from one another otherwise you are the enemy – complete inversion The idea that if someone has a different idea about how something should be done is an enemy to the point that violence is the best response is ludicrous But all of this stems from a deeper root – if there is anything emotional running through society which can be used for political gain – it will be Emotions are a very strong tool to control people – as you don't need to actually do anything to control them on an ongoing basis You just instil an emotion and then train the response – pavlovian style – in a classical conditioning sense We are visual creatures – monkey see monkey do – if we see others acting in one way – we are influenced by this behaviour – especially in mobs – or what we see on a screen I view politics today as the wings of a bird – whether it be the left or right wing – they are still part of the same bird – This analogy flows through to the entity known as the Government – think of the government as the bird And it either uses its wings to flap one direction or the other – this is a major issue of the two party system – create an us versus them mentality – without realising that no matter which wing we flock to – the bird is still flying higher – whilst our car windows get their splatter Further divides in goals and outcomes that society can agree upon – Especially when everything being focused on is in the short term One thing that China has going for it at the Government level – 100 year plans – can afford to do this as they know that the same party is likely to still be in power – hence why they have been able to economically beat most nat

Welcome to Finance and Fury, the Say What Wednesday edition. This week's question is continuing on the from Raj in last week's episode. "I would love to have an overview of how certain economic factors are interlinked and impact economies" This episode look at Yield curves and bond prices and touch on fiscal deficits Last week – looked at the other factors – mainly CB policies including interest rates, inflation and the monetary supply – but can't talk about these without the flow on effects that they have on what is known as the yield curve The yield curve for government bonds is an important indicator in financial markets - helps to determine how actual and expected changes in the policy interest rate (the cash rate), along with changes in other monetary policy tools, feed through to a broad range of interest rates in the economy – hence can have affects on the entities that comprise an economy The basics for bonds - A bond is a loan made by an investor to a borrower for a set period of time in return for regular interest payments Known as a debt instrument – The time from when the bond is issued to when the borrower has agreed to pay the loan back is called its 'term to maturity'. When the Government is the borrower – it is a Gov bond The main difference between a bond and a regular loan is that, once issued, a bond can be traded with other investors in a financial market directly – in the secondary market - As a result - a bond has a market price. True that mortgages can be traded as well – but it is after they are packed up by a financial institution and traded in a product like a MBS – however – bonds don't need this securitisation step Bond yields - is the return an investor expects to receive each year over the bonds term until it reaches the maturity date For the investor (who has purchased the bond) - the bond yield is a summary of the overall return that accounts for the remaining interest payments and principal they will receive, relative to the price of the bond Say that the bond is paying a coupon of 1% over a year – and the bond is maturing in 1 years time – the investor will get $100 back and the current price of the bond is $99 – the total yield will be close to 2% For the borrower (entity that issued the bond) - the bond yield reflects the annual cost of borrowing funds through issuing a new bond For example, if the yield on three-year Australian government bonds is 1% - means that it would cost the Australian government 1% each year for the next three years to borrow in the bond market So there is a difference when talking about the bond yields for the investor or borrower Relationship between a bond and its yield - The prices at which investors buy and sell bonds in the secondary market move in the opposite direction to the yields they expect to receive Once a bond is issued - it offers fixed interest payments to its owner over its term to maturity – say the coupon payments are going to be 1% p.a. and it is a 10-year bond – get 1% p.a. for 10 years However - interest rates change all the time = as a result, new bonds that are issued will offer different coupon payments to investors when compared existing bonds that were issued 5 or 10 years ago In the current economic environment – created a situation where as interest rates are falling – older bonds have become more valuable to investors due to the higher coupon payments – hence the price of existing bonds will rise when compared to newly issued bonds However, if a bond's price increases it is now more expensive for a potential new investor to buy – so the bond's yield will then fall because the return an investor expects from purchasing this bond is now lower – Example - consider a government bond issued in mid-2019 with a 10 year term - The principal of the bond is $100 – so on 30 June 2029 the government must repay $100 dollars to the bond's owner The bond has an annual coupon payment of 2% of the principal (i.e. $2 each year). Imagine that the cash rate falls – and so does the coupon on newly issued bonds – Governments are similar to households – if the cash rates go down – we want to be able to borrow at lower rates – only major difference is one does it from banks and the other from investors – however investors have little choice as cash returns also fall – If new bonds now pay coupon payments of 1% (or $1 p.a.) – However – the older bond still offers a $2 annual income – with basic maths this is $1 in excess of what new bonds will pay - As a result – investors will be willing to pay more than $100 to purchase the older bond – hence the price pay increase above the Face Value of $100 – with a 10 year maturity (now just under 9 years until maturity) - The price of the bond will actually be close to $109 But you can see in this example – that if you are paying more than the bond is worth – get back $100 in just under 9 years – but you are paying $109 for it – your yield is actually close to 1% - the additional $9 you get from the i

Welcome to Finance and Fury. In this episode be looking at one piece of information in the share market – insider trading There is a lot of information in the markets that can be looked at – can look at the fundamentals of an individual company – can also look at systematic information – economic indicators In this episode – look at one specific bit of information which markets provide and that is the behaviours of insiders of the share markets – specifically directors or people working in management in companies (what are considered insiders) buying and selling shares and if this is a good indicator of the share price performance When talking about insider trading in this episode – won't be talking about the insider trader that most people might know – what you might see in a TV show or in media headlines about one trader being arrested - insider trading is actually a legal practice that despite the common misconception – does exist and is perfectly legal as it is in a governed way – such as say Elon Musk, or Bezos or Buffet buying or selling their holdings in Tesla, Amazon or Berkshire – this is what we will be focusing on in this episode To start – looking at the behaviour of investors in the market – There is a theorised relationship on how information affects markets – it is either 100% responsible for market movements or at least contributes to the price movements somewhat – either way – information can be one of the key reasons buyers and sellers are willing to buy a share at a given price investors try to make perfect decisions with imperfect information all the time – but the overall demand for a share based around information can lead to the price movements Sometimes – people buy a share with no more information than that they know the company and have seen the price go up – so they get on the bandwagon But what about someone who has almost as near to perfect information as is possible? Such as an insider for a listed company – compared to you and I they would be much closer to having perfect information - so surely their decision making on purchasing shares would be better informed – the outcome of their performance on the shares should improve when compared to the average joe This is one major reason that when insiders are either buying or selling their shares – it is information for us – It might be encouraging for the market when insiders are buying more of their shares – as this may mean the price is lower than expected Or if an insider is selling – it might show that they think a company is overvalued However – it might just mean they have additional cash lying around or they are going through a divorce or buying a multimillion-dollar house and need some surplus cash But you can know this information – on a register – and can use sites like - Market Index can't verify the accuracy or completeness of the information contained on their website - it does appear to offer a decent insight into the owners of shares on the ASX as well as the movements of share buys or sells by those individuals/trusts/companies What can information can be gained from looking at insider trading The concept comes down to these insides being the owners of these businesses, as well as having inside information but also – they also have some say in the companies direction - If someone is an owner of shares in the business they are running – they will probably have much stronger alignment with the interests of other shareholders – that is to make a positive return in the share price – why else buy a share? Compare this to non-owners – in the forms of executives without significant stakes in the company – if they are on the board On the other hand – some CEOs might run a pump and dump of a share in their tenure without actually making the company a good long term performer – that is where the incentives do need to be monitored closely – hence why with most share schemes for management they have a period in which they cant sell the shares for years after leaving the company – unlike in the past when this was more of a problem Another somewhat obvious point is that the smaller the company is - the more likely it is for founders and owners of the shares to exert more influence over the direction and success of the company Not only are they emotionally invested being the founders – but heavily financially invested - hence it further aligns the interest of the CEO to the shareholders This has been an interesting point when talking to fund managers – they pay close attention to small cap shares that have the founders/CEOs with large ownerships in the business However – the smaller the company – no matter how passionate a founder/CEO might be – their company may underperform So, is there any evidence that following the insiders actually works? Thankfully – others have done the work for this – there are plenty of studies over the years – both in the US markets and in Australia that have attempted to quantify the impact of returns

Welcome to Finance and Fury, the Furious Friday edition. Today – discuss the topic of banking policy changes and how this opened the gates for the potential of never-ending money supply in the modern banking system To start with – look at How does money get lent out in Australia? Well – by a bank of course – you go to a bank to borrow money but what are they allowed to lend around? Well in basic economics – banks are treated as a financial intermediary – their role in a traditional sense is to connect savers to borrowers – they act as the middleman So a saver with surplus cash will put it into the bank – the bank will then use this as a reserve and lend out based around this Under this situation – a banks ability to lend is limited by how much they have of their customers savings – which act as the deposits Because in order to lend more money – they need more depositors – no depositors – no loans However – this theory is based around what is known as fractional reserve banking – where a commercial bank has a set reserve requirement and will lend out at a multiple of those reserves The classification of reserves was expanded upon over time – in addition to depositors funds - had treasury bonds and deposits at the RBA – but depending on monetary policy – lending could be limited As an example – say the reserve requirement is 10% - then the multiplier is 10 times – if the bank has $1m of deposits they can lend out $10m deposits - But this concept is rather misleading in the modern era of banking – I mentioned in Weds episode that Australia does not have an official fractional reserve banking system This was abolished when we brought in the Basel standards – 'Basel I' – which was implemented in 1988 Central to the design of the Basel capital standards is the idea that a bank should hold capital in relation to its likelihood of incurring losses In the modern era - A bank's capital simply represents its ability to withstand losses without becoming insolvent Hence – a capital adequacy requirement is set – monitored and regulated by APRA based around guidelines set by the BIS using the Basel standards I do see one reason why there was a need for this movement away from the reserve requirements – In the modern economy where deposit accounts are insured by governments – it is likely that banks would have found it tempting to take undue risks in their lending operations since the government insures deposit accounts So these regulatory capital requirements have at least removed this moral hazard But it has opened up the floodgates for lending – and skewed the traditional incentives of lending – so let's look at it further How does the Capital adequacy requirements work? First – look at the capital that has replaced depositors' funds as the reserve requirement – these are broken down into Tier 1 and Tier 2 capital – where the sum of these two make up the reserve requirements - net of any deductions on the banks balance sheets Tier 1 – Tier 1 capital consists of the funding sources to which a bank can most freely allocate losses without triggering bankruptcy – essentially - assets that can be liquidated (sold), written down or converted to cover losses quicky – hence it avoids a bankruptcy – includes: ordinary shares in the bank and retained earnings that the bank has on its balance sheet - makes up most of the Tier 1 capital held by Australian banks – But tier 1 capital also includes specific types of preference shares and convertible securities – such as capital notes – Convertible securities, for example, were included in the Basel II definition of Tier 1 capital on the premise that banks would exercise their option to convert them into common equity whenever additional capital was needed. however - since it is more difficult for banks to allocate losses to these instruments - APRA set a limit of 25% of Tier 1 capital being allowed in this form The APRA requirements set are 10.5% for the capital adequacy requirement – or 10.5% of its risk-weighted credit exposures – the loans that may not be able to be repaid Tier 2 – considered to be less liquid or convertible than tier 1 - in many some cases they may only be effective at absorbing losses when a bank is being wound up provides depositors with an additional layer of loss protection after a bank's Tier 1 capital is exhausted - primarily consists of subordinated debt - though it also comes in other varieties Both Tier 1 and Tier 2 capital are measured net of deductions This is an adjustments due to the way accounting measures are treated – sometimes the banks will have forms of equity used to balance their holdings of intangible assets – things like goodwill – so if a bank is going to go bankrupt – this loses all of its value Secondly – have to measure the risks that this capital requirement is set against - For capital adequacy purposes, Australian banks are required to quantify their credit, market and operational risks most significant of these risks is credit defaul