Finance & Fury Podcast

Welcome to Finance and Fury. Today will be a flow on episode from "What will happen to property prices if we continue along our economic decline?", which was posted about a month ago. Due to the updated numbers and banks coming out with their forecasts for price declines, we will cover property again. In the previous episode –looked at the Basics of property – where we were at prior to the government imposed economic decline Summary - In Australia – the characteristic of our property market prices being high come down to urbanisation, interest rates and regulations Urbanisation levels versus available credit (cash people have access to from savings or lending/mortgages of population) Concentration of people (higher demand with population levels) and the limited supply available when people are concentrated in living space But more importantly – it is the Borrowed funds by the population – household debt to GDP In conjunction with the urbanised population – higher the amount people can borrow or put towards property – higher the prices will be With the interest rate drops recently – the affordability of debt would have gone up – assuming income also continued on the same trajectory – but with the government restricting occupations and business – incomes may struggle to growth and many people will be left unemployed High levels of correlation Historically - Australian house prices rose in correlation relative to average wage earning – up until 1996 - prior to the banking regulations changes and a massively declining interest rate environment - The Australian property market saw an average real price increase of around 0.5% per annum from 1890 to 1990, approximately matching CPI – 100 years From 1990s - prices have risen faster resulting in an elevated price to income ratio -all capital cities strong increases in property prices - Sydney and Melbourne been the largest - rising 105% and 93.5% respectively since 2009 coincide with record low wage growth, record low interest rates and record household debt equal to 130% of GDP - clearly shows unsustainable growth in property - driven by ever higher debt levels fuelled by the RBA - cutting rates beginning in 2011 Today – property prices 7 to 10 times equivalent of average full-time earnings - up from three in the 1890-90s The property market was technically in a bubble prior to the government shut downs – but if average full-time earnings go down -if interest rates are also going down and banks are giving holidays on repayments for the short term – prices won't likely drop in the short term – or between now and close to the end of the year Where may property prices go from here – supply is no the current issue – but demand - Demand side – important to look at the individual under home ownership – but also the investor landscape - Employment – ability to afford repayments – with the lower interest rates – affordability was okay – recent economic data: Australia's seasonally adjusted unemployment rate jumped to 6.2% in April 2020 was - 5.2% in March so a 1% rise – Silver lining is that this is below market expectations of 8.3% - but still the highest rate since 2015 number of unemployed surged by 104,500 to 823,300 – but these are people looking for work - People looking for full-time rose by 115,000 to 622,300, while those looking for only part-time work fell by 10,600 to 200,900 Still - Employment tumbled by 594,300, the largest drop on record, to 12,418,700, compared with estimates of a 575,000 fall, as full-time employment dropped by 220,500 to 8,656,900, and part-time employment declined by 373,800 to 3,761,800 These numbers don't look great – but don't show the full picture – when it comes to underemployment and participation rates – looks a little worse - The participation rate fell to an over 15-year low of 63.5% - unemployment only counts people looking for work – those who don't fall into the non-participation rate The underemployment rate rose 4.9 points to a record of 13.7%, and the underutilization rate increased 5.9 points to an all-time high of 19.9%. Monthly hours worked in all jobs fell 163.9 million hours, or 8% to 1,625.8 million hours – when thinking about economic output in the consumption side – the 8% drop in hours is close to the estimate on the 8% unemployment rate So does this loss of overall income matter - could create a negative feedback loop that further weakened the already-vulnerable economy – and bursts the property bubble – The flow on effects of lowering incomes – first – if people don't have jobs – means less income = decision on spending – people will cur any economic spending to make mortgage repayments first – but it comes back to the threshold of people who can't make either – no discretionary spending which hurts consumption as part of GDP – but also mortgage/debt repayment which then hurts property prices if this increases the supply of property available through defaults – Data from banks - lenders have released their own e

Welcome to Finance and Fury, the Furious Friday edition. A lot of people are talking about how this shut down having a similar or worse economic effect than the great depression. Today, we are going to look at recessions, what happened in the great depression, and compare the governmental policies being proposed to help boost the economy. We'll look at their theory behind this and consider whether it will it help the recovery? Talk about a recession or depression similar to that of the Great Depression – think about the roaring 20s – I know nobody listening would have been alive – but it had a stigma – the music would never end – western nations were developed – times were good and nothing could cease the music – the depression kicked in – After an initial recession Recession - a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. 6 months of negative – Before now - We haven't had a recession under this definition since June 1991 What happens if it keeps going? Depression - is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession – characterised by length and severity a decline in real GDP exceeding 10%, or a recession lasting 2 or more years – so if GDP drops by 10% - which it could – then the economy is officially in a depression GDP – The measurement of what we are marked against GDP = "an aggregate measure of production equal to the sum of the gross values added of all resident and institutions engaged in production – Income or Expenditure approach – we will look at expenditure Four Components of 'Expenditure' GDP– might be boring for those who know the theory already – but those who don't – quick intro C (consumption)- normally the largest GDP component in the economy = private expenditures in the economy (household final consumption expenditure). categories: durable goods (cars, TVs), nondurable goods (food), and services. Equation - Value added = Price sold at – costs of inputs (labour, materials, etc) Higher profits lead to consumption increasing GDP I (investment)- business investment in new equipment/services construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory Spending by households on new houses is also included in investment. "investment" in GDP does not mean purchases of financial products classed as 'saving', as opposed to investment - avoids double-counting company uses the money received to buy plant, equipment, etc. G (government spending)is the sum of government expenditures on final goods and services. salaries of public servants, military and any investment expenditure by a government. does not include any transfer payments, such as social security or unemployment benefits Net Exports = X (exports) – M (Imports) Exports - represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added. M (imports)represents gross imports. Imports are subtracted - imported goods will be included in the terms G, I, or C To boost GDP – Both supply and demand economic theory want to boost aggregated demand – most efficient method is the increase consumption – as it makes up the lion share of GDP – same goal but different views on how to do it Demand side - boost domestic demand - expansionary monetary policy, or expansionary fiscal policy (transfer payments) This is what we are used to – and this is what we will be getting more of down the road The policies decision are focusing on boosting consumption – demand side economics – consumption represents around 60-70% of GDP in most western nations – our economy is consumption based so lets look how well this works in the long run – go back to one of the worst GDP crashes The Great Depression was a severe worldwide economic depression during the 1930s - beginning in the United States started in 1929 and lasted until the late-1930s – some countries almost up until WW2 (1938-39) Personal income, tax revenue, profits and prices dropped - international trade plunged more than 50% Unemployment in the U.S. rose to 25% and in some countries rose as high as 33% (in Aus due to agriculture, manufacturing) – nobody to trade with and being dependent on export markets longest, deepest, and most widespread depression of the 20th century. What triggered it? major fall in the US share market - September 4, 1929 - Then October 29, 1929 (known as Black Tuesday) –dow jones index 381 to 230 – almost 40% - Between 1929 and 1932 – low point of 45 (from 381) – Loss of 88% - took 25 years for the US market to recover - worldwide GDP fell by 15% - met both definitions for depression What was the cause? A lot of finger pointing at the time – there were two predominate theories Keynesian(demand-driven) - consensus = large-scale loss of confidence from m

Welcome to Finance and Fury, the Saw What Wednesday edition, where every week we answer questions from each of you. This week's question is from Adam "Hi Louis - Really enjoy your podcasts. Not sure if this is too outside of your comfort zone but I would be really interested in hearing a podcast on whether it is still viable to set up an off shore investment company. as we move into a period where the government is taking on more and more debt I've started looking into offshore options on the internet. I know the Turnball's etc have offshore companies to manage investments, but has most of the advantages largely disappeared through inter-government transparency?" Investing Offshore – look at how it is done, if it still can be with increased transparency – and the pros and cons Why would you want to invest overseas – create an offshore investment? Reduce tax and reduce transparency – but these things aren't so easy as they were 20 or 30 years ago In Australia – and most western countries – we have high levels of tax – especially the more you earn – consumption, state taxes – taxes on investments – Investment Income taxes or CGT – have the 50% discount – on CGT which some other nations don't have – But Also have Franking Credits to help offset dividend income Even Super as a tax structure is an effective tool to reduce tax payable – but does have legislation risks -but TBH – so does every investment vehicle that we have – even investing overseas can be at the whim of a DTA – laws change The OECD though have a massive reach when it comes to monitoring offshore tax havens - they now control the tax systems of most countries in the world through policy directives - investing offshore less attractive due to OECD – "aligns the information exchange provisions to the current OECD standard by replacing Article 19 of the existing Agreement. The new Article 19 continues to provide for the exchange of tax information by the tax administrations of the two countries" OECD say their purpose is to "eliminate unfair tax competition" – to make countries have the same sort of tax rates – reducing the incentive of investing off shore – but also increase information sharing to avoid people hiding taxable incomes At the corporate level – companies like Google, EBay, Starbucks and Facebook have shown they can do tax minimisation very effectively – tax conduit and tax sink country strategies - structures involving Ireland (only 12% corporate tax rate), and Netherlands (tax-free for holding intellectual property) – covered this a while back in the series in the EU including the City of London corporation – so the big companies have worked out the game – but at the individual level – can we do this? This is the difference between tax minimisation – and tax avoidance – What you do have to be within the law – which is very hard to achieve with the increased regulations – not only in Australia with the AML/CTF rules – Austrac – ATO – along with OECD intergovernmental cooperation – Many of the ultra wealthy and massive companies do this – how they remain competitive – if you have to pay 30% tax versus 1% tax like in Apples case – you can easily out compete – but they did get caught and had to pay some tax back But as Kerry Packer once said when questioned about his tax strategies - "I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read, because as a government I can tell you you're not spending it that well that we should be donating extra." But we are not companies – Companies have protection – and now if directors of a company do something illegal they are liable – unlike a multi-billion dollar company – we don't have the budgets to pay for lawyers for millions of dollars a year to 1) work out a tax strategy for us or 2) defend us against the state if we get taken to court – which has an unlimited budget due to tax funds – Example of this in action is Project Wickenby – The Project Wickenby was cross-agency taskforce – spearheaded the Australian Government's fight against offshore tax evasion - taskforce was established in 2006 to expand upon Australia's financial and regulatory systems through preventing people from participating in using jurisdictions that weren't forthcoming on information about individuals investments or tax payments – stereotype on Switzerland task force led to over $2.2 billion in tax liabilities being raised. It also increased tax collections from improved compliance behaviour following high profile investigations, prosecutions and sentencings – essentially scared people into ceasing investing overseas or not declaring all of the income - celebrities like Paul Hogan were caught in this Project Wickenby finished on 30 June 2015 when the Serious Financial Crime Taskforce was established. One scheme that got shut down was being used by HWI – with a tax planning scheme of using companies in Vanuatu to

Welcome to Finance and Fury. What investments will do well and those that wont in a world with higher levels of inflation Financial investments – Been talking about MMT and inflation – but what hasn't been mention – a lot of these intentions of providing business with credit, helicoptered money, ensuring government is financed and QE have had a secondary objective - to support and prop up financial asset and markets – but these policy efforts favour some asset classes over others Uncertainty and risk Risk and uncertainty are related but different Risk = speculative/volatility Uncertainty = Unknown risks – generally creates freeze response initially – just don't do anything – spend or invest Uncertainty creates an environment where people avoid risks but then once they become afraid exit from existing risks In shares – creates selling – not sure what is going to happen – we are loss adverse = sell to avoid losses The important point is 1) have confidence in assets to avoid absolute losses and 2) getting growth to negate inflation – balancing act between taking on risk for reward – but managing the risk to get long term losses Confidence is key – Confidence in any asset is what is needed Why is confidence important? If a lack of confidence/panic is what causes prices on assets to drop heavily – then the solution is to be in assets that while may be impacted in prices (short term volatility) – will not go to zero Asset goes down in value – so what? - Depends on type of asset and what you do, and what those investments are to you Why growth is important – it adds an additional component of returns – Total return is income plus growth – income only assets are normally tied to interest rates – Cash and FI – Say you have cash – getting 1% return – that is interest but no growth – real growth is negative with inflation over a 10 year period – unless interest rates are above inflation Say you have shares – dividend returns (income) of 4% p.a. – this alone puts you above current inflation – but the growth can be positive and negative – longer term – if you get 4% growth – long term total return is 8% Lets look at the asset classes - General information - What assets to avoid Cash – pretty obvious one – cash is a medium for exchange – not a great asset over the long term – Great in short term – important to have emergency funding – But long term – cash is not the best strategy – this is due to the current low interest rate environment, inflation and monetary policies – money has lost around 98% of its real value since becoming a fiat based system Saying back in my day - $1 could buy you a pair of shoes – cause $1 was worth a lot more – but also – going back in time interest rates were at the same income yield as share dividends are today With constant inflation targets – this has eaten away savings and the real value of cash – but the Bonds – with debt levels going up – and interest rates being low – if inflation kicks in then bad long term assets First - look at how financial assets are valued – A lot of it comes down to debt yields and interest rates in the fiat currency world, the principal asset from which all others take their valuation is government debt – the 10 year US treasury or Bond yields Risk free assets – in risk premiums But these RF returns are almost becoming obsolete - with US Treasury debt yielding less than one per cent for all but the longest maturities (50+ years) - in Europe, Switzerland and Japan - negative rates are common – these models aren't designed to work out the value of assets if the return on something risk free is negative – as who would buy a guaranteed negative investment? Commercial banks and investment managers are no longer demanding any new debt instruments for new government debt – so central banks across the world have to pick up the slack - are effectively becoming the only significant actors on the buy side for not just government debt, but a wider range of financial assets as well – In the USA - The Fed has already stated it will offer additional support to bond markets by buying ETFs invested in corporate bonds – through SPVs – This puts a floor under bond spreads – so there is an artificial demand to avoid a collapse – but this is reliant on monetary policies – what is they stop one day? Prices of these assets then crash – CBs hope to support everything from junk to investment grade, because if it did not, spreads would blow out even more, threatening bank balance sheets which are thought to carry some $2 trillion of this debt both directly and in collateralised loan obligations. Bonds are no longer really an investment IMO – but become a merger of government and private funding mechanism that has removed the incentives for most investors to invest in debt Upsides are limited – only get additional yields if the default risks rise traditionally – however – now even though default risks are rising – yields haven't been – as these bonds are being bought up by central banks

Welcome to Finance and Fury, the Furious Friday edition. Today we're looking at Modern Monetary Theory action. The first stage, how this is going to be practically done, involves the merging of the central banks and Government Treasury. We'll also look at the increase of Crony capitalism that will emerge out of this. Large companies in debt get bail outs, but most get to remain open and actually profit out of this. The first step of long term implementation – Central banks and treasuries merge MMT proposes governments that control their own currency can spend freely, as they can always create more money to pay off debts in their own currency – The theory suggests government spending can grow the economy to its full capacity, enrich the private sector, eliminate unemployment, and finance major programs such as universal healthcare, free college tuition, and green energy. If the spending generates a government deficit, this isn't a problem either. The government's deficit is by definition the private sector's surplus – but the part of this theory that we will be focusing more on today is the enrichment of the private sector But this requires an intermediary – a government agency to take over and hand out the cash - Well – in the USA - there seem to be the groundwork in the CARES act (Coronavirus Aid, Relief, and Economic Security Act) There has been a lot of talk about Trump reigning in the Fed – but in reality – it is more of a merger - The main reason the Fed is now working with the Treasury is that it needs the Treasury to help it bail out a financial industry burdened with an avalanche of dodgy assets that are fast losing value – along with the record levels of corporate debt Think GFC 2.0 – bad debt on companies or financials in risk of defaults - The problem for the Fed alone is that it is only allowed to purchase or lend against securities with government guarantees these are assets like Treasury securities, agency mortgage-backed securities, or debt issued by Fannie Mae and Freddie Mac – why the Fed was allowed to buy back the worthless MBS off investment banks back in 2008/09 But they can't buy any equity or debt in companies – which would be a form of government sponsored funding mechanism for companies – But now to get around this limitation, the Treasury created a series of special-purpose vehicles (SPVs) A special-purpose vehicle (or entity) is a legal entity created to fulfill narrow, specific or temporary objectives. SPVs are typically used by companies to isolate the firm from financial risk – it is how property developers work with each single development – limits liability into one single entity The aim of these is to buy all manner of financial assets, backed by $425 billion in collateral conveniently supplied by the US taxpayer via the Exchange Stabilization Fund. an emergency reserve fund of the United States Treasury Department, normally used for foreign exchange intervention The Fed will lend to SPVs against this collateral which, when leveraged, could fund $4-5 trillion in asset purchases of additional assets beyond what the Fed itself could access in its mandate. Round about way for the Fed to circumvent their mandates – as even though the assets inside of the SPV may not have government guarantees, the SPV itself can In other words, this is a step towards the federal government nationalizing large chunks of the financial markets and companies listed on them – so now, the Fed is providing the money to the Government to buyout large sectors of the financial markers, whilst having BlackRock doing the trades So rather than the Government taking over the Fed, this scheme essentially is the start of merging the Fed and Treasury into one organization. In essence but also as a long-term effect, the Fed is giving the Treasury access to its printing press which is what is the worry in the long term, as the issue I see in the long term is that all of this gives Governments more control over the economy – and the supply of money Long term – this has the potential to create a socialist monetary state – gives the printing press needed for funding Universal Basic Incomes – and once these powers are in place – any future administration can look at implementing these policies But why is this required – not the UBI but the bail out of large companies – through the creation of SPV Public companies are supposed to act in the best interest of their shareholders – but what is 'in the interest' of shareholders has taken on a distinctly short-term bias – covered this a lot – shareholder value theory from Friedman – biggest trend in short-term practices over the past decade has been share buybacks Drives up the share price - juicing EPS – if you haven't listed to the episodes on Corporate debt bubbles fuelling the markets – may be worthwhile to go back and listen But now thousands of the companies lobbying the government for bailouts have spent billions on buybacks over the last decade - many public companie

Welcome to Finance and Fury, the Say What Wednesday edition. Today's question comes from Mario. "With the success of Warren Buffett's Berkshire Hathaway would it be wise to invest in their Class B shares? It is often said that Berkshire Hathaway is one of most successful investment houses and so I wonder if it's a really good long term horizon investment? Class A shares are so high and out of the reach of most people but I note Class B shares are more accessible but come with risk of changes and further dilution from Berkshire Hathaway. Also from a yield perspective I was unable to understand if they actually pay consistent dividends but then given Berkshire Hathaway view is about value investing am correct in thinking this stock is more growth oriented?" Thanks so much for your thoughts and views - Mario In this episode – Look at difference between class a and b shares – long term growth prospects and dividends, then the difference between growth and value Berkshire – Difference between class A and B The primary difference between Berkshire Hathaway Class A stock and Class B stock is one of price. Class A – current $267,080 – was $342,122 Class B – current $178 – was $228 – both have had about a 22% loss Because of the price difference, Class B shares offer increased flexibility for investors because Warren Buffett has declared that the Class A shares will never experience a stock split because he believes the high share price attracts like-minded investors, those focused on long-term profits rather than on short-term price movements Imagine owning just one share of Class A share – if you need $50k, need to sell the whole thing as opposed to selling a chunk of your class b shares – Where did they come from – and how do they operate - In 1996, Buffett created Class B shares (BRK-B) Initially offering investors the ability to invest in Berkshire Hathaway for one-thirtieth the price of a Class A shares Then a 50-to-one stock split in 2010 sent the ratio to one-1,500th. Does this mean that you are at risk of further dilution? Yes and no – yes the shares can be further diluted – but unlike say share placements – which are issued to the public – the shares are split and you retain ownership – so your 1 share turns into 50 shares – then over the years people sell off and the ownership spreads around Class B shares carry correspondingly lower voting rights as well. Buffet stated that the purpose of creating the Class B shares was to give smaller investors the opportunity to invest directly in Berkshire Hathaway, rather than only participating indirectly through mutual funds that mirror Berkshire Hathaway's holdings. One final difference is that Class A shares can be converted into an equivalent amount of Class B shares any time a Class A shareholder wishes to so do. The conversion privilege does not exist in reverse. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then buying the equivalent in Class A shares. Summary - There's no substantive difference between the two, except that a share of Class B stock has 1/1500th the value of a Class A share and a corresponding fraction of its voting power. A and B: Pros and Cons – for those investors who are able to either choose between investing in a smaller number of Class A shares or a much larger number of Class B shares, there are a few pros and cons of each to keep in mind. pure performance – there is normally no difference between Class A and Class B shares (represent stakes in same company) – but there can be due to market dynamics and differing pools of investors -mainly due to liquidity however – those investors in class A shares may spot this and jump across – so isnt really a factor Flexibility – Class B is obviously better – but for same voting rights, would need to own 1,500 b shares for one A share Difference between the type of internal investing style versus the Berkshire shares Value investing – Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating High-profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". buying securities that appear under priced by some form of fundamental analysis Growth Investing – Growth investing is a style of investment strategy focused on capital appreciation. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios. Internally – they buy companies based on Value – They buy out whole com

Welcome to Finance and Fury. With everything going on in the world, the notion that inflation could return with a vengeance may materialise. This will be a two part episode. Today, we'll look at the potential paths for inflation and quickly assets to hold and those not to. Next Monday, we'll go into further detail about the investment strategies and why each investment does well in certain conditions. First, what is inflation: In economic terms – Inflation is the measurement of the increase in prices of goods = CPI in measurement terms – basket of goods and how the costs to purchase them changes Central bankers try to use inflation to reduce the real value of the debt to give debtors some relief in the hope that they might spend more and help the economy get moving again Therefore – inflation erodes the real value of a currency – due to prices of a good increasing – reducing your purchase power unless wages increase at same or greater rate – Technically – Extreme levels = Hyperinflation is when the prices of goods and services rise more than 50% a month. If you have $100 bill in your wallet – which could buy you 20 cage free 12 pack of eggs at $5 each today You have another $100 bill and take it to buy eggs a month later – but the prices go up by 50% - now can only get 13 and 1/3rd egg cartons – reduction of about 33% of your purchase power If a good or service could cost one amount in the morning but be more expensive by the afternoon – how would you respond? You would buy more now? Or wait? Buy now – this creates shortages in stockpiles – leads to undersupply which further spikes price rises Hyperinflation massively increases uncertainty due to a rational behavioural response people make - but not accounted for in economic models – therefore – spending now rather than saving for the future is an 'irrational behaviour' Don't think we will get to hyperinflation – but the IMF is predicting inflation to kick back in for most of the world – between 5-10% - emerging markets will be the hardest hit But with cash rates low – real returns on holding cash would be negative with even the smallest levels of inflation So In this episode we will look at the factors that will create inflation along with where to avoid holding investments – and what types of investments combat inflation First - Causes – number of different causes – but demand and supply come into it – but with some stress to the government budget, such as wars or their aftermath, sociopolitical upheavals (like a lockdown), a collapse in aggregate supply or one in export prices, or other crises that make it difficult for the government to collect tax revenue – many different reasons – as it isn't just one trigger that creates inflation – requires a perfect storm of situations Starts for a combination of reasons – but in most cases - step is when a country's government begins printing money to pay for its spending – increasing supply of money – decreases real value – It is all about perception – well known example - Germany – Weimar Republic in Germany in the 1920s printed to pay off war debts – along with losing backing for supply of money in the form of gold in the WWI treaty But number of Deutschmarks in circulation went from 13 billion to 60 billion from 1913 to 1914 First time printed money to pay for WW1 – economy was strong and prepared before war But German government also printed government bonds - same effect as printing cash - so Germany's sovereign debt went from 5BN to 156BN DMs But from WW1 - 132 billion marks in war reparations – from taking away production capacity - lead to a shortage of goods, especially food. Because there was excess cash in circulation, and few goods, the price of everyday items doubled every 3.7 days. The inflation rate was 20.9% per day. Farmers and others who produced goods did well, but most people either lived in abject poverty or left the country. But today - Every government does this still - not to pay off war debts but fund spending – budget deficit is the term for the indirect way of funding this through bonds – which are purchased off the financial system which received an increase in their money supply from the Central Bank – but MMT claims that inflation isn't materialising as it is horizontal transaction – no increase in net assets – however – If the monopoly of currency kicks in and there is no netting with debt – and money moves vertically – especially with the supply shock we might face if companies cant survive the locks down – inflation may kick back in Since inflation is visible as a monetary effect, models of inflation focus on the demand for money. This is where Economists see both a rapid increase in the money supply and an increase in the velocity of money if the (monetary) inflating is not stopped. Historically – both of these have been a root cause of inflation or hyperinflation increase in the velocity of money - central to the crisis of confidence hyperinflation model - where the risk premium

Welcome to Finance and Fury, the Furious Friday. Last episode, we went through the combination of monetary and fiscal policy, larger scale of QE and the quick introduction to modern monetary theory. Today I was going to go through the recovery of the economy today, but will do more on modern monetary theory instead, as this is part of it and needs to be explained further before looking at the future working of the economy and how it is shaping up. Conventional economics has struggled to explain much of what's happening in the world today – Examples - How can we have record low inflation and interest rates at the same time? How can some governments continue to increase their deficits and yet their bond yields go down and currencies go up? How Governments issue bonds with a 30-year negative yield as who would buy them? Economists always are looking for new theories to explain these antithetical phenomena but also to rectify the problems created by the original theories This has triggered the current obsolete Economic theories to change - to another economic theory based around the control of the economy– Governments haven't had enough control over the economy, see? Too reliant on CBs Unfortunately – more control over the economy seems to always be the trend for answers to problems – rather than taking any of the blame for the previously imposed policies – they come to the conclusion they just didn't have enough control over the economy to make their policies work properly – it isn't the theories problem – but you and I – we didn't behave how they assumed we would – and what they assume is the determinate on the theory and models hence – monetary and governmental powers need greater control over the economy - why there is a big push for Modern Monetary Theory (MMT) What is it: a theory that describes the use of a fiat currency as a public monopoly from the issuing authority What does this mean – well – this one simple statement is pretty telling - Fiat currency – currency issued by decree (can't use others) – but now it can be treated as a public monopoly – remember everything public isn't us – but by the issuing state – the government – means the government takes over control of the currency and with it – the economy normally the government's central bank role – but MMT is the merging of the central banks with governments There is a lot of unpack in this concept – so to start - Where did it come from? - The basis of this theory of money argues that money originated when Governments attempted to direct economic activity – instead of other historical accounts where coinage as a medium of exchange was a spontaneous solution to the problems with barter The basic assumption of this whole theory is that fiat currency has value in exchange because of sovereign power to levy taxes on economic - activity payable in the currency they issue – The power comes from enforcement though – and through the nature of fiat – you cant use any other currency This theory though has its origins from a German economist Georg Knapp in 1905 - argued that "money is a creature of law" rather than a commodity – i.e. it only has value based around what Governments say versus the underlying purchasing power of a commodity – in most cases through history this has been Gold or silver at the time of this theory - the Gold Standard was what most countries used – form of metallism where paper money derived their purchasing power from the gold backing it – i.e. how many paper notes can you exchange for gold he argued the state could create pure paper money and make it exchangeable by recognising it as legal tender – so instead of having anything tangible backing it – the value of money could be anything the government said – but as long as they control it and can tax it This was the initial birthing ground of the Fiat system – but the Central banking system of today would seem foreign by Knapp's days standards – Central Banks didn't used to wield that much power – they were responsible for the nations funding mechanisms – but they weren't in sole control of the amount of money or the cost – that was more free market based So Why now implement MMT– there are probably a multiple number of reasons – but the power of Central Banks has grown – IMO – beyond the Govs power when it comes to money or the economy – so now the Govs want to take some back – all in an effort to help us of course - MMT theory suggests that it can work based on the notion of employment - MMT advocates argue that the government could use fiscal policy to achieve full employment – create a working class - all through creating new money to fund government spending – Governments can spend to employ people – and raise the money themselves rather than tax But – based around this theory - the primary risk once full employment is reached is inflation - which they say can be addressed by raising and gathering taxes and issuing bonds to reduce money and the velocity of money in the syste

Welcome to Finance and Fury, the Say What Wednesday Edition. This weeks question comes from Gab. "I had a question regarding a leveraged ETF from Betashares called GEAR. It is designed to offer around 2:1 exposure to the ASX 200, with 0.8% management cost. Looking at the long term growth and dividends, it seems like an excellent way to get exposure to the market and bank in around 20% franked divided (at 107% ??). Also no margin calls .... Am I missing something? It seems too good!" Not personal advice – Just general information GEAR The Fund is 'internally geared', meaning all gearing obligations are met internally by the Fund. How this works - combines funds received from investors with borrowed funds and invests the proceeds The Fund's gearing ratio (being the total amount borrowed expressed as a percentage of the total assets of the Fund) is managed between 50-65% This is the LVR - rebalance the LVR to the middle of the range (i.e. 57.5%) whenever it reaches either the minimum 50% or maximum 65% threshold Current gearing ratio – 60.1% - As at 27 April 2020. Calculated as Fund borrowings divided by Fund total assets. Current Gearing Ratio is as at start of the above date and can be expected to vary throughout the day. Current gearing multiple – 2.5 - Represents the Fund's approximate exposure, for the above date, to movements in the Australian share market (as measured by the S&P/ASX 200 index). For example, if the Fund's gearing multiple is 2.1x, and the S&P/ASX 200 index goes up 1% that day, the Fund would be expected to go up approximately 2.1% that day. A LVR ratio of 65% means that for every $1 invested, an additional $1.86 is borrowed to invest (providing a gross exposure of $2.86 for every $1 invested) What they invest in – passive investment strategy - ASX 200 Index broadly diversified share portfolio consisting of the largest 200 equity securities on the ASX by market capitalisation (as measured by the S&P/) designed to provide leveraged exposure to a passively managed portfolio of broadbased Australian equities. The Fund will gain its Australian equities exposure by investing in the constituents of the S&P/ASX 200 Index, weighted by market capitalisation How it operates – they use just one lender to gear - Deutsche Bank AG as the Lender to the Fund. At the time of review, the Manager has disclosed the Fund's borrowing cost as 1.85% p.a. – but their underlying costs are lower – MER at about 0.8% At the moment – a lot of gearing funds are cheaper – massively low cost to borrow due to lower interest rate environment – That is one thing to watch out for – if funding costs go up, the MER goes up quite a bit – these types of geared funds were sitting at between 3-6% not that long ago – so that would reduce future gains Price movements – was at $94 – price currently at $13.76 Did hit $10 at the bottom. But unlike margin loans - GEAR gives you the opportunity to make magnified gains when the Australian sharemarket rises, and vice versa. Income yields – do look good at the surface level – Good dividend levels and also franking levels – but this is due to the gearing of the funds 12 month distribution yield – 16.7% - but grossed up including fanking credits = 24.4% Figures based at 31 March 2020. Yield figures are calculated by summing the prior 12 month net and gross fund per unit distributions divided by the fund closing NAV per unit. Franking level is total franking level over the last 12 months – have the disclaimer of Past performance is not an indicator of future performance. They say their level of franking is 107.6% - Looks a little Skew due to the Gearing – Break it down – they are a passive index fund – in the ASX200 – what is the ASX200 dividend yield – What is the franking? Now apply the gearing ratios – 2.5 times the funds invested - It does amplify the incomes – ASX200 – about 5% p.a. = close to about 13% Franking – ASX has about 62.42% franking as well – so grossing this up allows for additional flow throughs for distributions comparisons in distributions – First of 2020 - $1.02 – 12.25% yield based around the lower price 2019 - $1.76 distribution – 13.43% yield 2018 - $1.65 distribution – 15.83% yield 2017 - $1.37 distribution – 15.27% yield 2016 - $0.94 distribution – 9.19% yield It is calculated as the difference between total Fund return and NAV return. NAV return is the change in the Fund's NAV price. Total return is the NAV return plus reinvestment of all distributions back to the Fund. Past performance not indicative of future performance. Good incomes – but the total returns need to also be looked at – 3m – negative 54.39% - 1y is about negative 45% - but the average annual return is -9.01% These include the distributions though – quoted returns = Returns are assuming income is reinvested – and does not take into account tax Returns have two components – incomes and growth = total return - Capital growth versus income – Distribution on income – taxable – but do get the franking cre

Welcome to Finance and Fury. Credit cards and pay day lenders are on the rise, as some of those out of work are becoming strapped for cash. Today, we look at this further but also look at some alternative strategies to avoid the debt traps. We'll also look at how to use this as a chance to get spending habits back in line. First – situations to avoid getting further into debt High interest loans are being offered to people via text messages - offering short-term loans to get them through whilst they are unable to work Known as pay day lending – but also offering short-term high-interest loans Obvious issue with this is that these loans trap vulnerable people in a debt cycle that is difficult to escape No doubt – a lot of the population is going to suffer financial stress – The National Debt Helpline says almost 10,000 people have called for help during the past month, but demand is so high that some calls are not getting through. "A lot of people who are calling us are incredibly stressed and really worried about how they're going to put food on the table," said Katherine Temple from CALC, which helps to staff the helpline. Callers' problems include credit card debt, trouble paying personal loans, mortgage arrears and other household debt. Welfare organisation Good Shepherd, which administers a scheme offering no-interest loans of up to $1,500 to people on welfare, says it has seen a significant increase in enquiries from people who have never needed emergency financial help before. They sound enticing – you are out of money and you get messages offering the promise of quick finance with limited requirements – just click the link and get the money you need now – Up to $30k paid within the hour What are these loans and how do they operate - Small Loan - Loan Amounts: Minimum $200 to Maximum $2,000 Terms: Minimum 16 weeks to Maximum 50 weeks Costs: Up to 20% Establishment Fee charged upfront plus a monthly fee up to 4% based on a maximum Annual Percentage Rate (APR) of 98% Example: Loan Amount of $1,250 over 28 weeks repayable weekly - $1,250 (Principle Amount)+ $250 (20% Establishment Fee) + $350 (fees based on APR of 98%) = $1,850 total repayable in 28 weekly instalments of $66.07 - $154 p.m. Medium Loan - Loan Amounts: Minimum $2,005 to Maximum $3,000 Terms: Minimum 39 weeks to Maximum 52 weeks Costs: $400 Establishment Fee plus fees based on a maximum Annual Percentage Rate (APR) of 48% Example: Loan Amount of $2,500 over 52 weeks repayable weekly - $2,500 (Principle Amount)+ $400 (Establishment Fee) + $760 (fees based on APR of 48%) = $3,660 total repayable in 52 weekly instalments of $70.38 - $305 p.m. These loans result in additional costs having to be covered for funds today – at a more expensive rate than what those if they are already in financial trouble can afford They have come under legislation in the past few years - Last year, one payday lender became the first target of the ASIC new product intervention power, after it charged repayment rates of up to 1,000% via various fees – such as missed repayments To avoid this – some people are putting additional expenses on their Credit Cards – racking up an additional bill for this as well to be paid back in the future - If people were already in debt, would be getting further into it Debt collectors and bankruptcy If a debt collector is chasing you for money, you do have some legal protections under consumer laws. Amid fears that large numbers of people could be declared bankrupt over unpaid debts due to shutdowns, the Government has temporarily relaxed some of the rules in this area. It has changed bankruptcy laws so that creditors cannot apply for bankruptcy over amounts of less than $20,000. The new rules apply for a period of six months from March 25. People who owe money will have up to six months to respond to a bankruptcy notice before bankruptcy proceedings can take place. What other Financial options are available during COVID-19 Australian banks are offering some customers the option of deferring mortgage repayments for up to six months, as well as forgiving fees and restructuring other types of loans. At the same time, people in financial crisis can access up to $10,000 of their superannuation savings before July 1, and a further $10,000 after that date. Other option – If you don't need to do it – don't take money out of super – i.e. you aren't in debt or are struggling for income But say you do need spending – then you can use it – instead of pay day lending – but then SS back to super Avoid the massive upfront costs – high interest rates and also save tax on the repayments Or – One of my friends had some CC debt – met the requirements but got a new position Made me think of a strategy for their situation - Use super access as eligible as they were made redundant before getting a new position – then pay off CC debt – But – only if he was going to SS the funds back General illustration only – might not work for you Example - $10k on CC deb

Welcome to Finance and Fury, the Furious Friday edition. In today's episode we look at what the future of the economy looks like? First – I want to say a massive thank you to everyone who has given great feedback and your support – many of you have reached out – great to hear you are enjoying the content – so thank you – really great to hear that many of you are enjoying it Before we get into the content – quick recap on the previous two episodes - First episode two weeks ago - went through how we are the economy – Last week – went through numbers being used as justification for these lock downs – These numbers sound very scary – Recapping on some numbers- but this time from the Covid shut downs - What other numbers sound scary – In Aus - Three million people have lost working hours and 390,000 have lost their jobs due to the shutdowns – 26% of the working population have been directly affected to date from the shut downs – 1 in 4 - Australia's working population – 13m – 62% Full time – 38% casual – Underemployment – one of our major issues – even prior to the government shut downs What does unemployment and underemployment create – beyond the lower economic output – but also deaths - Study and Numbers come from – meta analysis – Study: losing life and livelihood: systematic review and meta-analysis of unemployment and all-cause mortality For every 1% unemployment – 5,300-10,000 deaths – so if unemployment goes up by 10% - may be up to 100,000 deaths - Drug overdoses, despair, alcoholism Scaling for population – big assumption we are similar – but lets say unemployment goes up by just 3% - about 2,400 people who will die in Australia – for each year that they cannot find work Outside of our first world nations – what is going on in the 3rd world? Potential of massive amounts of deaths – Especially in India – Not from Covid – but Starvation is their major concern right now – They have about 15k active cases and 680 deaths – in a country of 1.3 billion – so 0.001% case rate Remember – we are the economy – regardless of the function – even if you are doing daily jobs in Mumbai Over 7000 Indians die of hunger every day – likely to go up massively if people aren't allowed to work – no social safety net there Why did the Indian prime minister do these shut downs, even though more people die in the streets of Mumbai of starvation related illnesses every day when compared to coronaviruses – WHO and World Bank loans – had to do it to meet conditions for $6bn of funds to be leant – question: will this go to the starving people? Or remain within the oligarchic system India has going on? Who knows – but personally doubt it There is the term being thrown around of unprecedented – but only in relation to the virus - The response is the thing that I find to be unprecedented – but in all media reports it is covid19 that is the unprecedented event – that is this is the most dangerous illness – but with no evidence to show it –even with the skewed numbers of deaths – and historically no pandemic or loss of life has caused the markets to panic in this way, or governments to shut down our way of life – and with it the economy – But What is also unprecedented is the extensive responses by Governments and Central banks – these responses whilst unprecedented in their implementation today – were already in talks within the Central banking and global economic communities – was reading about it all and covered it 8 or 9 months ago on the podcast - Check out the episode from September/October last year – one of the first Episodes: We are entering new economic and investment territory – An introduction to QE, what does it look like and what does it mean for investments? Regardless of the cause - We are living through transformational times – new environment for finances, investing and our economic way of life To get that – run through main components of the market economy going forward – what is being implemented - Few components – but in summary – the Permanent QE, also low interest rates and moving towards cashless economy, additional Fiscal expansion through Government spending, additional direct payments to the population in an effort to help boost demand through Helicopter money policies – these are all now playing out The only thing that hasn't that was being covered last year was the Abandonment of the dollar – to be replaced with the IMF SDR – new reserve digital currency replacing this – But with oil demand collapsing – the petrodollar system may be on its last legs given the pressure of government shut downs in addition – new financial reset may be coming soon – especially with the levels of the debt economy being driven up further right now Looking to Australia and the RBA – what are they doing – focus on two broad issues – current outlook for economy and the recovery = today – look at the immediate outlook for the economy in relation to the overall components to the new market economy First – lets look at the economic indi

Welcome to Finance and Fury, the Say What Wednesday edition. This weeks question comes from Scott in Texas. "Thank you for your steady course on the social and resultant economic collapse from Govt reaction to the covid 19 virus. I am just as dismayed as you that we, in a democracy, are letting our lives be dictated to by a small majority of politicians using fear to control the masses. The math of who gets the virus and death rates just do not justify the controlling measures happening all around us. I keep asking myself, who is profiting and how are they pulling the puppet strings of control???" This is an amazing question – and one personally I have been looking into for the past few months So many levels to this – As the saying goes- never let a crisis go to waste – and is very applicable now – many different organisations and groups that are gaining some benefit from this – either additional profits, additional influence or legislative control – you can disagree about the motives all that you want – but the end result is the same – the public has lost a lot of personal freedoms - whether people are willing admit it or not – whether it is for your protection or just a cycle through history repeating – doesn't matter The narrative that this is the new normal – that the governments get to determine our freedom of association and social behaviours We will go through those profiting out of this – along with those enforcing the control and benefiting out of this economic collapse – but also how to identify the same pattern - what we can do to avoid falling prey to this same repeating cycle through history – as they have been happening for thousands of years – it is just the education on the historical events where these same patterns play out is completely void unless you take time to look When it comes to this in quick summary of how it plays out before going deeper into it - First step is to have an argument by authority made – you need some justification The next step is having the public opinion on your side – This is done through a number of ways – First step is to create hype or sensation around an event – But the most important is to use the argument by authority to instil fear – do as we say or bad things will happen The next step is the enforcement – through legislative means in conjunction with punitive fines as a method of enforcement These three steps all happen in such quick succession that I wouldn't really call them steps – but simultaneous actions that don't work without one or the other – but helps to break them down to explain Final step is the normalisation – this is one of the more important parts – as once legislation passes – and it becomes the new normal – it allows additional control in perpetuity How are they pulling the puppet string - Where did the initial modelling and recommendations come from for shut downs – Very rational came from the Imperial College COVID-19 Response team – along with the WHO Collaborating Centre for Infectious Disease Modelling – built models based around the assumption of this being the most serious respiratory virus since the 1918 influenzas – modelled deaths if nothing was done, versus if we shut everything down – this is your argument by authority Problem with modelling – all assumption based and working off inaccurate data – but the whole flattening the curve narrative is build around the modelling from this – But other Drs, virologists and epidemiologists have come out that the flattening of the curve prolongs the spread and creates more deaths in total due to the time span – no way to be sure – but what we can look at is the modelling Dr Knut Wittkowski – Former Head of the Dept. of research and design & Biostatistics - Rockefeller University – models are worthless – if your inputs for models are flawed – the outputs will be off by orders of magnitude – "from the very beginning I never believed in them, because it didn't make any sense. They have put out models with no relation to reality and then you can prove anything you want, or even the opposite. We have no idea what these models are based on, I can see no information on what these models were built around beyond that they started with M and ended in Odel. No or very few epidemiologists were ever consulted, it was all virologists and they aren't trained or really understand the concept of complex non-linear systems that drive epidemics and that you have to incorporate this in your thinking to make sense of the data' It reminds me of the climate change modelling – where no negative feedback loops were incorporated into the models – hence you get linear growth in temperature – but the climate is as complex as the human body – it is a complex non-linear system – which models built around basic assumptions will be orders of magnitude off on Yet – the whole world had to be shut down and enforced through Government decree – based around this flawed modelling Side note – done many episodes on a trauma-

Welcome to Finance and Fury. Today is a share market update. Don't get tricked by the rebound in prices. We will be looking a bit into the pattern recognitions in relation to markets The market is low compared to 3 months ago – if looking at 10 years in the future – would be a bargain – but does this mean it is at the low point Look at major declines of the past – how they have compared – but also the repeating patterns they have Taken a massive battering initially – price declined by historic rates – almost came out of nowhere – Went through previous pandemics in the past – never been a decline like this – the markets always continued to grow – what is different – governments shutting the economy down – Going through a dead cat bounce – or seems to be – How the market works – The worst was priced in initially – markets are liquid – and they freak out Hits a low point – people enter the market But this all occurred As announcements of shut downs start – But then recovers – it seems counter intuitive – before the actual announcements started There has been little in the way of truly positive news News – Government bail outs and Central banks entering additional QE or debt buyouts for the Fed for large companies in the USA – but long term is this a good thing? New stimulus measures for spending but this all comes off the back of deficit spending – or debt – Spending on your and your children's Credit cards – your futures- Might give some initial positive response but longer term – is a bad thing when compared to true economic growth void of the government or central banks taking control over the whole market On the fundamentals side – these governments will likely have a wide spread reach What is the share market – a speculative price instrument It doesn't have too much with the fundamentals – but the perception of fundamental performance of the economy Examples – Lets look back to the GFC – Prices went from about 6,784 to 5,127 initially – about a 24.5% decline – pretty big But then they rebounded by 15.7% - going to 5,127 - before losing about 18.4% - going down to 4,840 These patterns – Have a very similar pattern to Fibonacci ratios i.e. 61.8%, 38.2% and 23.6% often find their application on stock charts. Whenever a stock moves either upward or downward sharply, it tends to retrace its path before the next move. The Fibonacci sequence is a series of numbers, where a number is found by adding up two numbers before it. Starting with 0 and 1, the sequence goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on and so forth till infinity. If we divide any of the number in the series by the previous number; the ratio is always approximately 1.618. The ratio of one number divided by the next settles at .618, which is known as the golden ratio. In nature, this is the proportion of a perfect spiral, like that. Can look at plants or trees – or even an artichoke or a pinecone – the number of rings in each of the layers of plants are in order of the golden ratio – or even in a sea shell – is observable all around in nature if you are looking When I was younger – I get really into this – Forecasting Financial Markets – The psychology of successful investing – great book that details this – is a detailed ones – about 450 pages – and goes pretty in depth into complex topics – but anyone interested in the subject – well worth it The use of the Fibonacci retracement is subjective - traders may use this technical indicator in different ways traders are all watching and using the same levels or the same technical indicators, the price action may reflect that fact. This goes into detail about the human psychology along with the self-fulfilling proficies of markets – once a repeatable pattern is known by investors – like the Fibonacci ratios – do traders then set their buying and selling conditions around this? And if they do, does this not create the market patterns that play out? Now – not exact – but rounding for the market numbers is taken into account – Fibonacci sequence sees ranges around the 62% mark – 40% mark and 23% mark- Looking at the GFC – had an initial loss of 24% - then a rebound in prices by 65% - then a drop by 20% but a rebound by about 34% - then a drip by 34% then a rebound by 26% - Looking at the most recent declines – we are now at about a 23% decline from peak – after an initial 32% decline – but had a 42% rebound in prices compared to the collapse (14% price gain from the low) Start to see the pattern? The numbers coming into the patterns of the market – Never in history has there been a massive drop in the share market like we have seen but then – all of the sudden the market just recovered and continues to climb without then taking another down turn There has always been a flow of the market going up and then back down – profit taking, to a self-fulling prophecy – who knows Why does this phenomenon occur? Could be any number of reasons – This week – the market may start to lose steam – or technically cont

Welcome to Finance and Fury, the Furious Friday edition. This is episode two in the coronavirus series, so if you missed last Friday's episode, it might be worthwhile going back and having a listen to it. It covered the concept of the economy and how we make it up, but today well jump in to it. The whole point of this series is to look at the question "Is the cure worse than the disease". In this episode we'll start to look at this. First we need to go through the numbers that have been represented to us and we'll start from the disease side of the equation. This episode is all about the numbers, and when it comes to numbers, this is one of my personal strengths as I've spent my life looking at numbers. I will spend some of the time in this episode looking at the validity of the numbers being presented to us. In addition to numbers, another personal strength is pattern recognition, which makes me good at what I do. On the flipside, I know that can make me fairly abrasive and to the point which is a downside to my personality, because I'm no much a people pleaser, but prefer to just present the facts as they become apparent. Numbers are important, as they are the justification for shutting down the whole economy So in this episodes, we will look deeper into the numbers – and once these numbers are explained – it might start to raise some question – if they haven't for you already - on the factors being represented as the justification for the shut downs When it comes to these numbers - None of this is my thought or opinion – but from experts who have spent their lives researching pandemics – or from the official statistics – which can easily be misrepresented – as nobody has taken the time to explain any of this or on the other side of the casual observer - not been bother to take the time to look deeper – on the media's side – they are just willing to misrepresent the facts if they think it will get additional ad revenue through views, for scientists – additional funding, for hospital insurance payments or for governments – greater control This episode is to help provide evidence – not just rely on Arguments based on emotions or from Authority – because as we will see – those presenting these arguments are relying on inaccurate statistics as their foundations In addition – Once you see how these numbers and statistics are being reported – you might see why I question the official narrative Before getting into the numbers surrounding the disease – how many people have been affected by the Government restrictions No way to be sure – but hazard a guess to everyone in some way or another Personally - through being restricted in their choice of association – or even going out in public without potentially getting fined, professionally or economically through loss of employment or income, or investments/super dropping - Effects – range massively – but far more wide spread than those who have the disease Let's get into the numbers - First – and the easiest – is the cases being reported – Corona cases versus active cases – the total cases being reported are not the number of active cases – The total cases – 2m – but recovered 500k – in Aus – 6.4k but 3.6k recovered – 2.7k with the illness – but 97% have mild conditions – so the number who have recover now is greater than those who have it – apparently - But – all the data points like worldometer – click on the sources – it is from Twitter or Channel 7 There are no links for sources from any health officials that are verifiable – you have to dig deeper to find the sources from each state's health authorities – but even these are based around the assumptions of testing – which we will get into Other sites like ourworldindata had to stop using the WHO data to inconsistencies in reporting Trusting the numbers for this pandemic – relies on consistency of accuracy – but in Previous cases – Swine Flu of 2009 – the CDC and other government organisation got caught out for not testing anyone – whilst continuing to report increasing numbers in cases - So the CDC ceased to test people - But yet – the media kept reporting ever higher numbers – even though there was no way to track this – but people believe that any source from the media must be legitimate – as otherwise they would be caught out CBS investigative reporter, Sharyl Attkisson, was working on a Swine Flu story discovered that the CDC had secretly stopped counting US cases of the illness - while, of course, continuing to warn Americans about its unchecked spread – but her story got crushed – managed to track down the original and other reports on this – links in the show notes – Understand that the CDC's main job is counting cases and reporting the numbers – so what was the Agency up to, and why stop? Here is an excerpt from the 2014 interview with Sharyl Attkisson: "We discovered through our FOI efforts that before the CDC mysteriously stopped counting Swine Flu cases, they had learned that almost none of the cases

Welcome to Finance and Fury, the Say What Wednesday edition. This week, the question comes from Andrew: "Last episode you mentioned super and a product that lets you invest in third party platforms. Would like to hear more about that." 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. If you could log into your bank account and click a few buttons to save a few hundred dollars a year, would you? The real cost of super is opportunity cost – doing nothing now will hurt Any problem ignored long enough will grow – until it is too late Pay attention and make it work – don't regret the future One thing I hear clients say all the time is 'I should have looked at this years ago' – regret is worse than effort What are your 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 Have many types – but major three types – Industry, retail or SMSF 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), limited insurance options Retail – Platforms for investments – can be for investments but also super 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 Breakdown Both types of accounts are operated by a trustee WRAP - the investor holds the underlying assets in their own name For master Trusts - Investments are held by a trustee in its name, on behalf of the investor Both Wrap Accounts and Master Trust May hold managed funds – but different type and flow through of distributions Wrap accounts have access to the wholesale managed funds pricing, as well as direct investments such as shares and term deposits Franking credits are distributed to individual investors through the cash account Master trusts allow access to managed funds but at a badged cost – incorporate fees into the unit pricing and take it out prior to passing on returns – similar to Industry funds Franking credits are incorporated into the unit price of the underlying investment How valuations work – and the costs for each of the accounts WRAP - The value of a member's investment is determined by the underlying assets All fees and taxes are unbundled from the unit price and disclosed separately Master Trust - The value of an investor's account is determined by the trustee based on the value of the underlying investments All fees and some taxes are bundled into the unit price for each investment and allocated to the investor Cash management and investment planning WRAP accounts - A cash account is used for each member through which income and expenses are passed An investor's assets in a wrap account can be transferred to a new wrap account – in specie Master Trust - Income from the underlying assets is paid to the master trust and then distributed to members If you want to change to a different master trust you will need to sell your investments in your current master trust, which may result in a taxable capital gain or a capital loss, as well as other transaction costs What are the advantages of wrap accounts and master trusts? These administration structures are designed to provide different benefits – Access to a wide range of investments including low-fee wholesale funds, plus any cost savings that may apply as a result of pooling a large number of investors' monies Comprehensive and consolidated reporting and valuations for all your investments in the structure online access so it's easy for you to keep up-to-date with your investments transparent fee structure so you know what is being paid on your behalf Biggest is the range of investments – having the direct flow through to your account rather than it being passed on at the fund level – flexibility in investment planning What's right for you? Have larger sums of money to invest, Require access to direct investments and a very broad range of managed funds, want to be hands on and Want sophisticated reporting, Wish to benefit from franking credits being credited directly to their account. Industry – low options, standard based on

Welcome to Finance and Fury – Today – will be looking at the potential outcomes for property market from here – How the effects of the Government responses to Corona may affect the property market – there are many things in play – prices in the property market complex system – so many unknowns – but based around some possible outcomes – we can look at the flow on effects – but no way to be sure to the levels these may materialise To start with – have to look at the Basics of property – where we were at prior to the government imposed economic decline In Australia – the characteristic of our property market prices being high come down to urbanisation, interest rates and regulations Urbanisation levels versus available credit (cash people have access to from savings or lending/mortgages of population) Concentration of people (higher demand with population levels) and the limited supply available when people are concentrated in living space But more importantly – it is the Borrowed funds by the population – household debt to GDP In conjunction with the urbanised population – higher the amount people can borrow or put towards property – higher the prices will be With the interest rate drops recently – the affordability of debt would have gone up – assuming income also continued on the same trajectory – but with the government restricting occupations and business – incomes may struggle to growth and many people will be left unemployed Regulations – aims which increases the incentive for higher urbanisation – Supply side - How - Town planning – the restriction of supply of available developments – but more recently – reducing peoples ability to go to a property to buy this at an auction – but real estate agents have adapted to online auctions – Thing that will keep out property prices slightly higher on the Supply Side - limited government release of new land (reducing supply) - government restrictions on the use of land Local Government - Very constricted land supply and extremely onerous planning approval processes Beginning in the introduction by local councils of upfront infrastructure levies in the early 2000s State Government - Unusually high stamp duties - under the Constitution have control of environmental and land use issues 1980s - started progressively implementing more rigid planning laws that regulated the use of land 1990s – further concentration and increase on restricting greenfield development in favour of "urban densification", or infill development - Land rationing through banning development in all but designated areas = extreme land price inflation There is good evidence to suggest that the price of a new unit of housing is the ultimate anchor of all housing in an area, so when planning laws that implemented land rationing severely drove up the cost of new homes, all other homes followed suit To date – there is no restrictions placed on construction sites – projects still going ahead - Federal – Legislation for the entities which determine lending, etc – GST, APRA, ASIC – financial framework Historically - Australian house prices rose in correlation relative to average wage earning – up until 1996 June 2014 - IMF reported that house prices in several developed countries are "well above the historical averages" and that Australia had the third highest house price-to-income ratio in the world. 2016 – OECD - reported that Australia's housing boom could end in 'dramatic and destabilising' real estate hard landing Historically – prior to the banking regulations changes and a massively declining interest rate environment - The Australian property market saw an average real price increase of around 0.5% per annum from 1890 to 1990, approximately matching CPI – 100 years From 1990s - prices have risen faster resulting in an elevated price to income ratio -all capital cities strong increases in property prices - Sydney and Melbourne been the largest - rising 105% and 93.5% respectively since 2009 coincide with record low wage growth, record low interest rates and record household debt equal to 130% of GDP - clearly shows unsustainable growth in property - driven by ever higher debt levels fuelled by the RBA - cutting rates beginning in 2011 Today – property prices 7 to 10 times equivalent of average full time earnings - up from three in the 1990-90s The property market was technically in a bubble prior to the government shut downs – but if average full-time earnings go down -if interest rates are also going down and banks are giving holidays on repayments for the short term – prices wont likely drop in the short term – or between now and close to the end of the year Where may property prices go from here – have the demand and supply sides – but will probably take months to materialise Demand side – important to look at the individual under home ownership – but also the investor landscape - Employment – ability to afford repayments – with the lower interest rates – affordability was okay – but the Tre

Hi Everyone – Welcome to Finance and Fury, the Furious Friday edition. The whole point of this episode is to remind people of the original purpose of the Furious Friday episodes of this podcast – that is to think for yourselves – For those of you newer to the podcast – there are three episodes a week – Monday is personal finance – Wednesday is answering questions – Friday is more of a commentary on what is going on – a deeper dive observing the political, socioeconomic, and many other topics – as this all related to economics Recently received many comments or reviews saying to stick to my lane and to not cover corona as millions would die - instead do economics or investment topics – I was – and still am – Government measures globally to combat this invisible enemy (as politicians refer to it as) are affecting the economy – so in an effort to understand if these actions are justified, I was looking into what is going on – If something is crashing the economy – then that is exactly what I am going to cover – whether it be a natural disaster, climate change rhetoric, or a virus – as there are political policies proposed in response to each which has an economic effect That is what this new Furious Friday series is about –the government responses to a virus – and to look at the justifications for their policies which are economy crashing – so we will be looking at this further and the incentives that are in play – as the very foundations of economics are incentives – based around the economic problem – So this series is dedicated to those telling me to stick to economics – as this is exactly what I am doing – if you can't understand that then this may not be the podcast for you and there are plenty of other podcasts you can go and listen to – or the Project needs listeners We're all on the same team – and I want the best for every one of you – as I actually do care about people – hence why I have my purpose - do my job and also do this podcast– I want the best for people – why I warn about the authoritarian issues we are blindly walking towards In the next few Furious Friday episodes – will be looking into this topic – doing a deep dive – but don't just trust what I say – that is no better than trusting the media – go and look for yourself – think for yourself – don't just follow the mass consensus – helps to avoid the situation of a herd all running off a cliff – I will leave links on the show notes on the website for each episode – but research the numbers yourself – not on the news – ask yourself – are these numbers outside of the normal? Answer might surprise – but we will go through this further later in the episodes - In the past few weeks been called Alan Jones to Alex Jones – that is fine – actually made me laugh – but the truth is more important than any personal attacks I may face – I don't really care about social shame and these people are responding in a manner of panic and emotion – and actually haven't made a single good point – they just parrot the media and do personal attacks – and evidently emotion can be manipulated – just like fear – a powerful emotion Examples – Stop it – millions will die - don't you care about people dying? Yes - I care about people dying unnecessarily as much as anybody else – but my motives are to be able to have an honest conversation about the measures being put into place And my reactions to the situation aren't being driven by emotional manipulation from Governments or media – they are driven by thinking things through - in an effort to find the truth or logos of a situation So I want to get the poisonous accusation that has been already made out of the way – that anyone who criticises the shutdown of society doesn't care about the old people dying, or even, wanting people to die, out of the way It is the same as if you oppose war – like I do – for example the Iraq war – anyone back then that opposed the war was targeted by saying that they must then support Saddam Hussein's fascist regime and that they think he should be allowed to torture people – see how ridiculous this sounds? – is a binary way of thinking All it does is shut down serious conversations about the validity of an action - similar in the attempts to crush dissent on other politically hot topics like climate change – those that do this are acting like a dictator – shutting down any dissent if it breaks their narrative of the world – in a democracy – discussing issues is the only way to retain a democracy – otherwise you live in a fascist or dictatorship if you aren't allowed to question your leaders actions When it comes to the current government actions – a lot of the publics thinking is binary – which is a completely false dichotomy – either it is a question of saving lives or a question of saving the economy - People who talk about the economy as if it's just some kind of abstract machine of numbers and profits don't understand the economy – the economy is all of us – our lives make up the econ

Welcome to Finance and Fury, the Say What Wednesday edition. This weeks question comes from David. David says: We have seen some ASX fixed income Listed Investment Trust (LIT) have fallen 10-30% from their NTA. Are you able to do a series to cover those to see if it is now a good investment opportunity? My thinking is that the massive drop is a function of retail investor fear (they don't know what they are invested in) rather than the decline in the actual value of the investment. Great question and we will look at some of the ones David sent through - NBI, PGG or KKC important to note – not all fixed income is made equally What is fixed income/interest? A Fixed Interest is a debt instrument - a form of lending. Financial Product designed to raise money for the entity that issues the bond I liken it to an interest only loan – You need money? You borrow morning with the mortgage as the product and pay interest back When a company or Government needs money – Someone (you) purchase that bond – Essentially loaning money to the issuer when then pays you interest At the Bond Maturity – you get the initial loan back (unlike a PI loan) LITs or ASX listed products – most of these are companies that are active managers of fixed interest – Similar to a LIC or ETF – the hold number of FI investments that make up the product For LITs – The price they trade is the price for demand for the investments themselves – Doesn't always relate to the NTA value – or underlying investment values that the company holds – These LITs like NBI, PGG or KKC Buy and sell other companies debt Buy it off someone else who bought it – secondary market – trade to make a profit In most cases though, active bond managers tend to not hold FI to maturity to try and keep a longer term duration. As they sell these on the secondary market however, the funds invested aren't lost (even though the sale occurs before maturity) as someone else will buy this off them. Costs - It can be pretty expensive for the given returns (which are likely being represented after the MER) but they do at least provide capital protection on an investment without getting cash like returns. Index bonds – Cheap 0.1% Active – can be expensive, similar to a share managers costs – some of these charge around 0.8% MERs First- the FI assets themselves Why do they exist? Like People, Governments (Fed, State, etc)/companies need to fund their expenses with debt Create a product (bond) – Sell it to someone else – get the money and pay a yield on the amount to the purchaser Issuer – Sets a Face Value – how much they want and how much they will pay Purchaser – transfers money to them and gets paid coupons – similar to interest you pay in loan Price – Price = FV at issue – as coupon rates are priced in based around interest rates Purchaser – Can hold the bond and get income, or sell it on the secondary market If you buy fixed income/interest on the secondary market, it essentially works the same as if you bought it on the primary, except the maturity date is closer (so if you held you would get the face value back) you get it at a different price to the Face Value (due to interest and coupon payments being different in most cases) can go above – interest rates drop compared to coupon yield Below – interest rates goes up compared to coupon yield Types of FI – and the risks attached - Meant to be safe/defensive – whole point of diversifying but corporate bonds are correlated to the shares What is the type of debt instrument and who is the issuer – Government Bonds – Either safe or not – depends on country Types of Bonds – Who needs to raise money?- As of 2017, the size of the worldwide FI market (total debt outstanding) is estimated at $100.13trn – a lot of which is corporate How you tell – Ratings system S&P and Moodys – AAA = High quality – BB to D = Junk Watch out – can be fooled – MBS was considered AAA – which are a large component of FI as well What is the maturity – Long maturity leaves you open to interest rate risk Duration – measurement of sensitivity to interest rate movements 1 = $1 change in 1% interest 7 - $7 change for 1% interest Based around the time until maturity of bond Interest rate movements crease bond movements Tend to look for one about 5-7 duration, and another with -2 duration (can hold cash and loans) One safe gov bonds, other takes a punt on under-priced debt (risk of default lower than price shows) – Major issue with a lot of FI investments now – Interest rates are low to zero – so risk of price losses from rising interest rates have increased – Most important one right now – that a lot of companies may go out of business and default on their FI products At the moment – not a lot of Gov Bonds have dropped much in value – defaults risks have gone up but still not as high as corporate – Corporate debt has dropped in valuation though – as with the shut downs and the fact a lot of companies have issued out massive FI amounts over the past decade – lots of debt t

Welcome to Finance and Fury – Today we'll be looking at some of the pitfalls of the recent financial measures to combat the economic fallout that is going on Two major ones when it comes to the personal side of this- Money out of super – Easing the rules of requirements to the access of superannuation funds under the 'financial hardship requirements' Mortgage payments – The repayment 'holidays' on mortgages Before we get to it – with either of these options - If you are in extreme financial hardship and need to do this – do it – but if not and just want to take money out of super or go on holiday for a mortgage – don't - work off a strategy of survive now but pay later Mortgages - Banks‌ ‌also‌ ‌come‌ ‌to‌ ‌the‌ ‌party‌ ‌to‌ ‌provide‌ ‌repayment‌ ‌'holidays'‌ ‌to‌ ‌ease‌ ‌short-term‌ ‌cash‌ ‌flow‌ burden‌ ‌to keep‌ home loan repayments if people have been impacted by the government measures Under these new rules - borrowers‌ ‌can‌ ‌defer‌ ‌their‌ ‌loan‌ ‌repayments‌ ‌for‌ ‌up‌ ‌to‌ ‌6‌ ‌months – National Australia Bank, Westpac and ANZ said on Friday that affected home owners could pause repayments for up to six months, pending a three-month review, as part of new support packages for home owners and businesses. Banks had been offering support to those affected— including up to a three-month deferral of mortgage repayments — under existing financial hardship policies This sounds like a generous offer – in theory – but it acts like any holiday – if you do it on a loan you have to pay for it when you get back – that is the case with these repayment holidays – the interest still accrues and you are left with a larger debt to repay – News articles state that Economists have backed plans by the big banks to let home owners impacted by the coronavirus crisis defer mortgage repayments for up to six months – so must be good - But when a home loan repayment is deferred for six months, interest is calculated and added to the loan balance each month which can result in customers paying interest on interest each month So when the 6 month holiday is up – the loans kick back in at a higher repayment level- The‌ ‌problem‌ ‌here‌ ‌is‌ ‌that‌ ‌the‌ ‌interest‌ ‌is‌ ‌simply‌ ‌being‌ ‌added‌ ‌to‌ ‌the‌ ‌loan‌ ‌balance‌ ‌-‌ ‌compounded‌ ‌monthly What are the costs – lets look at some examples – If you have a loan of ‌$600,000,‌ ‌payable‌ ‌over‌ ‌30‌ ‌years‌ ‌at‌ ‌a‌ ‌3%‌ ‌interest‌ ‌rate‌ ‌and‌ ‌monthly‌ ‌repayments‌ ‌of‌ ‌$2,529 Not making repayments for 6 months will cost an additional $15,118 – the value of repayments deferred This will add an additional $22,527 on your loan and add on 15 months in repayments – however The loan is a 30 year loan – so technically it would instead would be $2,593 pm The saving grace of this is that interest rates are incredibly low at the moment – But if‌ ‌you're‌ ‌considering‌ ‌getting‌ ‌a‌ ‌holiday‌ ‌on‌ ‌your‌ ‌home‌ ‌loan – these measures can fall into a ‌privatised‌ ‌debt‌ ‌trap That is where the hope is that the ‌economy‌ ‌will‌ ‌miraculously‌ ‌bounce-back‌ ‌in‌ ‌6‌ ‌months‌ ‌time‌ ‌when‌ ‌we‌ ‌emerge‌ ‌from‌ ‌social‌ ‌lock-down and government controls ease I think this may be kicking the can down the road – reminds me of subprime lending a little – For now - Lower repayments but when the loans kick back in – will people's incomes be able to afford it? If not, and property prices are lower – may create defaults – Saving grace in Aus for Property is the recourse on borrowing – the collateral that is required – which wasn't in place under the loan arrangements pre-2007 Superannuation - Government announced the relaxation of the restrictions to superannuation under the financial hardship requirements Previously – had to be about to be kicked out of your home and on government welfare to get the $10k out – Now – anyone who had been affected by coronas can lodge a request through the ATO/MyGov to get money out of their superannuation fund. Between now and the end of this FY – 30 June 2020 – can get $10k – then for the following three months – a further $10k – in total can withdraw up to $20,000 As I said at the start – if you are about to be ruined financially and have to do it – then consider it – but this will cost a lot in the long term – The timing of the policy is pretty bad - encouraging people to take money out when the market has just dropped 35% - the $10,000 was maybe worth $14,400 a few weeks ago Or – if you take the total $20,000 Some people may not even have $20k in super who are the ones most affected – younger casual employees If they were to take their entire balance out, not only would they effectively need to start again from $0, but they would lose out on the next 30 years of compounding. Essentially - you're accepting $20,000 for what was a short time ago – may have been worth $31,000 a few months ago – but could be worth a lot more in the future Other side- the rebound – have far less in the account to take advantage of the market rebound Either way – the compounding effe

Welcome to Finance and Fury, the Furious Friday edition. Today – want to run through what is happening within the industry superannuation environment – not looking good With the market crash – cracks in the financial system are starting to appear – with almost no asset class but cash being safe – a lot of super funds have gone down in value – but this isn't the only issue when it comes to industry funds The issue is the type of investments held – which have been placed in illiquid – i.e. hard to redeem investments – such as private equity, infrastructure or direct property – lots of funds have 25%-30% of their investment balances in illiquid investments – cant easily be sold down to meet redemptions So as people request switches out of their one size fits all allocations of 'growth' or 'balanced' to cash or other asset allocations like conservative, they are having a hard time to do this When it comes to markets – the saying goes that 'A rising tide lifts all boats' – but a low tide can leave boats stranded on the shore line - quote that it's only when the tide goes out that we discover who has been swimming naked – Think it was warren buffet who said this – in any case With the recent market declines – it looks like many Australian industry funds is looking pretty naked right now Think about this for a minute – inflows of $130bn p.a. of employer contributions and not much investment oversight from the regulator APRA – why not have a naked dip – nobody is really watching and you get a little cocky when the water level keeps rising Of the 530 super funds listed in modern­ industrial awards, 96.6 per cent are industry super funds. That's some gravy train that essentially guarantees constant inflows of cash – which for the past decade has been seen as a guarantee of liquidity But now the tide has changed – and those who are now left naked are the trustees of the biggest industry superannuation funds and their board of directors In this episode we will look at the current crises going through industry funds and the issue with illiquid investments Industry funds have had a good ride over the past decade – it has been demanded that the corporate sector­, especially the big four banks who are also regulated by APRA - take money from their owners and give it to causes deemed worthy by these industry super funds – like the capital notes that form part of the bail in regulations However – these are still deemed liquid as they can be traded on the secondary market Industry funds have been complacent - Consider the causes of the arroganc­e and power of large industry­ super funds. Even up until 2016 – they didn't need to disclose the true costs of their investment options – the MER or ICR for a lot of investment options went from 0.3% to over 1% in some cases overnight as soon as the regulations changed – as borrowing costs, management fees had to finally be disclosed They have been coddled by an industrial relation­s agreements that mandates that industry funds be flooded with contributions due to the default agreements – has given them the sense that inflows can cover redemptions or transaction switches Easy to get complacent - With that guaranteed inflow of cash, it's hardly surprising that industr­y super funds have grown fat and lazy about risk – it isn't their money after all – but they made two critical assumptions which are currently being tested: Number 1 - that these vast inflows would alway­s exceed the outflows – either in the form of switches in investment options or what they had to pay pensioners in the income stream phase, along with rollovers out to alternative super platforms where you can decide where your money is invested Number 2 - they could keep less of their assets in cash or liquid assets to meet redemp­tions – and place these in illiquid investments like private equity, infrastructure of direct property which can provide generous investment valuations to help returns appear higher In fact, they doubled down on this bet by investing more and more of their members money into illiquid assets — they filled their portfolios with infrastructure, real estate, private equity­ and other forms of long-term assets that can't be easily and quickly sold to meet redemptions – one thing I have noticed over the past decade – go back to 2010 – the investment options within industry funds didn't have much in the way of these alternate investment asset classes – but now they make up about 1/4th of most balanced options The benefit of this is that these illiquid assets can't be easily valued­— experts will tell you that the valuation of illiquid assets is essentially guesswork. think about a share portfolio – liquid and easily valued – based around the share prices on the daily market – but now apply this to private equity – companies that aren't listed and only get a guess work valuation once a year – or unlisted property – which again has some private company give you the guesswork as to what is might sell for

Welcome to Finance and Fury, the Say What Wednesday edition. Question from John: "I have a question on how to capitalise on the depressed global market ie what investment strategies might be worth considering if any. I know it's very much early days, but I'd be curious to hear your thoughts, if you have any, on timing, likely post -CV19 effects of the financial measures that are being put in place (ie what might the recovery look like)" Great question – Very deep topic - the situation is changing every day – so doing this podcast on an ever-moving situation creates a dilemma – what I say today at time of recording – may not be accurate by the time you listen – evolving But what we can do is look at the causes of the loss of the economic confidence and the markets crashing – Then look at to the triggers of potential market recoveries along with asset classes Start and look at what happened in the ASX – Shares have been hammered – lost 32% in a matter of a month - Record Drop in such a short time – why? Was it fears from the death rates? Looking at the numbers of pandemics in the past and how markets responded - Back in 1918-1920 – Spanish Flu - ASX market went up 12%, 18% and 10% - so pretty solid years This is meant to have killed 50m people – when world pop was 1.8bn – so just under 3% of population Asian Flu - 1956-1958, an outbreak of Influenza A would travel from China to the U.S. and rest of the world, killing 2 million people worldwide according to the WHO – Markets went up 10%, 18% and 23% 2009 Swine flu - CDC from April 2009 to April 2010 there were about 60.8 million cases of the swine flu with about 150,000 to 575,000 fatalities - 12,469 deaths in the United States – markets went up 40% and 3% - coming from bottom of GFC For comparison, the WHO estimates that 250,000 to 500,000 people die of seasonal flu annually – but it doesn't create a market collapsing Important point – it is not the virus that investors and by extension – the markets are responding to – 30 pandemic like illnesses in the past 40-50 years – markets have never responded like this before This all comes down to a few elements working in conjunction – Confidence and expectations but it appears to be in reaction to what Governments are doing – Confidence and Expectations - How the price of the market works – expectations – if people are worried about losing money – they will sell down shares and hence – trigger the start of a market decline First panic sellers start the self-fulfilling prophecy – market sees losses from mass sales and then the flow on effects of further sales continue Example – if only 100 people in market – 1 sells their shares – not much effect – but now if 15 people sell their shares lowering prices by 10-15% - creates a panic for the rest – they sell – losses continue to grow So markets are responding to the Government policies – on both sides – on shut downs and then printing their way out of the problem I'll do a full break down in another episode next week to run through government stimulus packages – these keep changing as well – Support and resistance levels in the share market – this is what speculative trading reverts to – there is a minimum point based around fundamentals that the market can drop to – Floor and ceiling – floor is support – ceiling is resistance – think of a super bouncy ball – throw it with enough force can break through a weak ceiling – that is where buyers and sellers act as the support and resistance - You foundations and floor can be solid – i.e. the true valuation of all business in the market as an aggregate - but this doesn't matter in a panic – the market responds to demand of buyers and sellers – If everyone dump their shares now – then all companies would go to essentially zero – smash through the floor That has been what has occurred in a smaller extent over the past month When you look at the amount of money in the ASX in super funds or in custodial holdings for index managers – it makes up slightly more than half of the market – so when people now sell the index – the index drops - But long term – given government involvement – something to watch out for – Government restrictions being eased will be a sign of the start of market recovery – but economic recovery may take some time Going back to the episodes on the future of the economy – the thing to watch out for is the monetary reset – gold and other physical assets – and other physical assets will be better than cash – but in a panic cash is what people run towards – Think of the economy as a flow of money – Money sold from assets has to flow somewhere – if not repurchase – has to go to cash – for most of the global economy – cash is USD – why AUD has tanked in comparison – not due to our dollar weakening but USD strengthening Now enter permanent QE and helicopter money = money supply increasing on top of the demand for dollars - inflation = silver being better than gold but only once real inflation kicks back into the sys

Welcome to Finance and Fury, I'm Louis. Today, I want to talk about overcoming fears and focusing on your purpose and making a plan to become self-reliant – fears of the virus, or government responses and losing jobs - and instead focusing on what can get you through hard times – purpose and relationships – focusing on the positives There is a lot of fear going around – it a massive distraction and disruption to almost everyone's lives – People are losing jobs – losing an income and being out of work is very stressful Governments are taking more control – population is becoming reliant on governments Central banks taking further control over financial markets – QE, money printing and funding the government deficit spending General panic hoarding goods and people turning on their fellow humans – as they are competition or a threat of getting them infected The constant reporting creates worry – either getting the disease, losing your livelihood, or having to fight others for the precious resource of TP – availability bias – the framing as well – saying the virus is something to worry about – but the Government are the ones implementing these draconian rules – but this is in our best interest of course And it seems like there is no way around it – governments telling people and business what they can do to the extreme – fining people and businesses for not doing as told – forcing people into shutting their own businesses down or having to be more than 1.5m apart in public – Guess speeding fines weren't enough – not fining for not socially distancing But what is bad for your health – being in a reactionary state – things happening to you – destroys cells which affect your microbiology Being isolated and not able to go outside and get some Vitamin D – creates a horrible state for humans to live But a very easy environment for Government's to control – Divide and conquer – Caesar did this to the Gaul's We are easy prey when isolated – as society has become – with this disease – now people are becoming ever more so people get sick and die - Fact of life – people die – 210,000 every day –Government has turned this into control Stalin – one death is a tragedy – one million is a statistic – Irony in this statement – for those close to us – it is a tragedy to lose someone – but we all must go through it – but when it comes to Government reports – these deaths are just statistics – and statistics can be manipulated – people dying of heart attacks – but they are added to corona deaths Made people afraid of numbers – and focusing on the negatives – preying on availability heuristics – but not reporting on other numbers – A recent Johns Hopkins study claims more than 250,000 people in the U.S. die every year from medical errors. Other reports claim the numbers to be as high as 440,000. Medical errors are the third-leading cause of death after heart disease and cancer But there are plenty of good things happening – What to do? Become self-reliant is the only way out – the government controls are ramping up – so have to get outside of this – and reliance – like with Age Pension Irony in me saying this – to be in my profession I need to be registered and controlled by 5 Government Agencies – ATO, ASIC, AUSTRAC, TPB, AFCA – even with this – focusing on your purpose can help get through their interference and focus on the positives – and make part of your long term purpose to become FI Purpose – to become financially independent - what does this mean – income self-generated and not relying on the Government – To help work out your Purpose – get the workbooks from FF – in the members section – if in lock down – good chance to complete the workbooks First step - Take 100% responsibility – Don't be a victim and let things happen to you - To be successful you need to be 100% responsible for your own life. How to start taking 100% responsibility: Give up all excuses – have to stop playing the victim - takes a lot of less mental energy by giving excuses up. They don't matter. Past is the past. all the reason why you can't and why you haven't up until now, and all your blaming of outside circumstances. You have to give them all up forever. Change your response to events – try to make this a habit - takes time to change. need to regain control over your mindset which will determine your behaviours in responses to the event. The first question should be "what can be done to get the best outcome?". Equation: Event + Response = Outcome (Jack Canfield) If you get stuck in a traffic jam - 'I hate this traffic, this sucks' or 'It isn't a big deal in the grand scheme of things'. One will lead to a better outcome than the other by reducing your anger at the situation. If the traffic was the problem, then everyone would have had the same response, but as you can respond in the way you want, you can get a better outcome. It is important to change your responses if your current ones aren't getting you the outcomes you are after. If you continue

Welcome to Finance and Fury, the Furious Friday edition. Always told to listen to the experts – argument by authority – The experts know what is best for you – Also – the higher authority in your life – the government – knows what is best for you Now - You aren't allowed to gather at home with more than 10 people – have to socially distance in public or face a $1,000 fine – due to a central power telling you so Interesting thing with experts and higher authorities – we only ever hear from one side – the side that works in with the Governments narrative Today – want to share What are other experts saying? We have to believe all experts after all - There are plenty of Other experts – who have differing opinions Dr Joel Kettner- former Chief Public Health Officer for Manitoba province (Canada between Saskatchewan and Ontario) and Medical Director of the International Centre for Infectious Diseases – must be worried right? What he says: I have never seen anything like this, anything anywhere near like this. – Sounds bad right? I'm not talking about the pandemic, because I've seen 30 of them, one every year. It is called influenza. And other respiratory illness viruses, we don't always know what they are. But I've never seen this reaction, and I'm trying to understand why. I worry about the message to the public, about the fear of coming into contact with people, being in the same space as people, shaking their hands, having meetings with people. I worry about many, many consequences related to that. In the province of Hubei, where there has been the most cases and deaths by far, the actual number of cases reported is 1 per 1000 people and the actual rate of deaths reported is 1 per 20,000. So maybe that would help to put things into perspective. But it might be very deadly – or infectious – Dr Sucharit Bhakdiis a specialist in microbiology - head of the Institute for Medical Microbiology and Hygiene and one of the most cited research scientists in German history What he says: We are afraid that 1 million infections with the new virus will lead to 30 deaths per day over the next 100 days. But we do not realise that 20, 30, 40 or 100 patients positive for normal coronaviruses are already dying every day. [The government's anti-COVID19 measures] are grotesque, absurd and very dangerous. The life expectancy of millions is being shortened. The horrifying impact on the world economy threatens the existence of countless people. The consequences on medical care are profound. Already services to patients in need are reduced, operations cancelled, practices empty, hospital personnel dwindling. All this will impact profoundly on our whole society. All these measures are leading to self-destruction and collective suicide based on nothing but a spook. What about Italy? Dr Yoram Lassis an Israeli physician, politician and former Director General of the Health Ministry. He also worked as Associate Dean of the Tel Aviv University Medical School and during the 1980s presented the science-based television show Tatzpit. What he says:Italy is known for its enormous morbidity in respiratory problems, more than three times any other European country. In the US about 40,000 people die in a regular flu season and so far 40-50 people have died of the coronavirus, most of them in a nursing home in Kirkland, Washington. In every country, more people die from regular flu compared with those who die from the coronavirus.…there is a very good example that we all forget: the swine flu in 2009. That was a virus that reached the world from Mexico and until today there is no vaccination against it. But what? At that time there was no Facebook or there maybe was but it was still in its infancy. The coronavirus, in contrast, is a virus with public relations. Whoever thinks that governments end viruses is wrong. So why are scientists referring to it as COVID19 - Dr Wolfgang Wodargis a German physician specialising in Pulmonology, politician and former chairman of the Parliamentary Assembly of the Council of Europe. In 2009 he called for an inquiry into alleged conflicts of interest surrounding the EU response to the Swine Flu pandemic – where some members of their board represented the companies producing the vaccines What he says: Politicians are being courted by scientists…scientists who want to be important to get money for their institutions. Scientists who just swim along in the mainstream and want their part of it […] And what is missing right now is a rational way of looking at things. We should be asking questions like "How did you find out this virus was dangerous?", "How was it before?", "Didn't we have the same thing last year?", "Is it even something new?" That's missing. What are we spooked of – Covid19 – how did this get its naming – COronaVIrus Disease 2019. From the director-general of the WHO: "Coronavirus" refers to the family of viruses that the disease belongs to and is named for its crown-like shapes under a microscope - "coro

Welcome to Finance and Fury, the Say What Wednesday edition. This week, two questions – both from John's about banking system security - First John: I know you've spoken about this before, but would be interested to hear about if you think there could be liquidity problems with our banks here in Aus, ie a run on the banks like we have seen on TP etc and in Scotland etc during the GFC. Is our money safe in the banks, or in my case offset accounts with non bank lenders? Second John: Just a question I'm relation to bank savings. Do you think our savings 'Australians' is at risk of being confiscated if some banks were to collapse? I am aware there are Government Guarantees of up to $250k. But with huge stimulus packages in place and potential many more, would it be possible they wouldn't be able to guarantee this? Great questions – Run through – Liquidity problems – bank runs – Are your funds in banks safe? Offset accounts - Will the guarantees kick in? Go into massive detail on a few episodes – a couple of them are called if you want to look them up – back in July 2019 The Cash Bill - stabilising the financial system for negative interest rates, Bail Ins and more, all at your expense The Governments war on cash and personal freedom continues with the introduction of the Currency (Restrictions) Bill 2019 Financial Reset – Investments to avoid in a negative interest rate world Human psychology on bank runs – Recent example of how bank runs occurs – TP – people are worried that there wont be enough – so rush and horde goods – panic buying But when the cash is yours – want to withdraw it from the bank What is different now – online banking Bank runs on cash – banks have other options – capital notes – APRA has been ready for bank runs – legislated each bank issues billions in notes – fixed interest hybrids that act as capital requirements of tier 2 – based on lending Then – banks can afford to lend more based on this and require less on deposits Banks only lose money on the loans – deposits are a liability to them – pay you interest – well not anymore – or in negative rate environments – good deal for banks – But bank runs might not be that bad – if they are – then can shut down people withdrawing funds, or limiting to an amount per day The cash restriction bill can mitigate the cash economy and business/government no longer taking cash is having this effect to not be able to use cash Are banks safe – Depends – may not collapse but may charge you interest to store money with them Is your money safe in banks - other factors like bail ins and deposit schemes According to an IMF paper titled "From Bail-out to Bail-in: Mandatory Debt Restructuring of Systemic Financial Institutions": The language is a bit obscure, but here are some points to note: What was formerly called a "bankruptcy" is now a "resolution proceeding." bank's insolvency is "resolved" by turning its liabilities into capital. Insolvent TBTF banks are to be "promptly recapitalized" with their "unsecured debt" so that they can go on with business as usual. This power is statutory. Cyprus-style confiscations are to become the law. Some countries can – ours is a grey zone A lot of the recommendations have come from the Financial Stability Board – Reformed in 2009 – Background for context Chairs – Current – former partner of Carlyle Group – Last – 30 years at Goldman Sachs, Mario Draghi – ex Goldman Current ECB president - member of the Group of Thirty founded by the Rockefeller Foundation. The Group of Thirty is a private group of lobbyists in the finance sector FSB – recommended that banks raise a "buffer" of securities to be sacrificed before deposits in a bankruptcy TBTF banks are required to keep a buffer equal to 16-20% of their risk-weighted assets in the form of equity or bonds convertible to equity in the event of insolvency - Called "contingent capital bonds", or "bail-in bonds," fine print that the bondholders agree contractually (rather than being forced statutorily) that if certain conditions occur (notably the bank's insolvency), the lender's money will be turned into bank capital. Just know that most banks alone aren't able to do that much damage – but when the people working for banks get the authority and executive powers of Governments to socialise the financial system – bad outcome for us This system is a socialist policy – not free market economics – technically closes to fascist system of Government and business merging/restricted, but without the central planning Either way – Result – Recommendations for policy which incentivises risk taking, then privatises profits but socialises losses the end game outlined in the IMF's post – their ideal world — one without cash and to change human behaviours financially to act as 'homoeconomicus' – the rational individual that the models require to work – by rational – what they think is the best decision to maximise utility – how most economics works – what would an economist do – most people aren

Welcome to Finance and Fury – Last year through September, October and November – was running through the future of the economy – was looking at this through a few episodes – interesting to see a lot of what was discussed playing out now In those episodes – went through a Big disclaimer - transformational markets are something that cannot be 100% predicted – no way to know where it will end up But did look at possible outcomes proposed based upon what the economists and monetary officials were saying – they are who influence policy decisions after all- are recommending to implement What we went through is a new evolutionary phase of the monetary system - combining QE, government deficit spending, and 'helicopter money' - the nuclear fusion of monetary and fiscal policies – aimed to be the life line to the economy – regardless of the economies economic output – Also went through what would be needed to implement this – basics economic behind the policies – e.g. trying to stimulate inflation and avoid deflation (real increase in debts) at all costs, also greater control over the monetary supply – avoiding people using or hoarding cash, Major proposals were permanent QE implementation, lowing of interest rates and the introduction of the cashless economy: To get that – the main components of the market economy going forward were 5 major policy steps - Permanent QE Lowering rates and moving towards cashless economy to avoid BOJ bank run situation Fiscal expansion – Government spending – redistribution Helicopter money – additional government payments to the population or lowering taxes Abandon the dollar – IMF SDR – new reserve digital currency – or Central bank/national government crypto Episode names – if you haven't heard them or cant remember them – and want a refresher Ep 1 - We are entering new economic and investment territory – An introduction to QE, what does it look like and what does it mean for investments? Ep 2 - What will be the next market interventions from Central Banks to achieve inflation targets? Ep 3 - How Government spending through fiscal expansion aims to help the economy today, for future generations to worry about repaying. Where are we at now – Seeing a lot of these policies being rolled out fiscal expansion through abolished government debt ceilings and increase government spending, lowering of interest rates and the de facto implementation of the cashless economy, now the proposals of helicopter money policies ('stimulus' bonuses to people, cutting to taxes, universal basic income, and their like, all funded through the expanded fiscal spending) i.e. – giving money to the population as part of demand side economics What was missing – a reason – there needed to be some form of economic panic and collapse to justify massive efforts – economic shutdown to government controls The Fed had no reason to cut rates – Places like the RBA were expected to in 6 months, but not cutting 0.5% in a matter of weeks announced extraordinary measures to help prevent a recession - The RBA said it would also provide at least $90 billion at 0.25 per cent over three years to banks if they lend that cash to small and medium-sized businesses Central banks had no reason to increase liquidity – QE - RBA will buy Australian government bonds as part of its first-ever quantitative easing program Governments had no justifiable reason to blow up debt ceilings and expand fiscal spending – especially in a time of asset price growth and reasonably predictable low economic growth rates – it is okay if numbers are low as long as they are expected Today want to go through Reserve bank and government responses – Monetary and fiscal side implementation of the sort of policies covered in October last year – 5-6 months ago Central banking side of things – Monetary policies Lowering interest rates – cost of money goes down – interest repayments go down – QE and repo markets – Quantitative easing – provides Yield curve control to keep the 3-year bond rate at 0.25%: we would have thought they would have gone out for 5 years, given banks need to issue debt with this duration to fill lending books. This will be achieved by purchases of Australian Government bonds in the secondary market, starting today, but the size and duration were not detailed; and QE - provide a three-year funding facility to provide cheap loans for Australian banks - A Term-funding Facility: allows banks to borrow 3% of their outstanding funding from the RBA at 0.25% for three years and given current outstanding credit of around AUD2.7 trillion, this provides around AUD90 billion in ultra cheap funding Facility that allows a better pass through of the rate cut for mortgages – but banks could keep it for themselves. They will be able to get even more funding from this facility if they lend more to small and medium-sized businesses purchases of Australian government and semi-government bonds Done directly to provide state governments with the ability to fund l

Welcome to Finance and Fury, The Furious Friday edition You probably are exhausted about the coronavirus - What you probably haven't heard about is A little known type of bond created in 2017 by the World Bank. The World Bank – Headquartered in Washington DC – back in June 2017 – issued Pandemic Emergency Financing Facility (PEF) – call them pandemic bonds Technically their debt/lending arm – the International Bank for Reconstruction and Development Facility created by the World Bank to channel surge funding to developing countries facing the risk of a pandemic Is an international organisation created in 1944 – part of the Brenton woods era of creation of agencies The World Bank has two main goals: to end extreme poverty and promote shared prosperity – does this primarily by providing loans to its borrowing member government clients in middle-income countries Loans in the form of bonds – done so through the international capital markets for 70 years to fund its activities 2017 – the World Bank issued $425 million in a new type of "pandemic bonds" - Marks the first time that the World Bank is in the business of infectious diseases – with a maturity in just a few months – July 2020 Was oversubscribed by 200% - with investors eager to get their hands on the high-yield returns on offer World Bank Group President Jim Yong Kim said. "We are moving away from the cycle of panic and neglect that has characterized so much of our approach to pandemics. We are leveraging our capital market expertise, our deep understanding of the health sector, our experience overcoming development challenges, and our strong relationships with donors and the insurance industry to serve the world's poorest people. This creates an entirely new market for pandemic risk insurance. I especially want to thank the World Health Organization and the governments of Japan and Germany for their support in launching this new mechanism." How does it work - Investors buy the bonds and receive regular coupons payments in return but if there is an outbreak of disease, the investors don't get their initial money back PEF financing to eligible countries will be triggered when an outbreak reaches predetermined levels of contagion, including number of deaths; the speed of the spread of the disease; and whether the disease crosses international borders. The determinations for the trigger are made based on data as reported by the World Health Organization (WHO) There are two varieties of debt, both scheduled to mature in July 2020. First bond raised $225 million - coupon rate of around 7% p.a. Payout on the bond is suspended if there is an outbreak of new influenza viruses or coronavirus (SARS, MERS). The second, riskier bond raised $95 million at an interest rate of more than 11%. This bond keeps investors' money if there is an outbreak of Filovirus, Coronavirus, Lassa Fever, Rift Valley Fever, and/or Crimean Congo Hemorrhagic Fever. The World Bank also issued$105 million in swap derivatives that work in a similar way to protect the losses Done to attract a wider, more diverse set of investors – as it minimises the loses Countries eligible for financing under the PEF's insurance window are members of the International Development Association (IDA) – an arm of the World Bank Group that provides finance for the world's poorest countries The PEF, under its insurance window, has the capacity to provide payments up to a maximum of US$ 425 million during its initial 3-year period for all qualifying outbreaks combined But the catch is that there are established ceilings of maximum payments for each of the disease families covered. The maximum payout per disease is capped at US$275 million for pandemic Flu, US$150 million for Filovirus - but US$195.83 million for Coronavirus – less than half of funds raised Technical side to these bonds – in essence - are a combination of bonds and derivatives priced today (insurance window), along with a cash window, and future commitments from donor countries for additional coverage – convoluted and complex structure What are these windows - The PEF has two windows. The first is an 'insurance' window with premiums funded by Japan and Germany, consisting of bonds and swaps including those executed today. The bonds and derivatives for the PEF's 'insurance' window were developed by the World Bank Treasury in cooperation with leading reinsurance companies Swiss Re and Munich Re - Swiss Re Capital Markets is the sole book-runner for the transaction Swiss Re Capital Markets Limited, Munich Re and GC Securities were also joint arrangers on the derivatives transactions. The bonds will be issued under IBRD's "capital at risk" program because investors bear the risk of losing part or all of their investment in the bond if an epidemic event triggers pay-outs to eligible countries covered under the PEF. The second is a 'cash' window, for which Germany provided initial funding of Euro 50 million. The cash window will be available from 2018 fo

Welcome to Finance and Fury, The Say What Wednesday edition This week the question from Jayden – Are CBA and other bank shares a good investment for dividends at the moment? Based around current price and un-updated yields – Based around prices and assuming dividends will continue to be the same – might say yes – end of the episode – thanks for listening – but wait - is there something else going on? Start with Some Banks are close to their post GFC prices – ex CBA – does this mean they are a good time to buy? Few things happening – The Council of Financial Regulation - (the Council) is the coordinating body for Australia's main financial regulatory agencies. There are four members: the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA) RBA – Governor chairs the Council and the RBA provides secretariat support. It is a non-statutory body, without regulatory or policy decision-making powers Objectives are to promote stability of the Australian financial system and support effective and efficient regulation by Australia's financial regulatory agencies. But they all have their part to play in controlling the financial system – in particular, APRA, RBA, and Treasury Recent developments – QE - RBA is ready to purchase Aus Government bonds in the secondary market Between three entities – Super funds controlled by APRA, RBA who is doing the buying, and Treasury who is doing the selling of the bonds to the super funds on the primary markets Repo Market – RBA also conducting one month and three month repo operations in the daily market – until further notice Additional Repo market – conduct repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant Statement - APRA is ensuring banking institutions pre-position themselves to take advantage of the RBA's supportive measures Forcing banks to enter the repo agreements of exchanging their treasury notes for the injection of liquidity Why? They say they are wanting to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system. The Reserve Bank and the AOFM - The Australian Office of Financial Management is a part of the Department of the Treasury. It manages the Australian Government's net debt portfolio - are in close liaison in monitoring market conditions and supporting the continued functioning of the market. Statements - Australia's financial system is resilient and it is well placed to deal with the effects of COVID-19. The banking system is well capitalised and is in a strong liquidity position. Substantial financial buffers are available to be drawn down if required to support the economy. The RBA is trying to support the liquidity of the system – this is where repos come into it – giving the banks and financial system enough cash to survive As part of this support it will be conducting one-month and three-month repurchase (repo) operations until further notice. In addition, it will. The Australian Prudential Regulation Authority. But the Government are the ones creating disruption to the whole economy – When they shut everything down and nothing happens – they will turn around and pat themselves on the back saying 'good job' we saved lives – whilst destroying livelihoods and further enshrining an autocratic financial system Interesting statements – "APRA and ASIC will take account of the circumstances in which lenders, acting reasonably, are currently operating during the prevailing circumstances when administering their respective laws and regulations. Both agencies also stand ready to deal with problems firms may encounter in complying with the law due to the impact of COVID-19 through a facilitative and constructive approach. In particular, each agency will, where warranted, provide relief or waivers from regulatory requirements. This includes requirements on listed companies associated with secondary capital raisings, annual general meetings, and audits. ASIC will also work with financial institutions to further accelerate the payment of outstanding remediation to customers as soon as possible. Second Capital Raisings – The ability of companies to raise equity capital in the virtual absence of alternative debt issuance or bank funding Is seen as an important safety valve that enables companies to reduce debt exposure and shore up balance sheets Something deeper is going on – A shortage of Dollars and funding mechanisms for the financial system – requiring the liquidity injections – all because the World has been hit with Margin Calls - $12 trillion – banking system is fragile Go back to 2009 - Fed's emergency response during the GFC - which included credit facilities backed by corporate bonds and even shares - all the way to unlimited FX swap lines with foreign central banks – all of this was in response to a massive margin call that resu

Welcome to Finance and Fury – Focus on what you can control Australia has been cancelled – IMO - The largest overreaction in history – the world of medical martial law Working from home, no public gatherings, not even meant to shake hands - Panic is the disease – The panic is creating the real world effects – shortages, people potentially losing jobs, share market crashing – The fear of the virus is having the real world events – cancelling ANZAC day Can't change anything about the virus and there are so many stories going around – bioweapon, most deadly disease ever, 5G creating this – who knows what to believe – doesn't matter – all of these stories serve the same function – of creating fear by putting this outside of your control What is another name for a story? A Novel – In this case – the Novel Coronavirus – Definition of novel – noun: an invented prose narrative that is usually long and complex and deals especially with human experience through a usually connected sequence of events Coronavirus - any of a family of single-stranded RNA viruses that have a lipid envelope studded with club-shaped projections, infect birds and many mammals including humans. Coronaviruses can cause a variety of illnesses in animals, but in people coronaviruses cause one-third of common colds and sometimes respiratory infections in premature infants. Irony here – the stories of the virus are the thing having the real world effects All have the same effect – first is fear – The fear has gone viral – like a viral video or meme spreading in the internet age – I haven't met anyone with the virus – the news reports on public figures with it – but anyone out there know somebody personally with it? Or who has died of it? There are over 7bn people worldwide – so there will always be someone to report on But we have accepted mass quarantine and the cancelling of events – in fear of us getting it – that is the real danger – what legislation can be done to us in response – shutting down of events Second effect is like a magic trick – everyone looking at your left hand in fear while you pick pocket them with the right The Story - Doesn't matter if it is a bio-weapon, released by the US government in China, or released by the Chinese Government, or is 5G - all those novels make you focus on the enemy of the disease – not the personal freedoms and loss that is occurring In the end – the effects of this are coming from the lockdowns, cancellation of events, markets crashing and businesses responding out of fear of the future – all to an invisible killer – that has created the response for massive disruptions in life - 197 confirmed cases of coronavirus (COVID-19), including 3 deaths The last one was over a week ago – 82yo man in Aged Care facility, others 95yo woman 2 weeks ago in same Aged Care facility – other was a 78yo man weeks ago The real killer – fear, despair, depression – Suicide remains the leading cause of death for Australians aged between 15 and 44 - fears of losing a job or the depression form that is a bigger killer Based around annual figures – 192 Australians would have committed suicide over the past 2 weeks – tragically – I know one of these people But these effects are creating additional fear Seen a lot of people expressing worry and fear - They're afraid we're about to all get sick and die, lose their jobs, the share market is going to continue to crash – The Stories and media reporting is manipulating people to be in a constant state of fear - When we are scared, we don't think clearly or act effectively – fight, flight or freeze – most people freeze – so fear over things outside of your control is not a useful emotion. It's not practical – nor are these solutions – lets the magician trick you out of your wallet Being practical is better - You need to shake the worry off and get control of your thoughts and actions First, the bad news. There's not a darn thing you personally can do to prevent the things above from occurring. We are little fish in a big sea full of predators who are the ones that can actually cause change on those levels. Now the good news. What we can change are our immediate environments and responses to events. If you are expending a great deal of energy and emotion, focus it on the things that you can change. These are the things that will have the biggest effect on whether you live or die – and whether you can take advantage of bad situations Event + Response = Outcome – Share markets – Event = market crashing – response is to either sell, hold or buy – Outcome = Retaining funds or buying when markets are down = regain long term returns Selling = outcome of guaranteeing losses So far – this episode has been a bit of a bummer - I see so many people utterly panicking over things beyond their control. We, the ordinary, everyday people, cannot prevent what governments want to do - but we can make our opinions known but sometimes a public outcry works against you - Actions to take in your own lives

Welcome to Finance and Fury, The Furious Friday edition What has created a system where the share market can go down so quickly? The perfect storm – Panic, OPEC agreement breaking down – computer algorithms kicking in, mass sell-offs of index funds The recent collapse in the stock market – speculation is rampart with discussion of a new crash looming on the horizon – even with Monday's record breaking drop – market into retreat Important context – that a chain reaction collapse was only kept at bay due to massive liquidity injections by the Federal Reserve's overnight repo loans should not be ignored Began in September 2019 - has grown to over $100 billion per night… all that to support the largest financial bubble in human history with global derivatives estimated at $1.2 quadrillion – or 20 times the global GDP Thanks to media – and not to be offensive – but general financially illiteracy – the underlying reasons as to why the economic system is so fragile and crash has been misdiagnosed as the coronavirus Today – want to give a bit of context around the structural issues to a financial collapse – if it does manifest into one Similar to a virus spreading – and killing people – depends on the hosts health – healthy wont die the nature of the modern financial system with panic and collapses is very similar – the US economy catches a cold – the world markets collapse Big topic – so where to start – first with some background In some previous episodes – Quoted Franklin Delano Roosevelt in his Inaugural Address of 1933 - "The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit." This was in reference to the 'money changers' only being able to create the bubble of the 1920s (roaring 20s) via access to the commercial deposits of banks – leveraging these using margin loans and debt instruments for profit over investing into productive side of economy Roosevelt – for all his faults in socialising the US system – wanted to take on Wall Street – Didn't have the publics best interest in mind – but rather nationalising (taking over) the banking system – wasn't able to so instead created the banking Act of 1933 – especially the "Glass-Steagall" section of the act - forced the absolute separation of productive from speculative banking, guaranteeing via the Federal Deposit Insurance Corporation (FDIC) only those commercial banking assets associated with the productive economy, but forcing any speculative losses arising from investment banking to be suffered by the gambler This focus on the now rather than later ushered in the system of "post-industrial monetarism". This would be a system ushered in by Richard Nixon's announcement of the destruction of the fixed-exchange-rate Bretton Woods system and its replacement by the "floating rate" system of post 1971 fame. During that same fateful year of 1971, another ominous event took place: the formation of the Rothschild Inter-Alpha Group of banks under the umbrella of the Royal Bank of Scotland, which today controls upwards of 70% of the global financial system The intentions of this group were well laid out in the 1983 speech by Lord Jacob Rothschild: "two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may converge to form the ultimate, all-powerful, many-headed financial conglomerate." Wanted to get commercial and investment banks back into bed with each other – to use debt and financial instruments to make themselves filthy rich This policy demanded the destruction of the sovereign nation-state financial system – nothing really new – the age-old scheme of controlling the money system – but this time it would be on a global level At around the same time - had Milton Freedman's economic theories – around shareholder theory – argues that a company has no "social responsibility" to the public or society; its only responsibility is to its shareholders - revolutionised wall street to focus on maximising profits in the short term – long gone is the long term focus of companies with what is best in 10 years – now it is quarterly based – hence why share buybacks are so prevalent – what can be done now to boost prices – even at the detriment of the long term A record number of CEOs resigned right before the crash – around 220 in total I believe – but major companies Due to the Interconnection of the financial system and share markets – Deregulation of the Financial system – whilst regulation of every other business increased Deregulations – Two major financial centres of London (UK) and New York (USA) London - 1986, the City of London announced the beginning of a new era of economic irrationalism – known as the "Big Bang" deregulation - swept aside the separation of commercial deposit

Welcome to Finance and Fury, The Say What Wednesday Edition Question from one of my friends – What is happening to oil prices? Is it a time to buy oil linked companies due to large losses? Over the past few days the price of oil has plummeted On Monday - the Brent has dropped as much as 31% to just $33 one of the most dramatic bouts of selling ever and is the biggest one-day drop in Brent on record Goldman's shocking price target cut, which now expected Brent dropping into the $20s What is going on - Oil pricing war between Russia and Saudi Arabia – See different headlines – Putin Launches "War On US Shale" After Dumping Mohammed bin Salman & Breaking Up OPEC+ Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices Truth is somewhere in the middle – OPEC and Russia oil price war – with the US industry as potential targets Important first step when looking at oil price OPEC - The Organisation of the Petroleum Exporting Countries - intergovernmental organisation of 14 nations - headquartered since 1965 in Vienna, Austria - International cartel Mission of the organization is to "coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry." Cartel wording – to keep prices high enough to turn a profit for its members The current OPEC members are the following: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia (the de facto leader), the United Arab Emirates and Venezuela. Ecuador, Indonesia and Qatar are former members But two of the world largest producers – USA as number 1 and Russia as number 3 – Are not OPEC Members - Those members not officially in OPEC are members of OPEC+ - which is where the drama starts It appears that OPEC+ is no more Last week OPEC+ was meeting in Vienna to discuss how much supply of oil should be allowed for the year To keep prices high – supply needs to be cut Heading into Friday's session, OPEC had been pushing for an additional 1.5 million barrels per day of cuts, reducing production by 3.6% of the world's total supply would have required Russia and other non-OPEC states (but mostly Russia) to contribute 500,000 bpd to the extra cut. Russia said that they were unwilling to cut oil production further - The Kremlin had decided that propping up prices as the coronavirus has impacts to reduce the global energy demand would be a gift to the U.S. shale industry. Russian Energy Minister Alexander Novak said that "considering the decision taken today, from April 1 of this year onwards, neither we nor any OPEC or non-OPEC country is required to make (oil) output cuts." Over the past few years – US frackers had added millions of barrels of oil to the global market while Russian companies kept wells idle – and higher prices were helping USA more than Russians with lower production costs On the news - Oil prices fell more than 10% - wasn't just the market that got a shock – a lot of the ministers were caught by surprise – like any treaty or agreement – when one party doesn't agree – why should you do anything? So deal to cut supply fell apart Saudi Arabia's turn was next – Had to respond That is where the OPEC and Russia oil price war really kicked off over the weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude – this was by the most in at least 20 years - in an effort to push as many barrels into the market as possible This was the first major decision since the Saudi state producer Aramco, which IPOed just before the price of oil started to drop in Jan Aramco widened the discount for its flagship Arab Light crude to refiners in north-west Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the Brent benchmark – so prices dropped In contrast, Urals, the Russian flagship crude blend, trades at a discount of about $2 a barrel under Brent – Saudis move is trying to reduce the ability of Russian companies to sell crude in Europe – which is their major market Cannibalistic competition – you take a loss short term to price out competitors then create a monopoly a flood of Saudi supply as demand is in freefall - could send oil into the $20s - what is the worst-case scenario for oil prices? Brent traded at an all-time low of $9.55 a barrel in December 1998 - also during one of the rare price wars that Saudi Arabia has launched over the last 40 years – similar to now In addition - a second announcement came right after - in addition to huge price cuts, Saudi Arabia was set to flood the market with a glut of oil to steal market share and capitalise on its just-announced massive price cuts as the kingdom plans to increase oil output next month told some market participants it could raise production muc

Welcome to Finance and Fury Today – Talk about a Money Illusion and the GSR Gold has been on a rally – but silver hasn't gone up by as much The Gold-to-Silver Ratio: What is It and Why Does It Matter? For experienced investors, the gold-to-silver ratio is one of many indicators used to determine the right (and wrong) time to buy or sell their precious metals. The gold/silver ratio is simply the amount of silver it takes to purchase one ounce of gold. If the ratio is 25 to 1, that means, at the current price, you could use 25 ounces of silver to buy one ounce of gold. 25 to 1 would be considered a narrow ratio Other factors – including economic uncertainty, inflation frenzy and debt – have encouraged millions to invest in gold and silver, and in the past few years, small-scale investors have begun to climb aboard. Yet despite these market developments, to many, the gold-to-silver ratio remains a vague, elusive mystery. Currently – GSR ratio is around 96.5 times - $26 for Silver and $2,718 for Gold Buy 96 ounces of silver for one ounce of gold What can this number tell us? Investors who trade gold bullion, silver bullion and other precious metals scrutinize the gold-to-silver ratio as a signal for the right time to buy or sell a particular metal. When the ratio is high, the general consensus is that silver is favoured. This is because, relative to the ratio, silver is somewhat cheap. Conversely, a low ratio tends to favour gold and may be a signal it's a good time to buy the yellow metal. Many large-scale, experienced investors may trade their silver for gold as the ratio drops. Unfortunately, because the gold-to-silver ratio fluctuates so wildly, it can be difficult for novice or small-scale investors to read the signals and make a profit. Historically, what did the Gold-to-Silver Ratio look like? Since 1687 – as far back as the records reach – the gold-to-silver ratio vacillated between roughly 14 and 100. Prior to 1900, the gold-to-silver ratio hovered around 16. This was likely because many countries were using gold- and silver-backed currencies. For instance, France and the United States (among others) assigned statutory limits on what the ratio could be. 1900 - Throughout the twentieth century though, the gold-to-silver ratio has averaged about 47-50 and has fluctuated wildly at times Fundamental reasons - U.S. Geological Survey estimates that there's 17.5 times more silver in the Earth's crust than gold, which could provide another explanation for the pre-1900 gold-to-silver ratio average. Take a look at some of its implications The most important implication is that there is no characteristic value for the gold-silver ratio (GSR) That means that there is no "true north", or no mythic value (16, for instance) to which it is attracted, and to which it would return if only the world stopped manipulating its price Economists have some conclusions around why the ratio changes over time – has to do with inflation and interest The gold-silver rises during deflationary periods and disinflationary periods The gold-silver ratio falls during inflationary periods What is unclear is whether a rising GSR causes deflation, or deflation causes a rising GSR – either way – a strong correlation To dig deeper – have a look at some measures that can be used for deflation/inflation First – look at the USD Index versus Gold prices Important as gold and silver are valued in dollars - Intervals when both the USD index and the gold price rise are considered deflationary Deflationary - deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. Inflation reduces the value of currency over time, but sudden deflation increases it If gold rises and the US dollar index falls - we have inflation Inflation is price rises – not the same as CPI – CPI is used to measure prices but leaves out the rise in hard assets – and other essentials in cost of living, like level of debts being taken out The cycle of money - has four stages – Inflation, Disinflation, deflation, and reflation – Very similar cycle to the K wave theory In stage one, the groundwork for inflation is laid by central banks but is not yet apparent to most investors. This is the "feel good" stage where people are counting their nominal gains but don't see through the illusion – that inflation is the cause for a lot of the price gains – summer period Stage two is when inflation becomes more obvious. Investors still value their nominal gains and assume inflation is temporary and the central banks "have it under control." – This is where a weakness in purchasing power starts to increase Stage three is when inflation begins to run away and central banks lose control. Now the illusion wears off. Savings and other fixed-income assets like bonds rapidly lose their real value. If you own hard assets prior to stage three, you'll be spared. But if you don't, it will be too late because the prices of hard assets wil

Welcome to Finance and Fury, the Furious Friday Edition Today is a follow on from Last FF ep – on K waves – if haven't listened – worthwhile to go check Today – is the cycle relevant today with central banks – and go through the most recent cycle – meant to start in 1949 and end this year First - Summary from last week – K-wave – summarises the long term cycles of economies in capitalist countries - Each cycle has it sub-cycles – which are dubbed as seasons as broken down into four sub-cycles – Each K wave is a 60 year cycle (+/- a few years here or there) – then the internal phases that are characterized as seasons: spring, summer, autumn, and winter: Spring: Increase in productivity, along with inflation, signifying an economic boom Summer: Increase in the general affluence level leads to changing attitudes toward work that results in a deceleration of economic growth Autumn: Stagnating economic conditions give rise to a deflationary growth spiral that gives rise to isolationist policies, further curtailing growth prospects Winter: Economy in the throes of a debilitating depression that tears the social fabric of society, as the gulf between the dwindling number of "haves" and the expanding number of "have-nots" increases dramatically Key indicators – In a K Wave theory – the two most common indicators are inflation, interest rates and asset prices – back in Nicolai's time – these moved freely – but not anymore Inflation – it is targeted by central banks and the measurements are skewed Data being skewed – not the cost of living but the basket of goods selected What makes up the good? I break it down into two – Essentials and discretionary Look at the prices of the two – One has been going up massively whilst the other is declining – goes which? Essential – food, health care, petrol, housing, education – all up massively – over CPI increase Discretionary – TVs, clothes, computers – stuff you buy off Amazon – going down massively Targets – money is introduced into the economy to create inflation – but lowering interest rates - Interest rates – it is controlled not on supply and demand factors – but on the determination of monetary authorities Asset prices – Shares, property and commodities – depending on the stage go through corrections, gains or stagnation Let's look at each of these through the cycles – see if they line up Spring – 1950-1966 – longest period in cycle – around 25 years Inflation – starts to rise – due to consumption starting to increase Australia saw a spike in inflation in 1950 – went to almost 25% - but then dropped heavily to almost 0%- inflation used to be more volatile before being targeted – but by 1966 was back to about 5% Interest rates – normally fairly flat initially – towards end of cycle start to increase Interest rates were 5% then went to 5.5% but averaged around 5% for the whole time – This is a large factor which contributed to inflation back then – but the spike was likely due to price increases due to limited supply coming out of WW2 Shares – Start to rise as well in the spring time – and they slowly did - Average annual ASX return of 12.52% Had 4 negative years – nothing major – 3%, two 7% and one 12% Property – also is meant to increase – it did – 50s to 66 saw mild increases at average of wage earnings Summer – 1967-1981 – around 5 to 10 years Inflation – quickly rising inflation - towards the end meant to see double digit levels if inflation From 67 rose from about 5% to 15% by 1976 - and stayed around the 10% margin until early 1980s Interest rates – are rising to combat inflation – normally soaring Credit growth builds heavily – whilst interest rates increase – inflation also goes up – so real debt levels isn't so bad Rates went from 5.38% in 2967 to 7.25% in 1970 – then to 10% by 1974 – then to 13% by 1981 Shares- The share markets normally go through a bit of a correction as well or just make no progress and stagnate Average annual ASX return of 17% Had the corrections mid and end of cycle – 73 and 74 lost 23% and 27% respectively Then in 1981 and 1982 at end of cycle lost 13% and 14% back to back - Property – From 67 to 75 saw some decent increases – prices went from $160k to $220k – 37% gain in about 8 years – but then stagnated and went down slightly until 80s Autumn – 1982 -2000 – around 7 to 10 years – this is the period when things start getting a little out of sync Inflation – starts to drop – which it did – trended down from 1981 till the RBA and other central banks set inflation targeting in early 90s – Went from about 8% to close to zero with the implementation of inflation rate targeting in 1993 Inflation did spike towards 2000 – but only to about 5% - Interest rates – falling heavily – which they did Creates a credit boom which creates a false plateau of prosperity that ends in a speculative bubble Rates kept rising though – 1982 were 13.5% and went up to 17% by 1990 – But dropped after this – from 1990 to 1992 – went from 17% to 10% - then down to 7%

Welcome to Finance and Fury, The Saw What Wednesday Edition – Question from Jack This is going to be a bit of a Q&A style episode – he did a lot of research and sent it through – making my job easy on this one – so thank you for that Jacks Question - I wonder what you think of WISR (WZR) as they have received a fair bit of media attention and commentator optimism. Before we get into it – a Short Bio on Wisr: Wisr is an Australian marketplace lender offering peer to peer lending services. It is known for being the first company of its type to be publicly listed in Australia – before 2018 - changed names from DirectMoney under a rebrand to Wisr But back in 2015 listed on the ASX through a reverse takeover of Basper Ltd, raising $AU11.2m at 20c per share Claims to be Australia's first 'neo lender' offering cheaper loan rates (depending on credit history) than the big four banks. Issues small loans only between $5k and $50k then on sells them. The primary activity is writing personal loans for 3, 5 and 7 year maturities to Australian consumers, then on-selling these loans to retail, wholesale and institutional investors. The business model relies on investors who what to buy these unsecured loans – get a yield on this Loans are about 7.95% fixed repayment Uses smart app technology and a new aesthetic approach to lending (in an attempt to increase market share from 'dinosaurs' that hold 99% of it). Run through the analysis: Not personal advice – just a breakdown Financials (Quantitative) Free cash flow – this is the lifeline of any company – after costs/taxes/etc are paid – what does the company have left? In this case – been negative for a long time – last time the company had positive cash flow was 2010 Net losses have been growing over the years - -$2.2m in 2011 – to -$7.73m in 2019 Doesn't help that the outstanding shares have gone from 10m in 2010 to 790m in 2019 This hurts the EPS – and potential to pay dividends - which is the next thing Operating margins and net profits at -252% and -257% respectively EPS - The EPS is the profit divided by the number of shares, since the profit is negative there is no EPS. Earning: -$7.7m – so EPS is around -$0.013 – so for every dollar your put into this company, losing $0.076 p.a. based around last price of $0.17 EPS is estimated to be positive in about 3-4 years – based around assumption of 67% earnings growth per annum – which is a huge forecast ROE – Also hasn't been positive since 2010 – had a massive loss since 2016 each year – been over 50% each year Future ROE: WZR is forecast to be unprofitable in 3 years – but based on massive assumptions The PE – cant be done as the earnings per share is negative Price to Book - WZR is overvalued based on its PB Ratio (15.3x) compared to the AU Consumer Finance industry average (2x). Nothing really intangible assets if the company goes bankrupt What is keeping this company afloat – two factors – Jack points these out well Equity Raisings - Shareholder cash is keeping the company afloat. Risk of liquidation is low, more likely a slow death by continued losses and shareholders evaporating. Looking at the balance sheet - June 2019 - Shareholder equity - $16.77m = 90% of capital Insider shareholdings - One shareholder group owned 44% in 2018. Recent surges don't guarantee liquidity despite a high MC, especially since I am predicting this company is going nowhere by EOY, so likely at some point significantly downward to adjust for unjustified herd buying re livewire report - The Top 20 Shareholders of WZR hold 67.18% of shares on issue. Good Media Coverage - Media (livewire reporting) – I'm always a bit skeptical of fund managers saying a company will boom If they think it will – why not buy it themselves? Trying to change market perception to get large returns on the previously bought shares Jack asks - Are there really signs of a continued turn around / market expansion? Maybe they have been around the bend and it is only going to get better, but why? Possible upsides? Good points - Earnings vs Savings Rate: WZR is forecast to become profitable over the next 3 years, which is considered faster growth than the savings rate (1.1%). Earnings vs Market: WZR is forecast to become profitable over the next 3 years, which is considered above average market growth. High Growth Earnings: WZR's is expected to become profitable in the next 3 years. Revenue vs Market: WZR's revenue (61% per year) is forecast to grow faster than the Australian market (4.2% per year). High Growth Revenue: WZR's revenue (61% per year) is forecast to grow faster than 20% per year. Very low /no debt (relying on shareholders instead) – not always a good thing – shareholders want higher returns than debt raisings – but NAB has just provided them a third-party funding facility Downsides Jan 2020 raised $35 million through a placement and share purchase plan (30k max per shareholder), subject to shareholder – this is often done for additional funding for large projec

Welcome to Finance and Fury What a week last week was for markets – ASX lost value of just under 10% - All around news of the Coronavirus and speculation on Government responses – So Aus and international markets have dropped heavily – might be thinking that it is solely out of expectation that companies will lose money from the Virus outbreak. Well – the overall Market has tanked which companies most affected? - almost every one Medical companies dropped, banks dropped, A2 Milk – which has large sales to china went up over the week In the US - FANG stocks went down heavily – Google, FB, Amazon – down 14% - understand Amazon if cant ship goods – but why FB? If anything – people may be spending more time inside online What does this all say? Could the Selloff probably have less to do with the coronavirus than what is being reported on? – let's have a look at this further to see – or if it is just speculative selling/profit-taking – and if it is a good time to buy? Before we get into it – Nobody has asked the question – why has the Chinese Government which from observation – doesn't really have a high value of life on its population – shut down their economy through extreme quarantine measures for 80,000 sick people and around 2,700 dead? Are the numbers more? Or is something else going on China has a population of 1.4bn –80k = 0.0057% of pop - In Australia that would be 1,400 people with the illness – 50 of those would pass away based around the estimated death rates – those who are immunocompromised or over the age of 60 Even if it is 50 times larger – there would be 135,000 dead – historically for China this is a good weekend on a collectivised farm – I know they are past those practices – but even in modern times: They aren't without their human atrocities – Falun Gong practitioners being imprisoned and tortured, reports of organ harvesting, treatment of the million Uyghur Muslims in "re-education camps" – but all of a sudden, they really care about their people? I find it hard to believe – might be the case Now - Not saying this is related, or implying anything – but two interesting things I noticed around the timing of the quarantines - Wuhan was having mass protests last year – same with HK – not much happening with those now? Also – China just lost the trade war and were about to sign an agreement with the USA – losing yet again They were dumping their US treasuries leading up to December last year – then the quarantines effectively are shutting down the global economy Nobody knows what is going on – all we do know is that the market is going down and Governments seem to be overreacting – resulting in panic selling and global fear occurring The responses from the media and Governments are creating the economic uncertainty – not the virus itself Perspective - Assumptions are that 5% to 20% of western populations will get the flu/mild or severe– each year – death rates in the west from the flu are lower than Coronavirus – but in China – flu deaths are around double already due to health care system – so every year 70m Chinese at a minimum will get the flu – working off the numbers - in the past week – more people in China have died from the flu than the coronavirus Regardless of the rational for the selloff – there has been a crash/correction – and a quick one at that – the volumes are huge – to the point it is one of the most coordinated sell offs in history – to break this down: First – let's have a look at How crashes work – analogy to a movie theatre – Anyone been to a movie theatre – people slowly arrive at different time – some go early to buy the best seats, some rock up later, some don't like the ads to turn up just as the movie starts – people all get in slowly – Similar to buying patters of markets – buy orders come in over time – different institutions and individuals dribble in But now let's say that the room can fit 200 people – but the movie is very in demand – and this is the one cinema showing it – people will pay a lot for the tickets – prices start to go up and the room starts getting crowded Out of greed – and to make more money – the cinema allows 300 people to cram into the room – so it is packed – but the exits are the same size Now say someone cried out fire – and the room panics – everyone rushing for the exits – cinema clears a lot quicker than what it filled up This is similar to how markets behave – the bears take the window whilst the bulls take the stairs – markets go down in a panic faster than what they rise in a boom Markets don't crash when they are overbought – but they crash when they are oversold through panic – like over the past week S&P 500 had its fastest movement from peak to correction on record – a matter of 6 days – next: Feb18 was 10 days, Oct55 about 15 days – Nov07 took 35 days Dow had its peak to correction at the fastest pace since the 1928 panic – right before the great depression Overall - US markets saw their worst week since Lehman (Oct 2008) – simila

Welcome to Finance and Fury, The Furious Friday Edition With the current state of the markets – and the focus only on today's news and short-term cycles - In this episode – we will be looking at economies and markets in relation to Waves and cycles in a complex system – Like seasons in weather – markets have cycles – like weather though, predicting it is not the most accurate – To do this though we will have a look at what is known as a Kondratieff Wave - And do they still have applications to modern financial markets almost 100 years later Understanding Kondratieff Waves A Kondratieff Wave is a long-term economic cycle believed to be born out of technological innovation - results in a long period of prosperity, then a lull, then a decline Theory was founded by Nikolai D. Kondratieff - a communist Russia-era economist who noticed agricultural commodity and copper prices experienced long-term cycles – focused on other economic cycles involved which have periods of evolution and self-correction. With every rise comes a fall – due to the creative destruction element before the take-off of technology In 1926 - Kondratieff published a study called Long Waves in Economic Life which first looked at these periods Kondratieff noted that capitalist economies have long waves of boom and bust, that he described similar to the seasons in a year. Kondratieff's analysis described how international capitalism had gone through many "great depressions" and as such were a normal part of the international mercantile credit system - The long term business cycles that he identified through his research are also called "K" waves. Long term means long term – not a few years like a business cycle - but 60 years – around 70% of the average life span – so most of us may see one and a half of these cycles play out Today - Kondratieff Waves are relegated to a branch of economics called "heterodox economics," in that it does not conform to the widely accepted, orthodox theories espoused by economists. Provides an alternative approach to mainstream economics that can help explain economic phenomenon that is ignored by equilibrium models – or traditional economics – does do by embedding social and historical factors into analysis – incorporates behavioural economics of both individuals and societies into market equilibriums over long timeframes. Mainstream economists who are currently implementing policy – essentially ruling the economic world should be presumably achieving full employment, constant GDP growth with near-perfect utilisation of resources – but also stay there - perhaps buffeted by mild external shocks – but in all their efforts they fail in the real world K waves faced a lot of hostility on the academic side – criticise equilibrium models of economics which is what academics are built on – Similar to the academic side - This theory was also not welcomed in Kondratieff's Russia - His views were not popular to communist officials, especially Josef Stalin, because they suggested that capitalist nations were not on an inevitable path to destruction but, rather, that they experienced ups and downs At the time – USA was going through the 1929 crash and the great depression of the 1930s – USSR was no better off but the propaganda machine (similar to NK today) couldn't have the theory of that it was a temporary decline As a result, he ended up in a concentration camp in Siberia and was shot by a firing squad in 1938 So does this wave theory hold up today almost 100 year later? Start by looking at the identified patters - following Kondratieff Waves since the 18th century. The first resulted from the invention of the steam engine and ran from 1780 to 1830. The second cycle arose because of the steel industry and the spread of railroads and ran from 1830 to 1880. The third cycle resulted from electrification and innovation in the chemical industry and ran from 1880 to 1930. The fourth cycle was fuelled by autos and petrochemicals and lasted from 1930 to 1970. The fifth cycle was based on information technology and began in 1970 and ran through the present, though some economists believe we are at the start of a sixth wave that will be driven by biotechnology and healthcare. Modern day economic academics have started to pay attention to this – subject of "cyclical" phenomenon – essay from Professor W. Thompson of Indiana University – took a step back and looked at K waves – concluded that they have influenced world technological development since the 900's – that these developments commenced in 930AD in the Sung province of China - he propounds that since this date there have been 18 K waves lasting on average 60 years Most people are quite familiar with business cycles that tend to be denominated in terms of months to years – For example – typical business cycle goes - Sales are good, people are confident about the future, and unemployment is reduced. Then sales fall off, the immediate future seems gloomier, and unemployment increase

Welcome to Finance and Fury, The Say What Wednesday Edition. Where we answer your questions. I'm Louis Strange and today's question comes from Mark. Hi Louis, I just heard about IBC (INFINITE BANKING CONCEPT) and I would like to know your input on it. They are saying you can be your own bank by setting up a cash flow whole life insurance policy. Then you are able to borrow against your liquidity, I would like to hear your thoughts on it. Spoiler – this probably can't work in Australia – run through what this is first and then go through reasons why The concept isn't that new – History The first large-scale attempt to market this concept came about in 1980 – the concept of LEAP - The Lifetime Economic Acceleration Process – since then had IBC with Be Your Own Banker and then also Bank On Yourself more recently But the concept dates back further than 1980 - roots of this strategy go back generations — at least prior to the American Civil War – how did it work in practice? Started with Farmers - struggled with extreme seasonality of cash flows So farmers would generally have to borrow money to buy farmland, to plant, and to have money to live on while they paid their mortgage, paid their laborers – all while waiting for the harvest if harvest went well - used the money to pay off the debt But back then the risk was that someone died before the mortgage was paid off – as back in those days, people frequently did not live beyond their mortgages – rather than risk losing the family farm, the family would buy life insurance - If the farmer died before the mortgage was paid off, the life insurance company would pay the death benefit, and the farmer finally 'bought the farm' from the bank — which is where the term comes from. Keep in mind that this was in the days before we had index funds, and before we even had mutual funds as we know them. Or even Super accounts The system worked well for farmers - If they saved aggressively within a life insurance policy, they got a death benefit, and a ready source of liquidity from loans from the life insurance policy. And since the policy was ultimately secured by the death benefit, it was a safe loan from the point of view of the insurance company and a bank Once the farm was paid off, the next generation didn't have a mortgage anymore - so they could use this policy to buy more land, or to buy a new tractor or combine, build a new house, or anything else they wanted to do. IBC evolved from this concept - Here's the pitch, in a nutshell: Over the course of your life – a lot of people pay interest to creditors on all manner of loans - most mortgages, but also cars to credit cards to even HECS repayments – these interest repayments compounding over time represents a tremendous drain on individual wealth. Instead – if you aggressively saved money within a certain type of life insurance policy, you could fund these purchases from that policy — and pay the policy back, rather than the bank Technical issues with this phrasing – it is the functional equivalent of paying yourself for the loan, with interest – essentially - you are retaining the interest within the cash value of your own life insurance policy, rather than paying off the bank So how does this work and what is Infinite Banking? Infinite banking claims to be the process by which an individual becomes his or her own banker – I do use claims here Go through definition of a bank later - But Infinite banking is a concept created by American Nelson Nash – wrote a book called "Becoming Your Own Banker" Nash talks about the use of whole-life insurance policies that distribute dividends and how owning such policies allows individuals to dictate the cash flow in their lives by borrowing against/from themselves instead of depending on banks or lenders for loans Practical terms – uses the mechanics of Whole Life policies - which is the platform on which IBC is implemented – First - how does this work compared to a term life? Term Life Insurance - A term life insurance policy operates like other types of insurance you may be familiar with You take out Life cover at a set level and pay premiums based around your risk factors – age, occupation, etc. Most term life insurance policies expire without the insurance company having paid out any death benefit claim – at 99 if owned personally or 75 inside super – but most people don't hold it to then as the premiums get too much Whole Life Insurance - a permanent life insurance policy never expires and is set up to pay into It is a hybrid form of policy – has investments which you contribute into along with an insurance component Unlike Term insurance on stepped premiums – most WOL policies have fixed premiums – pay more now into the policy - effectively "overpaying" for the pure insurance coverage in the early years, while "underpaying" in the later years – but the life insurance company takes the incoming premium payments and "puts them to work" by buying financial assets, such as conserv

Welcome to Finance and Fury Today – going to cover the Central banking playbook in the next crisis – If there is ever going to be one! Today – was doing some reading so will have a look at some comments from key central banking figures over the past few years – and look at the market implications – as either markets will crash at some point and central banks will conduct bail-ins and also buy up shares – or they will actively try to avoid a crash by a BOJ strategy – constantly buying shares and offering incentives (continued low-interest rates) for investors to continue investing To start with - Back in June 2017 - several key officials provided some bizarre honesty in their statements – all of this occurred from individuals under Janet Yellen's Federal reserve – Now the Fed Chair is Jerome Powell – appointed by Trump – but the playbook likely hasn't changed – Let's have a look though at the statements from back in 2017 – rare to get anything from Fed officials for the market implications of their comments - First - San Fran Fed president John Williams – now become the Fed's #2 as he took over as head of the NY Fed in 2019 (major Fed Branch) – he said "there seems to be a priced-to-perfection attitude out there" and that the stock market rally "still seems to be running very much on fumes." He also added that "we are seeing some reach for yield, and some, maybe, excess risk-taking in the financial system with very low rates. As we move interest rates back to more normal, I think that that will, people will pull back on that." But what happened when they announced an increase of rates back in Mid-2018 – markets dropped by more than 10% over a few months until they cancelled the plans of increases Next – has the then-Fed Vice Chairman Stan Fischer – echoed John Williams' statements - that "the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites" all thanks to the lower interest rate environments creating people chasing yields – All of this occurring when the measures of earnings strength – like the return on assets, continued to approach pre-GFC crisis levels at most banks But given the interest rates were a lot lower - the return on assets should have been expected to have declined relative to their pre-crisis levels--and that fact is also a cause for concern." Fischer then also said that the corporate sector is "notably leveraged", that it would be foolish to think that all risks have been eliminated, and called for "close monitoring" of rising risk appetites. Essentially – what was covered in the corporate debt episode – as listed companies have taken on massive levels of debts and if rates were to normalise – their earnings would be destroyed by the interest repayments Lastly - you have the lady herself – the then-Fed Chair Janet Yellen – she said that some asset prices had become "somewhat rich" although, like Fischer, she wanted to assure the public that share and bond prices are fine – but what she left out was that they are fine as long as you assume that we will be in a record low-interest rate environment in perpetuity – as her next statement points out - "Asset valuations are somewhat rich if you use some traditional metrics like price-earnings ratios, but I wouldn't try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates." So as long as interest rates don't go up – the PE ratios of some of the largest companies in the US at 100 times is fine – given a lot of their growth of price is backed off debt and buy backs Quick reminder - back in 2017 at the time of these statements - the S&P500 was trading at "only" 2,400 – back when the Fed was only starting to consider a hike in interest rates and QE4 was more than two years away – thanks to not raising rates and the implementation of QE4 – S&P500 now at 3,386 – all time highs – Digging a little deeper – one of the more interesting things that Yellen said was in response to a question on financial system stability - Yellen said that the implementation of the post-crisis regulations had made financial institutions much "safer and sounder", and as a result she went on to predict that there would never again be a financial crisis "in our lifetimes" – her actual statement was - "Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will." First – she was 71 at the time – so maybe she was expecting an early grave - While some were quick to compare this statement by Yellen (who then was 70--years old) to Neville Chamberlain infamous - and very, very wrong - 1938 prediction of "peace in our time", perhaps she was hiding a trump card all along... A trump card which she revealed only now, almost three years later. But what I find more interesting is that someone in her position may just be sa

Welcome to Finance and Fury, The Furious Friday Edition This week – see what lessons can be learned from - Last week - Story of Financial alchemy in its early days with the SSC bubble Been many bubbles since then – The Markets have a Cycle to them History of the last 90 years – exclude wars and a few other drops that weren't the result of a bubble bursting – you have 1929 crash (-46%), credit squeeze of 1961 (-23%), OPEC stagflation of 1970s (-59%), 1987 crash (-50%) and the 1990 recession that followed (-32%), tech bubble in 2000s (-22%), GFC of 2008/9 (-55%) - Good news - Markets do recover – we are back to all-time highs for the index - but keep repeating the same cycles – debt being flooded into markets – leverage grows, investment prices rise and seeing the artificial price rises, people jump in to not miss the boat – no pun intended – especially as we will be looking at the SSC bubble last week in relation to these common factors over time But like any cycle – what goes up must come down – and there are elements to each stage - Core to the SSC bubble – wasn't just an individual (John Blunt) but also a group of individuals who saw a way to make themselves filthy rich – and the general public who didn't want to miss out Takes a few elements for a bubble to form and pop – almost like a perfect storm Three major parties involved when it comes to the elements of a bubble cycle – those facilitating it, those driving it (and will profit from it) and those looking to partake to not miss out – a lot of whom do so when it's too late (those who lose from it) Sometimes the first two are the same entity – or working together For the SSC – Facilitating it was Harley and the Crown, then Blunt saw this as an opportunity to make himself filthy rich, driving the bubble – as he dreamed up a scheme of the market and public perception manipulation This is when the prices went up by a lot – but continues to climb when all three elements come together When everyone is jumping in out of emotions (or greed) to get rich – but got the opposite outcome once the bubble popped Which is when the fundamental price gain factors (leverage) start to run out of benefits – And the amount of money the public has available compared to banks/central banks isn't the same – we cant create or reduce the amount of money at a whim The First Element – Facilitators – Normally a bigger entity – like a Government through legislation or a Central bank through leverage/money-printing/monetary policy – essentially – the creators of a scheme The whole scheme for the SSC was thought up by a Government official and a corrupt businessman – John Blunt Blunt's first scheme – use those technically worthless army debentures (loans) and made them attractive – so the price went up Knew that the offer to do a swap at under market value would be massively in demand – and increase the price of the army debentures – so before he announced this scheme – he went out and bought massive amounts of these army debentures – Then he announced so the value of the debentures went through the roof due to people trying to get them to trade for his companies shares – then could trade the technically worthless debentures back to the government for the land that he wanted in Ireland – this was technically illegal – but he was lending the government money – so no action was taken in the end This was technically a mini-bubble But was Similar to the bankers doing swaps on Synthetic CDOs in the GCF – was peddling something worthless and pumping the price up using leveraged strategies – treating some of the highest risk mortgages as AAA credit How many of the masterminds of any bubble go to jail? The banks are some of the Governments biggest donors – so maybe a scapegoat or two – but never the culprits For the SSC – A large part of this bubble was to create a scheme and to never report the truth to the public – but keep confidence high to make sure prices would continue to rise – so those involved could continue to profit If the truth is ever known – the jig is up – So had to keep the population in the dark – and nothing has changed – we are all busy, and economics/finance can be hard to understand unless you devote a large chunk of your life to it - Legislation can be another major element – and the adverse effects Initially – the SSC was created by a Public-Private partnership – to take over all the Crown's debt The only reason that it looked like a good investment was the monopoly trading rights that were provided by the state – created artificial demand for the company – but the underlying profits were non-existent Then – after the price rises - SSC - had its copy cats – others started their own share scheme – started popping up everywhere – crazy ones – like flying machines – so money going into SSC started to cease Bubble Act was put into place in 1720 – which forbade the creation of joint-stock companies without royal charter, was promoted by the South Sea Company itself before

Welcome to Finance and Fury, The Say What Wednesday Edition - Where every week we answer your questions Today's question is from James Hi Louis, Just a question regarding owning your home. Me and my partner would like to eventually own our own home but we are worried about such a large sum of our overall wealth going into a single asset - our future house. How would you correctly diversify your assets in this scenario, were there any strategies to doing this? Especially with house prices at the moment, it really seems like all your eggs will be in one basket - and for a while. What I've seemed to gather is that owning your own house is more a lifestyle asset and a liability. All I seem to hear is nothing but expenses / fees / costs, a low amount of capital growth all for a relatively high amount of risk. Was this true? Thanks James – and Awesome points In this episode – we will tackle this using the economic problem and opportunity costs – The economic problem – that we all have limited resources of savings and cash flow – and need to make this work towards achieving our goals Opportunity costs of doing so – what is the next best thing that we could be doing with our financial resources?- I.e. putting your deposit towards long term investments or your cashflow going towards the repayment of a mortgage against doing monthly investments 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 - because as James pointed out 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 cash flow can't be used for financial independence Technically - a negatively geared investment property can set you back in FI This being said – renting also costs cashflow That is where the decision does come back to lifestyle and the fact that everyone needs somewhere to live. Everyone needs somewhere to live – Property ownership is expensive – a mortgage is normally the biggest expense – PI loans eat a lot of cash flow – 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 Sinking deposits of $100k plus into a lifestyle asset – while it may continue to grow in value long term, you can use this to generate a passive income unless you rent a room out – but then Gov will make you pay CGT on your own home if you ever sell Opportunity cost of this is using the lump sum to invest instead and cover your rent Property Capital Growth – I've covered this in a few previous episodes (are we in a property bubble and many others) – but Australian property from the mid 1990s has had a meteoric rise Created a situation where people love property out of the expectation of buying and experiencing the same meteoric growth rates – Pre-1990s wasn't the case – property grew with wages at around 3.5% p.a. from 1890 to 1990 – What changed? Banking regulations and the amount people could borrow thanks to declining interest rates But anyone looking to buy property at this stage and get the same price gains should keep in mind that it is reliant on credit growth from borrowings – so if people can afford to keep increasing the size of a mortgage from say $700,000 to $5.4m in 30 years – we won't get the same price gains – Looking back on the average mortgage growth over the past 30 years – that is what it has been – from $90-100k to $700k in most of Aus – worse in areas of Sydney/Melb – wage growth at record low rates would only be able to cover $1.9m – so I don't think so – but may be wrong I personally sold off my last property in 2017 – was lucky timing as the market was at the peak in the area I sold – Used the funds to invest and build a further passive income – passive income from investments could already cover my rent – so this went into reinvestment Question of Renting vs Buying – look at the option of what is the interest cost, rates, BC is applicable, and spending on upkeep versus rental price Rent V Buy – in Aus with the price of property – I prefer renting if it is an apartment in the city – or house in the surrounding suburbs – why? Example – Apartment I am in at the moment is worth about $650k-$700k – pay just under $2k p.m. in rent – For same property at a 3.5% interest rate – would be paying $1,500 p.m. in interest at under 3.5% - assuming a 20% deposit of around $130k – but add on Body Corporate and rates – additional $5k p.a. ($420 p.m.) – total interest bill and minimum expenses are the same as the rent – But opportunity cost of the $130k tied up in the deposit – use this for an investment instead that provides a passive income Then add on the principal amount

Welcome to Finance and Fury 2020 has seen a very noisy start to the year – But what's new? The media is constantly reporting on one major event after the other – fear sells better than nice stories – The more fearful the event – the more traffic that is driven on clicks – the more clicks the more revenue from advertising – always remember that – their only incentive is to make money first – and reporting on the stories that will make the most money comes before informing you The greater the human or investment market implications a story implies – the more fear comes with it And it is constant – 24 hours per day, every day each week – never a break from bad or fearful news Today – want to talk about strategies to sift through what is money-making clickbait – especially when it comes to investments – and how to First – look at the news cycle for Australia in 2020 so far – Started with bushfires, moved on to WW3 with US/Iran tensions, now the coronavirus outbreak is creating fears of a global pandemic – all being reported that it could be a big hit to global economic activity The way these topics are covered are scary in terms of their consequences – mass deaths and potential economic fallout Creates significant uncertainty around the short-term economic outlook Then again much of 2018 and 2019 saw endless talk about how much the trade war was going to knock off global growth, Brexit was going to cause a massive economic shock, that Trump was a Russian asset, that Korea was going to nuke the USA, the list goes on – there is a never-ending worry list – news these days turns out to be just opinion pieces and noise But all of this reporting relies on one thing – our myopic natures – or the fact that once a new global scare is reported on – we forget about the world ending event that was reported on just a week prior – Do an exercise – look at the major headlines of news in the way back machine – or in newspapers from the 50s or 60s, 70s, 80s, etc – Truth be told – probably never been an easier or safer time to be alive – but if you are trapped in a mental prison – you may not think so – that is what it comes down to – us – Again – our myopic nature and a lack of real education of the past creates the image With technology and social media – created a huge psychological aspect to this that is combining with the increasing availability of information and intensifying competition amongst various forms of media for clicks, that is magnifying perceptions around various worries. Our natural state shouldn't be to worry – but we are biologically driven to do so when presented with bad information Epigenetically – those who survived hunter-gatherer days were those who were most in tune with danger – watching out for animal predators in nature – or worrying about having enough food to survive the winter – real dangers to survival But those real problems no longer exist for over 99% of us in the Western world – however we are still hard wired to look out for them Therefore - We all suffer from these behavioural traits – to watch out for dangers - in its financial manifestation this is known as "loss aversion" – essentially - a loss in financial wealth is felt much more than the joy felt from an equivalent sized gain in wealth Being aware that we are naturally biased to be more risk averse and on the lookout for threats which leaves us more predisposed to bad news stories as opposed to good news stories is the first step - So bad news and doom and gloom stories find a larger audience than good news or balanced commentary - appeals to our instinct to look for threats Bad new sells - Obviously, those in media know this – and prey on our aversion to risk to sell more stories Also – remember that media outlets all competing for your attention – so have to outdo the other in shock and awe and hence- tend to overexaggerate the real effects – so remember there is no balanced news This is further compounded by the over exposure to bad information in relation to our daily lives and our investments Just 50 or 60 years ago – humanity didn't have to see the bad events of billions of people unlike in the online era of the internet The information age is what it is referred to as - This is great in the sense that we have access to more information then ever – but information is not knowledge – especially when the information is not accurate – and therefore not useful – Another issue with information is that it is almost impossible to digest all the information out there – nobody has the time – and if we can't filter it, it becomes information overload and therefore noise Information overload is bad for investors as when faced with more (and often bad) news we can freeze up and make the wrong decisions with our investment as our natural loss aversion Combine this with our availability heuristics and what is called the "recency bias" – it is a bad outcome for our mental stability – Availability heuristics is that we put more weight to some

Welcome to Finance and Fury, The Furious Friday Edition Today - Lesson from the past – Story of Financial alchemy in its early days Specifically – turning debt into equity – i.e. financial alchemy Story Starts - In 1700s the English Crown had amassed massive debts – all from fighting wars with the French and Spanish, also a massive civil war – along with colonialist intentions – When in August 1710 Robert Harley was appointed Chancellor of the Exchequer Position - senior official within the Government of the United Kingdom and head of Her Majesty's Treasury When he took over – got a bit of a shock - £5,000 in assets - £9,000,000 in debt – to give an idea of this size – that debt is still being paid down – last announcement in 2015 Politically – things were also a mess - At the time – two parties – Tory's and the Wigs – very bipartisan who couldn't get anything done – raising taxes to pay this was out – so turned to the Bank of England The government had already become reliant on the Bank of England – back then up until around 30 years ago - a privately owned company BOE was chartered in 1694 – chartered 16 years previously by the Wigs, which had obtained a monopoly as the lender to Westminster - in return for arranging and managing loans to the government But in this time period – the Tory party was in power – so the Wig controlled BOE was offering massive rates – and the government had become dissatisfied with the service it was receiving and Harley was actively seeking new ways to improve the national finances Couldn't raise funds from other European nations – was at war with most – so turned to John Blunt – was a crafty man Blunt saw this as an opportunity to make himself filthy rich – dreamed up a scheme – Back Story on Blunt - Before this moment in time – Blunt had a company Hallow Sword Company – monopoly of selling swords to Gov and the army – Cooked up a scheme in the past – wanted to buy land in Ireland which was owned by the government – but needed funds – so he had a plan – trade share in hallow sword company at under market value for army debentures (debt) – but can't repossess the debentures – so made them technically worthless – but knew that the offer to do a swap at under market value would be massively in demand – and increase the price of the army debentures – so before he announced this scheme – he went out and bought massive amounts of these army debentures – Then he announced so the value of the debentures went through the roof due to people trying to get them to trade for his companies shares – then could trade the technically worthless debentures back to the government for the land that he wanted in Ireland – this was technically illegal – but he was lending the government money – so no action was taken in the end Similar to the bankers doing swaps on CDOs in the GCF – anyway As blunt was helping the government – Harley had his man – as he needed funds – Came up with the South Sea Company (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of fishing) Was a British joint-stock company founded in 1711, created as a public-private partnership to consolidate and reduce the cost of the national debt How? Made a plan – the trading company – Scheme would be similar to what blunt did with his own company – Anyone who held Government debt would be able to trade the debt for shares in the SSC – then Government would pay the SSC 6% interest on the debt they took over – about £500,000 p.a. To make it enticing - South Seas Co was given monopoly on trading in south seas – and tried to get hype around the shares - convincing that the shares in the company were going to skyrocket – here was a chance to make millions – the term millionaire was coined in this time period with the SSC stock rising – which happens later in the story East India Company was doing well – and public perception was that the SSC company was going to boom like the EI company But the promise of the trading profits of the SSC was a scam though – South America was run by the French and the Spanish who the British were at war with – needed peace – but the majority in the house of lords didn't want this Queen Anne was approached by Harley and Blunt – and got 12 more lords in the house of lords – lords was all it took – no voting – blunt got Queen Anne to push through these lords to get a majority vote for peace – but the peace deal only let 1 ship a year into the ports – but the public was never told – Had famous authors and others push the scheme still 1714 – King George took over with Anne's death – But the wigs took over at the same time – so Tory's no longer in power – and Harley was kicked out – so Blunt took action - Got the king to invest into SSC – forgave two years worth of interest payments that they owed – but in return – was allowed to issue more shares in the SSC 10,000,000 of new stock was issues – which was massive – h

Welcome to Finance and Fury, The Say What Wednesdays Edition – Where each week we answer your questions Today's question comes from Cameron We are a couple, both aged 30 with approx 70k in each of our super accounts. We are interested in SMSFs with a view to purchasing property. How would one get started? What sort of costs are expected? Do couples pool their super? Buying Property in an SMSF First, you need a SMSF – self-managed super fund An SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO) that you manage yourself. All other funds are managed by APRA - Australian Prudential Regulation Authority - the regulator of financial organisations (Banks and supers) SMSFs can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for decisions made about the fund and compliance with relevant laws Two types of SMSF – Pooled and Segregated – Most are pooled for simplicity – where you can pool your funds together for the purchase of the same asset – i.e. a property – Still have individual member benefits – where your component of the super is allocated to you When you run your own SMSF you must: Carry out the role of trustee or director, which imposes important legal obligations on you Set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs Have enough time to research investments and manage the fund, keep comprehensive records and arrange an annual audit by an approved SMSF auditor Organise your own insurance Use the money only to provide retirement benefits. Who is it appropriate for? Large Combined balances Hands-on – and willing to take on trustee burdens Wanting to buy property You can get Direct shares or Term Deposits in other super accounts which aren't SMSF Who sets this up? Accountants normally are the ones that would help to set up an SMSF, however, they would probably need to have a limited AFSL to do so. Depending on what they charge (which can vary) and the structure of the trustee, the costs can range from $2,000 to $4,000. This is then similar each year for the audits and returns to be completed. Given a combined balance of around $140,000, the ongoing administration costs would be over 1.5% p.a. which may hurt the long term performance. This is why ASIC have a benchmark of $200,000 for combined funds at which point SMSFs become more viable due to the accounting costs. Buying the Property: Must meet sole purpose test – Provide retirement benefits to members Must not be lived in by a member or related party (family) Must not be acquired from a related party of a member Must not be rented by a fund member, or related party BUT – Business real gets around these rules Business real – if you own and run a business you can operate out of a property your SMSF owns You pay rent to the SMSF at market rates – Arm's length transactions Property purchased with a loan – Limited Recourse Borrowing Arrangement (LRBA) Borrowing or gearing your super into property involved very strict borrowing conditions - called a 'limited recourse borrowing arrangement'. You can only purchase a single acquirable asset with a limited recourse borrowing arrangement Bare Trust – Set up to own property – And the trust is inside the SMSF Has the loan so that the property it the sole collateral of the loan Property has to be single acquirable asset No change of character to property - You can't make alterations that change the character of the property until you pay off the SMSF property loan. Not suitable for developments, renovations etc. The deposit requirements for property also are around 20-25% of the purchase price and there are only two lenders in Australia which provide a mortgage inside of an SMSF. Due to Bare trust - Geared SMSF property risks include: Liquidity requirements – This is where the Investment Strategy of an SMSF needs to specify the cash balance requirements and that the contributions into the SMSF can cover the mortgage repayments (in case the property is not tenanted for an extended period. Depending on age – ranges from 10-15% at lower end to 40% in cash balance Higher costs – SMSF property loans tend to be more costly than other property loans. Cash flow – Loan repayments must come from your SMSF. Your fund must always have sufficient liquidity or cash flow to meet the loan repayments – Employer contributions Hard to cancel – If your SMSF property loan documents and contract aren't set up correctly, you can't unwind the arrangement. You may have to sell the property, potentially causing substantial losses to the SMSF. Possible tax losses – You can't offset tax losses from the property against your taxable income outside the fund. When it works well Decent balances – ASIC guidelines of $200k minimum – technically no minimum – but makes it viable The more the better – Flat fees of $2k p.a. plus investment costs Can Diversify into other inve

Welcome to Finance and Fury Today – want to run through Coronavirus – Is it market noise or is it going to be an economic doomsday? First - It is too early to quantify the potential impact of the coronavirus on China. Much will depend on the attack and case fatality rates of the virus Coronavirus first emerged in the city of Wuhan, China - based on media reports - could affect growth in China and the rest of Asia-Pacific – spreading to the rest of the world – The severity of the impact of the coronavirus will depend upon the attack rate (the proportion of the population that falls ill) and the case fatality rate (the proportion of deaths) At this point, uncertainty about the nature of the virus is so high that it renders quantitative assessments pretty meaningless – but it may be helpful to think through how the virus could affect the economy – to do this – let's have a look back on the impact of previous episodes of pandemics But the Impact of Past Pandemics Has Been Mixed - most commonly cited are the Spanish flu of 1918-1920, the Asian flu of 1957-1958, the Hong Kong flu of 1968-1969, the severe acute respiratory syndrome (SARS) of 2003, and the avian flu of 2004-2006. The attack and fatality rates, measured at the global level, vary widely across these episodes reflecting the nature of the condition and the speed with which vaccines can be produced. The Spanish flu was the most severe - health experts generally agree that most events have seen attack rates of 25%-30% and case fatality rates of less than 0.2% - but more recently for SARS, the avian flu - attack rates have been much lower, well below 0.1% For the coronavirus - Health authorities indicate it may be too early to assess these statistics for the new coronavirus. Nobody really knows how many are affected or what the death rates are - there are reports – but guess - What is reported – Less than 500 people have died from this – Before we go through the potential market effects - Time for some perspective – 1,700 people per day die from the flu – around 600k p.a. – why are people so afraid? The media 1.2m people drown every year – so should we be more afraid of swimming than the flu? You might be if the media told you to be There are two elements to the coronavirus which are being balanced - Humanitarian. The bigger the shutdowns, the greater the preventative measures, the fewer people get infected and potentially die. Economic. The bigger the shutdowns, the greater the preventative measures, the more significant the economic impact will be. The focus is not on minimising the economic impact – focus is about preventing the spread of the disease. Or, for politicians, at least been seen to be trying. The economy is no longer the issue – which is why markets are responding with volatility - This being said - I'm not a virologist, and I'm not pretending to be – have no expert knowledge if the measures in what works to prevent the virus from spreading But the economic measures to date are significant and the world is not well-positioned for an external economic shock Again - looking historically SARS killed fewer than 800 people and had been attributed to decrease China's GDP growth by about 2%. The rest of the world was fine. The issue - The containment measures already in place are far greater than the measures for SARS. They may have a significantly greater economic impact. China is more than 4x larger than it was at the time of SARS. At the time the effect on the world economy was relatively negligible Retail, restaurants and tourism are a significantly larger part of the Chinese economy now, and these are more likely to be affected. Also - SARS was basically at the bottom of the global economic cycle. Debts were low. China still had productive investment. The world was about to launch into the mother of all housing booms. Economic circumstances in 2019 are very different - Central banks have exhausted conventional measures and Corporate debt is at cycle highs. Economic effects will come from Government policies of quarantine and limited trade – Any economic hit will be felt most by industries exposed to household spending, especially activities that take place outside the home. Risk aversion and tighter financial conditions could amplify the impact, including on investment. The Uncertainty around the coronavirus Adds to Economic Uncertainty – last thing financial markets need right now is panic and uncertainty Past events – economic outcomes from the assessment of the avian flu pandemic of 2006 – from the Congressional Budget Office (CBO) assessment - potential hit to the U.S. economy – they looked at two scenarios One mild and one severe with U.S.-specific attack rates of 25% and 30% and case fatality rates of 0.1% and 2.5%, respectively - estimated the overall short-term hit to U.S. GDP to be 1% and 2.3% percentage points respectively – but these estimates turned out to be too pessimistic With Coronavirus - these are just guessing – no way to t

Welcome to Finance and Fury, The Furious Friday Edition Today – want to look at how much Corporate debt has been fuelling the top end of the share markets growth – signs that if liquidity is withdrawn, companies and markets collapse Last FF ep – went through the flow-on consequences of low-interest-rate environment and QE policies - Free money Today - brings us full circle to the reality of the past decade: that any credit binge will always be popular because while the benefits of leverage come today, the costs of bad debt come tomorrow. Personally – Think about your personal situation for a minute – you could take a massive car loan for a new BMW, or go on a holiday on your CC = but the pain of repaying this comes later – the other option of saving over years to afford a new car or round the world trip doesn't give you that lifestyle boost today Improving a business or learning a skill requires dedication and hard work - but Monetary "stimulus" – which is essentially credit - offers a siren-like, promise of effortless prosperity yet ignores the reality that credit binges always sow the seeds of their future destruction – in this case to the economy As an example – look back to September 15 last year - the normally low overnight repo lending rate soared to an astonishing 10% annualized rate - A shocked Fed felt compelled to "do something," which these days invariably means adding still further to the pool of loanable funds Size of the add (via the Fed's T-bill purchases and expansion of its repo facility) has been nearly a cool half-trillion, well over half of the total size of the Fed's pre-crisis balance sheet. The Fed justified adding this tidal wave of liquidity notwithstanding its characterization that what happened was a mere "technical" glitch in the repo market. Technical, really? Why then have they just announced more liquidity to be injected again at about $100bn to avoid another spike in the rates? A practical take is that the market is talking to the best and brightest minds in central banking, and the Fed doesn't like what it's hearing: the repo market wants to clear at rates above the Fed's IOER fiat rate, which, if allowed to do so, would likely invert the front-end of the yield curve. Inverting curves sounds a bit too much like ending a credit binge, leading to recession, and so the Fed's response function is to "veto" (Latin for "I forbid") the market's signal. The Fed continues to continue to pretend the cycle need never end. But markets will be what they must be, and investors must face the consequences of the last decade's credit binge – again in the future but not today There are two subjects that the mainstream media seems specifically determined to avoid discussing these days when it comes to the economy: The first is the problem of falling global demand for goods and services; they absolutely refuse to acknowledge the fact that demand is going stagnant and will conjure all kinds of rationalizations to distract from the issue. End of Globalisation period – this is a whole other topic – might cover on Monday as part of coronavirus scare The other subject – which is part of today's topic - the debt bubble, the corporate debt bubble in particular. These two factors alone guarantee a massive shock to the modern global economy But a reduction in globalisation isn't the major immediate concern - corporate debt is the key pillar of the false economy - as the fundamentals are starting to catch up to the fantasy of where a lot of large-cap companies are currently trading at Starting to see a pattern – that the share market is no longer an indicator of the health of the real economy One reason is that corporate stock buybacks have been the single most vital mechanism for inflation in the prices for markets – where companies buy their own stocks back off the market - often using cash borrowed from each other and from the Federal Reserve/Central banks – All done to reduce the number of shares on the market and artificially boost the value of the remaining shares – boosts the EPS as well – if earnings of a company look the same as yesterday, but now you have 10% less shares – then the EPS just rose by 10% - process is essentially legal manipulation of equities, and to be sure, it has been effective so far at keeping markets elevated. But similar to financing lifestyle to look like you are rich and prosperous through a credit card – the problem is that these same corporations are taking on more and more debt through and also interest payments in order to maintain the façade Over the period of a decade, corporate debt has skyrocketed back to levels not seen since 2007, just before the credit crisis. The official corporate debt load in the US now stands at over $10 trillion, and that's not even counting derivatives exposure – According to the BIS - amount of derivatives still held by corporations stands at around $544 trillion in notional value (theoretical value), while the current market value is o

Welcome to Finance and Fury, The Say What Wednesday Edition I've been looking at Soul Patt (ASX: SOL) recently as I've heard some commentators refer to them as the "Australian Berkshire Hathaway" but noticed they have underperformed the ASX200 index over the last 12 months. As they have overperformed over any other longer-term period, would you see this as an opportunity to buy in? And what do you think about this particular stock? Looking forward to hearing your thoughts. Thanks, Gab Disclaimer – not advice – general discussion in nature – seek personal advice Washington H. Soul Pattinson and Company Limited – call it SOL for short - is an Australian investment company - SOL invests in a portfolio of assets across a range of industries - main business activities include ownership of shares; coal mining; gold and copper mining and refining; property investment; and consulting. While the broader market gained around 25% in the last year - SOL lost 16% (even including dividends) Keep in mind that even the best stocks will sometimes underperform the market over a twelve month period Long term shareholders have made money, with a gain of 14% per year over half a decade So, is the recent sell-off an opportunity to buy in? worth checking the fundamental data for signs of a long term growth trend I find it very interesting to look at share price over the long term as a proxy for business performance Not always the same thing - to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risks of the underlying companies or the changes in forecasted earnings One thing – not too correlated to historical crashes – losses minimal in 2008/09 and other corrections But has just gone through a loss in price Also note – is a High conviction investment operator – Similar to Monday's episode - Current Investments - SOL invests in a range number of companies across a variety of industries. In addition to a large diversified listed and unlisted portfolio, their larger investments are: TPG Telecom (ASX: TPM) is a force in the Australian telecommunications industry – 25.3% shareholding New Hope Group (ASX: NHC) is an Australian owned and operated diversified energy company which has been proudly based in South East Queensland for more than 60 years – 61% shareholding Brickworks Limited (ASX: BKW) - main business is the manufacture and distribution of clay and concrete products, property development and realisation, and investments - 43.9% shareholding Australian Pharmaceutical Industries (ASX: API) is one of Australia's leading health and beauty companies. API has a number of brands and banners in the retail health and beauty industry, including Priceline, Soul Pattinson and Pharmacist Advice. – 19.3% SHAREHOLDING BKI Investment Company Limited (BKI) is a Listed Investment Company on the Australian Securities Exchange. - 8.6% holding Round Oak is a mining and exploration company focused primarily on copper, zinc and gold – 100% shareholding Milton Corporation Limited (ASX:MLT) is an Australian Listed Investment Company which aims to invest in a diversified portfolio of assets to generate growing dividends and increased value of assets – 3.8% shareholding Apex Healthcare Berhad (APEX.MK) is a leading healthcare group with operations in Singapore, Malaysia, Vietnam and Myanmar. Apex is publicly listed on the Main Board of Bursa Malaysia – 30.3% holding TPI Enterprises Limited (ASX:TPE) is one of nine companies licensed worldwide to manufacture narcotic raw material for the international pharmaceutical industry – 20% shareholding Ampcontrol Pty Limited is a leading international supplier of electrical and electronic products with a strong presence in providing products and services to the mining sector – 43.3% Pitt Capital Partners is an independent corporate advisory firm with a track record of completing successful corporate transactions. Since inception, they have advised some of Australia's most successful companies on over $10 billion worth of transactions – 100% Clover Corporation Limited (ASX: CLV) is an Australian research-based company dedicated to providing quality lipid based products which enhance the health and well-being of the community – 22.6% shareholding Has got 75% of holdings in 3 companies though – New Hope Corp, TPG and Brickworks Large holding in New Hope Corp – which is a thermal coal mining – the loss of value from their shares seems to have come mainly from a drop in price from over $4 a year ago, to about $1.80 now. Comparison to Berkshire Hathaway – owns majority (100% or above 90%) of 71 companies Not the same as Berkshire Hathaway – would say closer to a high conviction LIC Is it a good share? Growing DPS and EPS In his essay The Superinvestors of Graham-and-Doddsville (back to high conviction and value managers) Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings pe

Welcome to Finance and Fury Want to touch on passive investing versus higher conviction investing I watched the Big Short last weekend – many people asked me if I had seen it and were surprised when I hadn't – don't watch many finance movies or documentaries – find them to be liberal with the facts or only cover the rudimentary factors – so I watched it – good movie – did touch on some of the deeper points of the legislation and had some nods to the root causes – like when Michael Burry had the Fannie Mae/Freddie Mack prospectus on his desk – Those were the Government controlled lending institutions – that were mandated to give out at minimum 30% to lenders who couldn't afford the loans - Most interesting character was Dr Michael Burry – Michael Burry – Christian Bale's character – interested in the real-life man - Did some reading – Started his Hedge fund in 2000 – Quickly made large profits from shorting the overvalued shares in the DotCom bubble – Market fell buy about 12% while he made about 55% Also called the subprime housing crash in 2005- profited in 2008 then shut his fund down Since then - Burry has started to focus much of his attention on investing in water, gold, and farmland – quoted "Fresh, clean water cannot be taken for granted. And it is not—water is political, and litigious." But in August, 2019 - Bloomberg News quoted an email from Burry stating his belief that there was a bubble in large US shares due to the popularity of passive investing - which "has orphaned smaller value-type securities globally" He is a traditional Value Investor – Uses Benjamin Graham's value theories in making a decision – What is value investing? Looking at a share and if it is overvalued you sell – if it is undervalued – you buy = Got to have a good justification as to why it is over or undervalued – not easy to get right – needs a bit of foresight and the timing will always be off – can't predict to the exact day – may be able to predict the span of years – Seeking to work out what something is worth is price discovery – the market betting against the other - Bloomberg says that Burry's view is that Passive investments are inflating stock and bond prices in a similar way that collateralised debt obligations did for subprime mortgages more than 10 years ago - Bloomberg made this seem like he was comparing CDOs and ETFs in their function – he was talking about the same effects – which is an inflated value of something Great quote that summarises the issue with ETFs –thought: "Like most bubbles, the longer it goes on, the worse the crash will be," and "The theatre keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally," That is where he sees the issue – in the shares held in the index which will have no liquidity – i.e. nobody wanting to buy or sell them – hence loss based around larger bids to sells How did this start? - Spike in passive ETFs – Active V Passive – between the types of active – high conviction What caused this rise in passive investing? Technology and cost – people can easily access at low costs Been a debate over the pros and cons of active versus passive investing - rightly fully so – as it brings into question the Merits of the different types of active investing Active funds select the shares to hold in the portfolio – whilst the index decides what shares to hold in an index fund portfolio – with this comes high versus low cost – so if an active manager pretty much holds the shares in the index but with slightly varying percentage allocations – is it worth paying the fees – not for active managers who hug a benchmark – or are closet indexers – Active managers have a rough job – have to justify the fees through outperformance – hard over the past decade - as the flow of money into index funds boosted their performances (flows of capital into the index – mostly the large-cap) – If I am looking for active managers - way to do this is to back their convictions and construct an index-unaware portfolio. As such, a subset of active funds has developed known as high conviction funds Issue – Used to be most active funds – all had different shares – but when in indexes – all the same share – granted there are different indexes – but if you buy any ASX index based on market cap – CBA will always be the number one share – same in any index – You might be able to sell an index still – but liquidity may be an issue – and liquidity is just how many buyers and sellers there are – may be a lot in most large-cap sectors – but when you get down into the bottom – slippage may be larger – and even though the bottom 250 companies only make up 25% of the ASX300 – the losses through spreads will likely be larger than the top 50 – and further losses to exit Brings me back to Michael Burry – obviously high conviction - Based around the latest reporting – he only has 7 shares in Scion capital $100m portfolio – West

Welcome to Finance and Fury, The Furious Friday edition I often wonder – Why the Fed/Central banks continue with polices that create a massive misallocation or resources and are hurting the economy more than helping – well – what If they cant stop or a collapse might follow Central bank policies cannot be unwound without creating a market collapse Central banks are focusing on inflation – but money printing has resulted in inflation of asset prices – not in consumer economy – no real business growth (despite markets going up) – limited wage growth and affordability issues – a bit of a mess Situation, where the policy response is to lower interest rates to try to boost CPI through increased ability to spend more and businesses, can increase how much they sell for – i.e. basket of goods goes up – but doesn't work as the printed money never ends up in the equation, as velocity of spending is needed- if the money is in the financial system through sinking money into investments – then velocity of that under current model and measurement system – velocity is non-existent on those funds This episode focuses more on the Federal Reserve – they directly, and the USA being the economic powerhouse, and indirectly as well – control the economy now The irony of the modern economy - the "free market" in the USA is more centrally planned than the USSR could ever dream of Slowly becoming common knowledge that every single market is distorted beyond comprehension due to Fed policies Also - continued central bank intervention will only make the ensuing final crash that much greater, but nobody has any idea how to detach the Fed from capital markets not that they are so heavily invested Since 2008 – a lot of the market's performance was due to the Fed - their "emergency" measures implemented post GFC are still being continued – Why? Have we recovered from the GFC or not? A decade and more has passed since the financial crisis, and crisis-era policies are not only still with us – they have been expanded. The $60 billion per month that the Fed is now purchasing for its balance sheet is a new record rate of asset accumulation Not to mention the other central banks conducting the same operations – like Japan and ECB Starting to look like we are now living through the third consecutive asset bubble in a row – this one "the central bankers' bubble" which followed the dot com and housing bubbles om 2000 and 2008 This bubble is fuelled by QE – This offers a conundrum - growth fostered by rising leverage can never be sustainable – you can massively increase your lifestyle – called a credit card – people do then boost lifestyle/consumptions on debt – but is it sustainable? After a little while, not so much - Gov/central banks aren't the same as you and I – have much deeper pockets – i.e. all of ours – taxes, Gov Debt per person – as long as the population uses money – Central banks are owed that in repayment – as long as the governments can borrow – the population owes by extension owes money to the Government Why continue continuous printing - unsustainable monetary policy continues for one simple reason – to end it means a massive collapse – These monetary policies (like QE) - set up likely with intended consequences in mind – to provide confidence and boost asset prices through injection of cash (liquidity) into financial markets – But the unintended consequences undermining the sustainability of the current asset price regime are the real concern – it is a complex system – i.e. non-linear - Depending on where you stand – this was either another blunder by bankers to stumble into another trap – or the unintended consequences were intended as well Doesn't matter – the same situation regardless – why better for those with power to have less ability to use it – best intentions don't mean much when they end up in everyone else but you suffering – saying the road to hell is paved with good intentions Take a step back – before central banks got heavily involved When an individual worked – they received their paycheck – they consumed some of it and any surplus (savings) were deposited into a bank – this is then added to their pool of "loanable funds" which would then be auctioned out to a willing "bidder," say a bank, a mutual fund, or a rental income opportunity – they then make an interest rate on this based around the market price of cash – which wasn't set by Central banks – then in the 70s this system ceased But when the 2008 crisis hit, market-clearing levels for loanable funds rose massively – Created a situation where credit was priced out of reach for all but the most pristine (prudent) borrowers, asset prices were in free fall, and a financial system that had built an excess of leverage was at risk of implosion. Response by Fed - initiated a suite of policies that included QE. Technocratic justifications aside, QE enabled the "printing" of new loanable funds. Unlike the worker who had to provide something of value in exchange for

Welcome to Finance and Fury, The Say What Wednesday Edition Today's question comes from Chris What are your thoughts on TraCRs? I can't recall if you've spoken about them before on your past episodes, if you have which one was that and I'll go back and listen? How would you say TraCRs compare to using a platform like Stake? Do you think there are better ways of getting exposure to specific foreign stocks than TraCRs? Sorry if it's an overload. Also thanks for doing the podcast I thoroughly enjoy your material and outlook What is a TraCR? Transferable Custody Receipts Structure to provide beneficial ownership of the underlying shares of a listed overseas company For example, if you invest in a TraCR issued over a US-listed share, you are buying an Australian security that gives you a beneficial interest in, but not a legal title to, the US share. A single TraCR provides the holder with the beneficial ownership of a single underlying share. The value of the underlying share of a TraCR and the applicable foreign exchange (FX) rate will be the main factors in determining the Australian dollar (AUD) value of the TraCR. Structure - structured to provide a TraCR holder with the beneficial ownership of international shares; and settled through CHESS and held in an Australian registry in the same way as Australian shares. How are TraCRs traded? You buy and sell TraCRs the same way you buy and sell other Australian securities. Exclusively quoted on Chi-X and can only be bought or sold on the Chi-X market or through a Chi-X participant Prices are on a one for one ratio with the underlying shares of a company listed offshore. You can terminate TraCRs and convert them to cash if an 'illiquidity event' occurs: if no liquidity is provided by a registered market maker for 20 consecutive business days then you will, under the terms of issue, be entitled to request that the TraCR issuer convert your holding into cash by selling the underlying shares (fees and charges will apply). All TraCRs that are bought and sold on Chi-X are cleared and settled through ASX Clear and ASX Settlement and covered by the Australian regulatory framework. What are the risks? Basic ones with all international investments – but also an additional layer of risk Foreign currency exchange rates: the underlying shares of a TraCR and TraCR dividends are denominated in a foreign currency and so investors are exposed to FX movements. Not being able to exercise rights attached to the underlying share: some rights attached to the underlying shares are not available to non-US residents Trading timezones - TraCRs trading when the underlying shares are not: the Chi-X market will be open at times when global markets, on which the underlying shares trade, are closed. Therefore, trading in a TraCR may take place before the main market for an underlying share has reacted to recent price-sensitive news or when market makers are not present – may not get price wanted Additional risks Not being able to sell/buy when you want: market makers may not provide liquidity all the time and so there may be no liquidity at reasonable prices at the time you want to buy or sell Price variations: TraCR prices may vary from the precise FX adjusted price of the underlying US share and change quickly and by more than changes in the price of the underlying asset. Dependency on the one organisation's website - holders will not be able to trade TraCRs in the unlikely event that this web site is down. The way TraCRs are structured and the terms of their issue: TraCRs are different in structure and framework from the underlying shares on which they are based – as it is beneficial interest, not direct ownership – removed voting rights, has custodial risks – such as if TraCRs become insolvent or structure frozen in a liquidity crisis Liquidity risks - There is a risk that TraCRs become illiquid – i.e. difficult to sell or buy securities Can come from a lack of demand for the securities – remember you are trading the TraCR – not the share – may be 1,000,000 people wanting to buy the underlying share – but the market for Underlying Shares is likely to be more liquid than the market for TraCRs - possible the Market Makers will not provide liquidity in the TraCRs market – market maker is something that offers both buys and sell – making money out of brokerage or on price spreads (selling and buying are slightly different) = exchange services or large broking companies Issues is that is a TraCRs ceases to meet the Chi-X Liquidity Requirements - has the discretion to suspend or remove that Series of TraCRs from quotation on the Chi-X Market There is a risk that: — you may not be able to buy TraCRs or sell your TraCRs at a reasonable price or at all; and — the price of that Series of TraCRs may be volatile and diverge materially from the price of the Underlying Shares adjusted by the foreign exchange rate. The number of TraCRs on the issue may be small Regardless of the market capitalisation of

Today – look at Why a Government benefit from high property prices, and why they might want high housing prices? To the point it moves away from being affordable – hurting population while benefiting Govs They all say they don't – and that their policies will help reduce prices - but why this is either just promises, or a known a lie – Governments could easily solve the property price issues – Incentivise spread Company and personal tax zones EPA laws – makes it easier Infrastructure taxes – should be the opposite – Gov chips in and then gets the price back on the sale Remove costs – Stamp Duty – one of the biggest ways people thing property prices can drop Wealth effect – The wealth effect looks at the impact of the rising value of assets on consumer spending - A rise in house prices creates an increase in wealth for householders. As a consequence of this increase in house prices, householders will generally: Be more confident about spending and borrowing on credit cards. They can always sell their house in an emergency. Increase in equity withdrawal. A rise in house prices enables homeowners to take out a bigger mortgage. Banks can lend more on the basis of the increased price of the house. Households could use this bigger loan to spend on other items. This can create a significant increase in consumer spending. For example, in 2006, with rising house prices, equity withdrawal added an extra £14bn to consumer spending. In 2008, with falling house prices, equity withdrawal was -£7bn. (people taking the opportunity to pay off the mortgage) Went through a few studies - First, large housing wealth effects are not new. We estimate large effects back to the 1980s. Second, there is no evidence that housing wealth effects were particularly large in the 2000s; if anything they were larger before 2000. Third, we find no evidence of a boom-bust asymmetry that might arise from households hitting borrowing constraints during housing busts often hypothesized that more households used their "houses as ATMs" in the 2000s than before due to automated underwriting, expanded credit, and increased access to home equity lines of credit (HELOCs). Moreover, household consumption may have been particularly responsive to house price changes in the bust because the decline in house prices pushed an unusually large number of households to high loan-to-value (LTV) ratios, causing borrowing constraints to bind. Large housing wealth effects are not new: we estimate substantial effects back to the mid 1980s; 2) Housing wealth effects were not particularly large in the 2000s; if anything, they were larger prior to 2000; and 3) There is no evidence of a boom-bust asymmetry. Why maintain high property prices? Theory - How does a fall in house prices affect the economy? When there is a fall in house prices, there can be a negative wealth effect and a negative impact on economic growth households can be where most people have their main form of wealth/equity - see a fall in house prices, their main form of wealth declines, this reduces their confidence in the economy – may spend less out of concern – or are more likely to devote a higher % of their income to try to pay off their mortgage early. Falling house prices cause more people to be trapped in negative equity (a situation where your house is worth less than an outstanding mortgage). This causes a fall in spending and precludes any opportunity for equity withdrawal Falling house prices have an important psychological impact. A fall in house prices can pop a bubble of rising expectations. Falling house prices have a negative impact on the construction of new houses. After the 1990 house price crash, there was a sharp fall in consumer spending, and this was a major cause of the recession of 1991-92. Falling house prices weren't the only factor harming the economy (the economy also suffered from high-interest rates and high value of Sterling) But, falling house prices was an important contributing factor When house prices are lower, and not as much economic activity around it – Gov has lower taxes State taxes – stamp duty, also fines as an income through EPA laws and restriction of use of land/planning regulations Federal – make income tax of those involved in property – real estate, developers, construction/builders (make GST as well) Higher all around prices create more income for Governments Monetary policy - Impact and relationship to interest rates Most central banks are committed to keeping inflation within a government agreed target - UK CPI 2% +/-1., Aus 2-3% If a Monetary Policy Committee felt prices was at too a level of inflation - above the target, then they may decide to increase interest rates. For example, the late boom of the late 1980s saw rising interest rates to combat the inflation in the economy Higher interest rates will reduce the rate of economic growth and moderate inflationary pressure However, the MPC is unlikely to increase interest rates just because house pri

Welcome to Finance and Fury, The Furious Friday Edition Today, the episode is delving a little deeper into superannuation I Work as a financial adviser – see a lot of changes to the legislation of superannuation since I joined the industry in 2011 – Today - Episode on my theory of superannuation from a viewpoint you might not see anywhere else History of Super – From 1970s - superannuation arrangements were in place were set up under industrial awards negotiated by the union movement – nothing like currently – they were union/company run 1983 - A change to superannuation arrangements came - through an agreement between the government and the trade unions Called "Prices and Incomes Accord" - the trade unions agreed that their members (workers) forgo a 3% pay increase to instead direct into the new superannuation system – important point of forgoing salary increase – come back to later This 3% was also matched by employers' contributions the employees' income – Though there is general widespread support for compulsory superannuation today, at the time of its introduction it was met with strong resistance by small business groups who were fearful of the burden associated with its implementation and its ongoing costs – still – passed anyway due to union support Created 6% in total for union/Government workers – but didn't exist across the board yet 1992 - the Keating Labor Government - compulsory employer contribution scheme became a part of a wider reform package - "Superannuation Guarantee" (SG) contributions Why? Reasoning of Australia, along with many other Western nations, would experience a major demographic shiftin the coming decades, of the aging of the population, and it was claimed that this would result in increased age pension payments that would place an unaffordable strain on the Australian economy. The proposed solution was a "three pillars" approach to retirement income: compulsory employer contributions to superannuation funds, further contributions to superannuation funds and other investments, and if insufficient, a safety net consisting of a means-tested government-funded age pension. The Keating Labor Government had also intended for there to be a compulsory employee contribution beginning in 1997-98, with employee contributions beginning at 1%, then rising to 2% in 1998-99 and reaching 3% in 1999-2000. However, this planned compulsory 3% employee contribution was cancelled by the Howard Liberal Government when it took office in 1996. By 2002-03 - Howard Government - The employer SG contribution was allowed to continue to rise to 9 Limited employer SG contributions from 1 July 2002 to an employee's ordinary time earnings Before this – no cap in conts The SG rate was 9% from 2002-03 to 2013-14, when the Rudd-Gillard Labor Government passed legislation to increase SG contributions to 12% by 1 July 2019 - originally intended by the Keating Government in 1995 – but got strong opposition and replaced by Howard Abbott Liberal Government deferred the start of this planned increase to the SG by six years, from 1 July 2015 to 1 July 2021. The SG rate has since 1 July 2014 been- from 9.5% and in July 2021 the rate is planned to increase by 0.5% each year until it reaches 12% by 2025. Super Today – has grown massively – increase in compulsory contributions, being tax-effective, and strong market growth It is massive – Estimates show it is likely cracked the $3trn mark as of last month – ASX is about $2trn – remember that every super fund has money in ASX products – so even assuming a 25% = $750bn of the market cap = 37.5% of ASX Massive inflows as well - $120bn p.a. of employee/member contributions The Australian industry superannuation funds is under fire for re-investing funds into questionable investments, to benefit related parties ahead of the investor. Thus, a conflict of interest exists with the parent entity re-investing funds into funds related to the parent entity. Thus the best rate of return is never sought out, and the bank or entity investing the money is not seeking the highest rate of return. Money in certain investments now is a concern - Debt - Bonds – Corporate and derivative position – repo markets Property – Build to rent schemes – especially for Gov buildings to occupy using tax payer funds Index – buying into markets and pushing prices up – for no fundamental gains Most non-self managed funds only provide very minimal information to the account holders about how their money has been invested. Usually, only vague categories are provided, such as "Australian Shares", with no indication of which shares were purchased. This makes the fund's management largely unaccountable to their members. Examples of legislation or policy changes that work against you – political/fiscal or monetary policy bank accounts Fiscal is taxes – where super in accumulation and now pension if you work and below 65 = taxed Also – money available to buy government debt to fund their expenditure Monetary is QE