June 26, 2025 • 30 mins
Our recent show on crypto, which was openly sceptical about Bitcoin, triggered a storm of response from listeners who believe Bitcoin is a very worthy asset.
Today, we hear another point of view: AMP recently invested $27m in Bitcoin and that decision has returned around 40 per cent in profits.
In today's show, we cover...
- The bull case for Bitcoin from a mainstream investor
- Must you understand something to invest in it?
- The widening 'use case' for crypto
- FY 2025 investment wrap - too good to be true?
Shane Oliver, chief economist at AMP joins Associate Editor- Wealth, James Kirby in this episode
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. What a really interesting time.
I want to do a couple of things today and
I think you'll find both of them very interesting. First
of all, a great response, I might say maybe a
storm of response might be the right phrase for last
(00:31):
week's show on Crypto with Jackie Clark. Now, what we
did in that show was basically a skeptics corner, okay,
So we put up somebody from institutional Australia, from the
conventional world of Australian investing, an ASX board director, a
family office member, accountant to give a view on crypto.
(00:55):
And obviously it was a very skeptical view. And it's
interesting because nearly I think the tempo of the Money
Pazza's audience has changed, become much more receptive I think,
and enthusiastic in many ways about crypto, though Maney remains skeptical,
including Jackie, and she had some very strong points. Now,
what I want to do today is put the other
(01:17):
point of view, okay, and again it's institutional Australia. I
could easily get someone from crypto to talk about crypto.
Why would I do that? If I ask someone in
real estate to talk about whether it's a good time
to buy property, what would they say? If I ask
a gold miner, is it a good time to buy gold?
What will they say? This is not the nature of
the exercise to get people from the crypto world to
(01:39):
talk about it. It's to get people who are conventional
investors with a lot of respect from our audience and
from me, to take a view on crypto. Jackie's view
was very skeptical, as she also in some ways did
not go into great detail on it, and I understand
why because that is a typical response. I don't go
(01:59):
if I don't believe in gold mining, I don't go
so deep best to understand all the aspects of gold mining.
And it's the same with crypto. So who could we
get to talk about it? And also, very usefully, because
it's the last show of the year, we're going to
also have a quick wrap on how the year has gone.
But first, the most interesting organization I think institution in
(02:20):
Australia in relation to crypto is not a major crypto
player or a major crypto exchange, believe it or not,
it's AMP, and AMP plays that role for the simple
reason they were the first, are the first major financial
institution as super fun if you don't mind to invest
in crypto. They invested twenty seven million dollars a few
(02:44):
months ago in crypto, substantial investment in many people's eyes,
you can say, is a percentage of AMP is tiny.
It's twenty seven million. It's twenty seven million, and they
put it into crypto, and I want to know why
they are enthusiastic about it. The ideal person, absolutely ideal
person to talk for AMP is an old friend of
the show, an old friend of mine, Shane Oliver, the
(03:05):
chief economist. I know him for a long time. He's
been on the show before.
Speaker 2 (03:09):
How are you, Shane, I'm good, James, thanks for having
me back.
Speaker 1 (03:13):
I never thought i'd have you on the show explaining
why your organization spent fifty seven million dollars on crypto.
And I think it's absolutely fascinating that you did. I
think it's very plucky that AMP did. It's now we
see sometime later JP Morgan is in there, Walmart is
in there making investments in crypto, putting money behind it
(03:37):
first and foremost. Can you explain to our listeners, some
of who are crypto fans, some who remains skeptical, why
AMP put twenty seven million dollars into bitcoin.
Speaker 2 (03:49):
I certainly can, and you might some might say that
I'm in this skeptical camp too, And I have written
notes on crypto over the years, starting back class decade.
But I guess even I always thought that there was
some potential element of value in there, and that relates
to two things. The use of the blockchain that underpins
crypto for smart contracts and various uses, and that is
(04:15):
already evident, and that, particularly in the case of some
cryptos like Ethereum and Solana and so on, potential uses
an alternative currency, central bank, digital currencies and so on.
And also with a bitcoin increasing use as a store
of value alternative to gold. So I know all the
reasons for skepticism about bitcoin. In fact, I've got a
(04:37):
list in front of me from the last Oliver's Insights
I wrote on it, which was earlier last year. It's
coin itself. Yeah, it's unlikely it become useful for everyday transactions.
You can't buy a cup of coffee, whether or if
you do, you'll pay, it'll take you a lot of time,
it'll be slow and all that sort of stuff. It's volatile,
it's hard to value because it doesn't generate rents and
(04:57):
dibdends like other assets, and of course it's been associated
with nefarious activities. Are often thought that way. But even
though I'm skeptical, I think we as an organization AMP
has responsibility to its members, fiduciary responsibility to look at
all options, and it could be an emerging asset class.
It has been around now since what two thousand and nine,
(05:19):
and so it seems like it's becoming part of the
furniture in terms of the investing worlds. It's increasingly getting
acceptance from regulators. They're taking it seriously and regulatory framework
is being put around it. So it's moving from the
wild West, if you like, to some degree into the mainstream.
There's a whole generation out there of digital savvy young
(05:41):
people investors who are becoming investors, and they're more familiar
with this. They're probably thinking. In old days they might
have thought, well, i'm skeptical about the government, I'm skeptical
about inflation. I want something which is a bit of
a hedge against that on a long term basis. Previous
generation might have gone gold is for me. Now some
of those people are saying maybe bitcoins for me, and
Bitcoin by free nature has resisted the temptation to weaken
(06:06):
some of the protocols around it, you know, in terms
of the about proof of work and proof of stake
and all that sort of stuff that other cryptocurrencies have
gone down that path. Bitcoin todd with it to some degree.
But I think Bitcoin probably has held back a little
bit because of this view that it wants to be
seen as something that's difficult to get hold of and
that preserves its value to some degree. We all know
(06:27):
that there's something there's a limit on the amount of
bitcoin that it can ever be mine to twenty one
million bitcoins, and we're well through that, and so that's
going to limited supply. But because of all those things,
you got this. I can understand the skepticism argument. Yes,
you've got to be cautious, but I can also understand
that it's becoming part of the investment universe, and therefore
we thought we had to consider it. We had a
(06:48):
lengthy debate. I put up all the skeptical arguments is
to expect that I might in the end even I
decided we should have a look into this, and we
did in May last year. As you say, we invested
twenty seven million dollars in bitcoin when it was then
priced at sixty two thousand. It was less. It was
about point zero five percent of our super funds, so
(07:09):
less than point one percent. Probably close too point one
percent now because it's gone up in value.
Speaker 1 (07:13):
But it seems to me that between the lines, the
most compelling argument you've put forward is it a fear
of missing out.
Speaker 2 (07:21):
No, I wouldn't say that's the argument. I think the
main argument was that it was becoming part of the
investment universe, and it's moving from the shadows from the
wild West into the investing universe. And the last year,
I want I think one of the big factors in
our minds was the approval of ETFs by US regulators
on this front in regards to bitcoin. So Trump only
came along after we'd made the decision in May. And
(07:42):
you can argue that when you think about it, it
does offer some diversification. It's not perfectly correlated with shares,
and there is some tendency for it as a growth
asset to go down when shares run to trouble and
it goes up by more than shares when shares do well,
but it has an imperfect correlation with shares.
Speaker 3 (07:58):
What is your view on it?
Speaker 1 (08:00):
If we accept it to an asseid class and you
have clearly and you have put your money where your
mountains if you like AMP, what's your view? Is it
correlated or is it non correlated? It started as a
sort of libertarian completely anti establishment thing where people would say, oh,
I don't trust the banks, I don't trust the government,
et cetera. It moves and moves towards the mainstream, that's
(08:21):
beyond doubt. If the US is talking about a strategic
reserve with crypto, then it is core mainstream. But I
want to ask you, as an acid class, do you
see it or do you know yet whether it's correlated
or non correlated? In other words, is it a gold,
a digital gold that we can depend on when things
go wrong, or is it simply correlated where it just
(08:43):
flies up when the market's hot and flies down when
the market's cold.
Speaker 2 (08:46):
Look, I think there is an issue that as time
goes on it becomes more institutional, it'll be put into
the growth bucket potentially, and therefore there might be some
correlation with share markets, and gold has that to some
degree as well. You think about the initial phases of
the GFC, gold went down, and it's partly because you
can see a little bit on the In the last weekend,
(09:06):
US starts dropping bombs on Iran, investors are a little
bit nervous they can't sell shares because the share market's closed.
There was some downwards pressure on bitcoin at that point
in time, and I think the correlation when I last
looked at it was something like zero point four percent
against the share market. It's not one percent, so it's
not correlating one for one, but there is some correlation
there with the share market. And that's partly because as
(09:27):
it becomes more institutional, then investors see it in that
particular bucket as a growth asset and when they want
to sell shares, so crypto might get a bit of
the selling pressure. But in a broader sense, there is
another way of looking at it, and that is because
it has the limited supply. I suspect that over time
it probably offers more of an inflation hedge than shares
to because of that limited supply, you could always say
(09:49):
we should also be skeptical of gold. It's only got
value because we believe it has.
Speaker 3 (09:54):
Become accumulated historical.
Speaker 2 (09:57):
Historical experience that it's got value. But these days it
doesn't do much. It's not used in teeth. You can
use ceramics, so the porcelaina whatever it is in your
teeth these days, so it's a bit different. It's used
in jewelry. But interestingly, that's a tiny fraction of the
actual demand for gold, and there's little relationship between drill
demand and the price.
Speaker 1 (10:18):
So you're seeing that it's just a speculative.
Speaker 2 (10:21):
No, it's a I think it's become what's happening here
is that bitcoin is almost becoming like a digital version
of gold. It's a store of value. It's not necessarily
speculative where people just buy into it on the grounds
that it may go up, but obviously people hope that
will occur over time. But you can say, we do
have gold in our portfolios because it's in their commodity exposure.
(10:46):
So if bitcoin is becoming part of the mainstream, maybe
this case to have bitcoin in there as well.
Speaker 1 (10:51):
And the case is more so than it's a store
of value rather than it's a bit respeculative option.
Speaker 2 (10:58):
Yeah, I would think so, no doubt. Most people say, Okay,
so it's two thousand and nine, it's gone up exponentially,
maybe that'll continue. I think you've got to be a
little bit careful there. There's the old disclaimer that all
fund managers use. Past performance is not a guide to
future performance. It was a new asset class when it
came along in two thousand and nine. If you look
at it from each look at every four years, it
(11:19):
goes through a cycle. Each trough to trough in that
cycle has seen a slowing in the rate of increase
in the value of bitcoin, or each peak to peak
is sen a slowing in the rate of increase, and
I think that's normal. It's just like a startup company.
Initially you can make huge gains a lot of risk
around that, but it will slow down over time. But
I think ultimately it settles down to providing probably somewhat
(11:40):
steadier gains, although I yeah, we get to see the
downcycle which will come of course in bitcoin, but it's
part and parcel of that new asset class.
Speaker 1 (11:49):
Why do you think no other super fund has followed
you into the market. It's been quite a while now,
four five months, but extremely lucrative. Right, you had forty
percent on this particular investment, but most of your peers
institutionally remain so cautious that they will do it.
Speaker 3 (12:08):
Let's put it that way.
Speaker 2 (12:09):
Yeah, we undertook the investment in May. I think by
the time it was formerly announced it was November December
or thereabouts, but that's still six seven months ago. I
suspect that over time you will see some of those
super funds invest I think a lot of them had
probably said we're not going to do it and didn't
even have any plans. I suspect you probably find there's
(12:30):
a couple out there who probably do have plans.
Speaker 3 (12:33):
Are you guessing or do you know?
Speaker 2 (12:34):
I'm purely guessing here. I don't have any inside information
about other super funds.
Speaker 3 (12:38):
All right, okay, And just one other thing.
Speaker 1 (12:40):
Having put in twenty seven million and having made what
forty percent, do you think AMP will put in more?
Speaker 2 (12:46):
Like As with all asset classes, they're all the precise
exposers always under review, and we will continue to review
our exposure to bitcoin along with other assets. So I
can't indicate either way on that.
Speaker 3 (12:58):
You can't hold it out, though I'm.
Speaker 2 (13:00):
Not gonna roll it out. I'm not going to roll
it in. It sounds like.
Speaker 1 (13:04):
You're used to talking to journalists, that's clearly obvious.
Speaker 3 (13:07):
Or we'll take a short break. We'll be back in
a moment.
Speaker 1 (13:15):
Hello, Welcome back to the Australians Money Puzzle podcast. I'm
James Kirby and I'm talking to Shane Oliver, chief economist
of AMP, specifically in this first section of the show
about crypto, and of course Shane works for AMPS, the
chief e columnists there and they were the first financial
institution super fund in Australia to make an investment in crypto.
(13:38):
It's interesting, Shane, self managed super funds way ahead of
you in that respect. There's a billion according to the ATO,
there's a billion dollars in SMSF funds in crypto. So
in that respect it should be no surprise that a
major fund would sooner or later go into crypto. Now,
I just want to bring in now some of the
(13:59):
issues that came up in the first show, and I'm
going to just read the question which is from Scott,
but it also reflects observations by Vince and Henry and
Dean and Stephen and many others who came in and Basically,
they wanted to take what Jackie Clark said, some of
her skepticism, if you like, about crypto, and they tackled
(14:20):
it and said that she was the wrong person to
talk about crypto. That I totally disagree with that she
is the right person. She is a classic example of
someone who is skeptical and doesn't want the organizations or
the institution she represents to go in there. That's why
I have Shane on today. His organization has gone in there.
So there was a couple of observations there that some
(14:41):
of them are on technicus as I say, which I
don't think we need even go into, because there is
still an element I think Shane of belief that if
you don't believe it, you don't need to know that. Honestly,
you don't need to know the technicals. But why should
you go deep into understanding its complexities if you don't
believe it in the first place.
Speaker 2 (14:59):
Wait, you don't need to. You can take the approach
of just investing broadly. I'm not an investor in individual things.
You had a question in there which you haven't asked.
Do I have it personally? No, I don't have it personally.
Speaker 3 (15:11):
It was on my list story.
Speaker 2 (15:13):
But then I don't have BHP or CBA or any
other thing. Personally, I'm a macro guy. I invest in
the big picture, and so therefore I have my money
and Super and it's in AMP funds, and might have
some money outside Super and his index funds. But obviously,
when you buy a property, it's a specific investment, like
the family home, the one I'm sitting in right now.
But that doesn't prove that I have a negative or
(15:33):
positive view on it or not supportive of the decision
by AMP. The fact that I haven't bought it individually,
but because I haven't bought other things individually either. But
I think, just on that SEMSF observation, we had members
over the last few years have been asking should you buy,
and Crypto always get a little bit worried because by
the time they ask, it's usually when crypto has gone
up in value double to or forty percent. No one
(15:54):
of course was asking when it collapsed eighty percent through
one of those downturns. But so it doesn't surprise me
that SMSF investors are already in there because we had
members who are interested, and that indicated to us that
we should be looking at it, which we did. But
I've lost track of your original question here because you've
raised a few points there, But hopefully that's covered it.
Speaker 3 (16:14):
I did really a few points. Look.
Speaker 1 (16:15):
One of the things, obviously was a lot of the
crypto people when someone is skeptical about it, the crypto enthusiast.
If you don't see you don't understand this, you don't
understand this, you don't understand how.
Speaker 3 (16:27):
It all works.
Speaker 1 (16:28):
I don't understand CSL. CSL is one of the top
ten companies in Australia. I don't understand what they do.
Speaker 2 (16:33):
We've had that one from Central Banks as well. They
don't understand it. On the one hand, I think if
you don't understand it and you don't feel comfortable, then
you shouldn't invest as an individual. That's true, but then
it is also true you don't have to fully understand
everything to invest in it. And in my super funds
or my investments outside super well, I haven't bought specific stocks.
There are some companies in there which I won't understand
(16:54):
their model and what they're doing and why, but I
don't need to. And that's the key here. If you've
got all your money invested in bitcoin, then I think
you should understand it. But if you've got a well
diversified portfolio, you just see it part of the investment universe.
You just got some exposure in there, just like you've
got some exposure of other things, then you probably don't
need to have the same degree of understanding. And it
is a little bit technical when you get into it.
(17:16):
I've in the interests of finding out what it was
several years ago. I've read a lot about bitcoin, but
I don't consider myself an expert. And if you put
me up head to head with some of the people
who might be listening to this, who spend a lot
of time, then they would run rings around me, And
that's fair enough. I don't disagree with that.
Speaker 1 (17:32):
It's very interesting you see that. So there was always
that traditional response, if you don't understand it, don't buy it.
But really there's a point of which that stops. CSL
would not be where it is today if everyone, yeah,
it didn't buy it because it didn't understand it.
Speaker 2 (17:44):
That's right. Sometimes you do have to have a bit
of faith in these things. And I think the broader
issue is if you don't understand it, you're fair enough.
Maybe you look into it. That's one way to go
about it. The other approach is you don't understand it,
but you think there might be something in it, then
have it as part of a broad diversified portfolio. Don't
just put all your eggs into it.
Speaker 1 (18:03):
Very interesting and of course now people can obviously everyone
listening news now that you don't have to go off
to some bitcoin exchange and go through all the red
tape if you like to get involved. You can just
buy an ETF and the ets are regulated.
Speaker 2 (18:17):
That's incredibly important because it was one of the reasons
I think a lot of people were skeptical because they'd
heard it about all the problems on the exchanges, money
being hacked and all that sort of stuff, and the
exchanges running into trouble, that this is issue a few
years ago. I think that was when it was part
of the wild West, and that's now starting to change,
which is good. And by the way, we haven't actually
bought bitcoin, the physical bitcoin. You don't have physical bitcoin.
(18:39):
We bought futures.
Speaker 3 (18:40):
Was that because that was the only way to do it, chin.
Speaker 2 (18:42):
Or No, It's just the easiest way. As a super fund.
It was just an easy way for us to do it.
I mean oftentimes we'll buy we don't buy physical shares,
will often buy futures on them or maybe the ETF.
So it's just another way of getting exposure. It's an
easy way to get in and out. It's quite liquid.
That's just start and parcels the way we do things.
Those features are obviously tied to bitcoin, so it's effectively
Bitcoin exposures.
Speaker 1 (19:03):
So yes, course, yes, yeah, yeah, but it's just it's
just a particular structure, all right.
Speaker 3 (19:08):
Andrew said.
Speaker 1 (19:08):
The reason that Jackie Clark and allegedly the Governor of
the Reserve Bank and many others who should know better
say they don't understand bitcoin is that they want to
think of it as an investment that should have an
intrinsic value. It's not, and it doesn't. Bitcoin itself may
not survive, but now we know how it works, the
(19:29):
genie won't go back into the bottle. Bitcoin or whatever succeeds.
It will be better understood when its price goes up
at the same time as intrinsically valued investments go down.
This is a core sticking point with many expert investors,
this lack of intrinsic value. You got over that, how
did you get over that at a MP.
Speaker 2 (19:48):
As a long time investor and someone in the investment community,
it does worry me a little bit. It's it's an
easy to value a property or a share or whatever
you because there's that that that rent that is delayed
physical rents, literally rents or dividends. But there's lots of
investments that we have that don't have that. Warren Buffett, Berkshire,
(20:09):
Hathaway doesn't pay dividends. So there's lots of examples of
investments out there that don't have paid dividends. You can say, well,
don't have intrinsic value, so how can you possibly value them?
So there are ways around it. Yes, it is a
sticking point, and I can understand why people have expressed
that concern, and I've written it down as a reason
for skepticism in my own notes on this. But I
(20:30):
think there are rays around it, and you just need
to accept that there are other investments in your portfolio
where they're not paying dividends.
Speaker 1 (20:37):
Yeah, Okay, we'll take a short break and we'll be
back in a moment. Now, San this is a great
time to have you on the show because it's the
last episode of the financial year, and we have talked
on and off over many years. I wonder has there
(20:59):
been a year it looks like super funds are coming
in with a return of around nine percent. Inflation in
our society, in our economy has dropped nicely, the share
market is looking like ten percent plus.
Speaker 3 (21:12):
Can you recall a year Maybe you just disagree with this.
Speaker 1 (21:14):
Entire contention, but can you recall a year where the
results were so unconvincing? They're so good that they're unconvincing
because I cannot see how they are.
Speaker 2 (21:23):
So I think there's been lots of views like that.
To be honest with you, the old line that chares
climb a wall of worry, that there's so many things
to worry about, and yet the share market's done well,
we can't believe it. I think twenty seven en was
an example of that that Trump talk over and shares
did pretty well. Twenty twenty was another fantastic one. We
(21:43):
had a pandemic and the share market at one point
there fell thirty percent I think thirty five percent. Global
Australian shares were down by and yet we had okay.
It turned out okay in the end, once investors look
through it. And I think the same thing's happening this
time around. Put Trump aside, he's a lot of the
source of uncertain whether you like him or not, is irrelevance.
So I might say he's tariffs. Ultimately he might be
(22:04):
good for the US. I might say what he's done
in the Middle East might be good for the global
economy in the worlds. But the dust still has to
settle on that. But by the same token, in a
big picture sense, we've come into an environment where inflation
was a problem. In twenty twenty two, we had inflation
in Australia over eight percent, in the US a nine
ten in Europe. We've got it down so eventually all
(22:25):
those countries have inflation somewhere around two to three percent,
including in Australia, and so we've gone from a world
of high inflation fears of that interest rates would even
have to go higher. Now we've gone to a world
with lower inflation. And we've done that at environment where
we've managed to avoid a technical recession, if you like.
We've come close, and there's risk there. But even if
(22:46):
you look at Australia unemployment what four one four point
two percent still very low. Similar story in the US,
so that's why the share markets are celebrating. The environment
hasn't been so bad. And then, of course you overlay
Trump on that he caused constant nation with his tariffs
in April, but then he's backed off a little bit.
Some people say Taco Trump always chickens out. Maybe not.
(23:07):
I think that issue will come up again.
Speaker 1 (23:08):
What about the earnings. Maybe re earnings are better than
we think of. Inflation's falling.
Speaker 2 (23:13):
Well, maybe that is the case. They've certainly surprised in
the US coming to the last reporting season. For the
March quarter, the expectation was four percent earnings growth turned
out to be about ten or eleven percent earnings growth,
and so US companies just kept surprising. On the upsides,
Australian earnings have been negative, but there is an expectation
of some improvements. We are setting the Reserve Bank cut
(23:33):
interest rates in Australia. We've now got inflation at the
lower end of comparable countries. Remember all that nonsense last
year people were building out we've got an inflation problem
relative to everybody else. We haven't. When you look at
it on a graph, it's about the same, or we're
at the low end which is good. So I think
share markets are seeing that. And when the share market
(23:54):
thinks of lower interest rates, it thinks that's more people
putting their money in shares because they're getting less on
bank deposits. The valuations on shares start to improve, and
so I can sort of understand why markets have gone up,
even though it's surprised. The strength of it has surprised me.
And I wouldn't have thought we would be doing this
well on Liberation Day, if that's what you want to
(24:14):
call it, Donald Trump's Liberation Dates.
Speaker 3 (24:17):
Yes, I know it was awfully hard, but here we go.
I have to ask you, how do you see the
year ahead? Financially?
Speaker 2 (24:22):
Year ahead, I'm at risk of getting surprised again because
I reckon returns will slow down. I would have thought
they would have slowed down a year ago. I didn't
think they'd be this good. I thought they would be okay,
But I was thinking, I think a year ago, if
you look at my report in July, I was looking
for something more six or seven percent now of super funds,
and now you're going to get what is probably around
nine I think chat West the other day financial year
(24:44):
to date eight point five percent up to May. It
looks like Journe's turned out to be a reasonable month.
Touch Wood we still got a few days ago, but
I reckon returns will slow down to around six seven percent.
The valuations are a little bit of a concern. The
p's in the US where we around about twenty five
times for IT earnings. In and Australia we were about
nineteen or twenty times for earnings. That's above longer term averages.
(25:05):
Bond yields are still relatively high, so there's not a
great equity risk premium in there if you compare the
earnings yield implied by those pes to the bond yields.
But by the same token, I think if we avoid
a recession, and I probably I think we probably will,
then it turns out okay. So I think somewhere along
the way we'll get another bet of worries about tariffs.
(25:26):
Historically in the last twenty years, July is a good
month for shares, but we know that August and September
are often a bit rough seasonally, and I suspect that
that could be tariffs. The tariffs come back into the headlines,
you could get more vulnerability or more volatility coming out
of the Middle East, but you've got to be careful
about that one. The lesson from the events of the
(25:47):
last few days that unless there's a disruption to oil supplies,
then eventually markets will just move on to something else.
And that's what's happened here. Even though I think the
risks were very high, but it all depended on what
Iran does. Run back down, but they probably concluded let's
live divide another day.
Speaker 3 (26:04):
Very content response.
Speaker 2 (26:06):
Yeah, it was a contained response, and they self interest
lay a role there. I think regime survivability was the key,
so that could come back as an issue and cause volatility,
But I think the broader picture is one of constrained
growth globally. We hear from the IMF and Well Bank
it's going to be somewhere like two to three percent growth,
but it's not recession. And if it's not recession, then
(26:27):
earnings can continue to grow or at least grow. Interest
rates probably continue to come down. We're going to see
I think four cuts in Australia, the next one in
July and then another three after that August, November, and February.
That will help our market put money in the hands
of people with a mortgage and those money will go
and spend that. And I know a lot of people hear
(26:48):
that and say, well, I'm a self fund of retire
read relying on money from bank interest. But the amount
of money in household dead is double, roughly double the
value of people with bank deposits. The value of money
in bank deposits, so aims to those with the mortgage
is actually swamps by two to one the losses.
Speaker 3 (27:04):
So it's twice I see what you mean, Yeah, twice
to speak.
Speaker 2 (27:07):
And our family twenty five to forty five with a
couple of kids is far more sensitive to changes their
income than a fifty five sixty five year old person.
I'm going to char I'm sixty, but I don't change
my spending that much given my income. But mortgage is
under control. That sort of stuff. My mother goes on
the cruises and that doesn't change much with interest rates,
But it does for younger.
Speaker 1 (27:29):
Families because they're so funly chuned.
Speaker 2 (27:31):
So there's so famly tuned. You get a slight rise
at interest rates, they got less money to spend. That's
bad for the economy. Cut interest rates, they suddenly get
relief and they could spend a little bit more they
won't go bond because spend a lot. But I think
all that points to an okay environment. But as I
said at the start, the valuations are a little bit stretched.
That's going to constrain things a little bit. That's why
I say six seven percent return from super funds, not
(27:53):
another year of nine or ten or something.
Speaker 3 (27:55):
Okay, interesting logic.
Speaker 1 (27:56):
So the temple, the fundamental GDP if you like economic temples, healthy,
but the evaluation, because valuations are stretched, that puts a limit.
Speaker 2 (28:06):
Yeah, they are a little bit of stretch, but there's
the problem with valuations. They're useful guides, but they're not
very good to time markets with. And a lot of
people have been saying for the last few years now
the chairs is too expensive and blah blah blah, and
they keep going higher. That's because your earnings come in
and they turn out okay, particularly in the US. But
valuation is very hard to time markets. So it's a
(28:28):
risk factor there. At least the market's vulnerable should something
go wrong. But as we saw in the Middle East,
that turned out not to be the event, and it
remains to be seen what happens with tariffs. But I
reckon this is the big one with Trump. If you
think about the next financially, it takes us up to
June next year. He's going to want to get his
party doing well in the midterms. He doesn't want to
see a massive defeat for the Republicans because it will
(28:50):
look bad on him. So he's probably going to as
time goes by through the next financial year, which takes
him in the run up to the November midterms in
the US, he's probably going to want to do things
a more market friendly. And that's why I think he's
loaded his tariffs up front and sort of get some
of the bad news out of the way early, and
then if he gets more friendly as we come up
to the midterms.
Speaker 1 (29:09):
Okay, we will see, we will see terrific. All right, Look,
thank you very much. I have one last thing I
wanted to just in terms of questions of correspondence, and
we had a lot, and thank you everyone for the corresponding.
Speaker 3 (29:20):
It was very thoughtful.
Speaker 1 (29:20):
I thought on Crypto and as I say, I thought
it deserved a second twist, and having had if you
like the bare case on, I wanted to put the
bookcase on. I think that would be very useful. Of Course,
I have crypto people on in the future for them
all in the past. But I wanted this debate if
you like to come from outside crypto per se in
conventional investment markets, which is I think the best way
(29:44):
to debate it. All right, terrific. One last thing I
wanted to just read for you. It's from Pete and
he says, I have my money puzzle bingo card in
front of me and it has only three things. Number One,
taxing upon realized gains and super funds is staft. Number Two,
all the brokers say the Commonwealth Bank is overpriceding yet
(30:04):
it hasn't fallen. Number Three the three million super tax
and super is not indexed.
Speaker 3 (30:09):
Can you believe that? Do I win? Says Pete. Pete,
You're you're in the winner's enclosure. I think that's for sure.
Very keen alert.
Speaker 1 (30:18):
Listening there from Pete. Thank you Pete, and thank you
everyone for listening. Keep the emails Rolling the money Puzzle
at the Australian dot com dot u. Shane Oliver, chief
economist at AMP, put you onto the gun there today
in two different ways. Thank you very much, really good,
very clear, articulate response of course to all the questions,
which is what I would expect from you. Thanks a lot,
we'll have you on again.
Speaker 2 (30:39):
Thanks Jans, take care,
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. What a really interesting time.
I want to do a couple of things today and
I think you'll find both of them very interesting. First
of all, a great response, I might say maybe a
storm of response might be the right phrase for last
(00:31):
week's show on Crypto with Jackie Clark. Now, what we
did in that show was basically a skeptics corner, okay,
So we put up somebody from institutional Australia, from the
conventional world of Australian investing, an ASX board director, a
family office member, accountant to give a view on crypto.
(00:55):
And obviously it was a very skeptical view. And it's
interesting because nearly I think the tempo of the Money
Pazza's audience has changed, become much more receptive I think,
and enthusiastic in many ways about crypto, though Maney remains skeptical,
including Jackie, and she had some very strong points. Now,
what I want to do today is put the other
(01:17):
point of view, okay, and again it's institutional Australia. I
could easily get someone from crypto to talk about crypto.
Why would I do that? If I ask someone in
real estate to talk about whether it's a good time
to buy property, what would they say? If I ask
a gold miner, is it a good time to buy gold?
What will they say? This is not the nature of
the exercise to get people from the crypto world to
(01:39):
talk about it. It's to get people who are conventional
investors with a lot of respect from our audience and
from me, to take a view on crypto. Jackie's view
was very skeptical, as she also in some ways did
not go into great detail on it, and I understand
why because that is a typical response. I don't go
(01:59):
if I don't believe in gold mining, I don't go
so deep best to understand all the aspects of gold mining.
And it's the same with crypto. So who could we
get to talk about it? And also, very usefully, because
it's the last show of the year, we're going to
also have a quick wrap on how the year has gone.
But first, the most interesting organization I think institution in
(02:20):
Australia in relation to crypto is not a major crypto
player or a major crypto exchange, believe it or not,
it's AMP, and AMP plays that role for the simple
reason they were the first, are the first major financial
institution as super fun if you don't mind to invest
in crypto. They invested twenty seven million dollars a few
(02:44):
months ago in crypto, substantial investment in many people's eyes,
you can say, is a percentage of AMP is tiny.
It's twenty seven million. It's twenty seven million, and they
put it into crypto, and I want to know why
they are enthusiastic about it. The ideal person, absolutely ideal
person to talk for AMP is an old friend of
the show, an old friend of mine, Shane Oliver, the
(03:05):
chief economist. I know him for a long time. He's
been on the show before.
Speaker 2 (03:09):
How are you, Shane, I'm good, James, thanks for having
me back.
Speaker 1 (03:13):
I never thought i'd have you on the show explaining
why your organization spent fifty seven million dollars on crypto.
And I think it's absolutely fascinating that you did. I
think it's very plucky that AMP did. It's now we
see sometime later JP Morgan is in there, Walmart is
in there making investments in crypto, putting money behind it
(03:37):
first and foremost. Can you explain to our listeners, some
of who are crypto fans, some who remains skeptical, why
AMP put twenty seven million dollars into bitcoin.
Speaker 2 (03:49):
I certainly can, and you might some might say that
I'm in this skeptical camp too, And I have written
notes on crypto over the years, starting back class decade.
But I guess even I always thought that there was
some potential element of value in there, and that relates
to two things. The use of the blockchain that underpins
crypto for smart contracts and various uses, and that is
(04:15):
already evident, and that, particularly in the case of some
cryptos like Ethereum and Solana and so on, potential uses
an alternative currency, central bank, digital currencies and so on.
And also with a bitcoin increasing use as a store
of value alternative to gold. So I know all the
reasons for skepticism about bitcoin. In fact, I've got a
(04:37):
list in front of me from the last Oliver's Insights
I wrote on it, which was earlier last year. It's
coin itself. Yeah, it's unlikely it become useful for everyday transactions.
You can't buy a cup of coffee, whether or if
you do, you'll pay, it'll take you a lot of time,
it'll be slow and all that sort of stuff. It's volatile,
it's hard to value because it doesn't generate rents and
(04:57):
dibdends like other assets, and of course it's been associated
with nefarious activities. Are often thought that way. But even
though I'm skeptical, I think we as an organization AMP
has responsibility to its members, fiduciary responsibility to look at
all options, and it could be an emerging asset class.
It has been around now since what two thousand and nine,
(05:19):
and so it seems like it's becoming part of the
furniture in terms of the investing worlds. It's increasingly getting
acceptance from regulators. They're taking it seriously and regulatory framework
is being put around it. So it's moving from the
wild West, if you like, to some degree into the mainstream.
There's a whole generation out there of digital savvy young
(05:41):
people investors who are becoming investors, and they're more familiar
with this. They're probably thinking. In old days they might
have thought, well, i'm skeptical about the government, I'm skeptical
about inflation. I want something which is a bit of
a hedge against that on a long term basis. Previous
generation might have gone gold is for me. Now some
of those people are saying maybe bitcoins for me, and
Bitcoin by free nature has resisted the temptation to weaken
(06:06):
some of the protocols around it, you know, in terms
of the about proof of work and proof of stake
and all that sort of stuff that other cryptocurrencies have
gone down that path. Bitcoin todd with it to some degree.
But I think Bitcoin probably has held back a little
bit because of this view that it wants to be
seen as something that's difficult to get hold of and
that preserves its value to some degree. We all know
(06:27):
that there's something there's a limit on the amount of
bitcoin that it can ever be mine to twenty one
million bitcoins, and we're well through that, and so that's
going to limited supply. But because of all those things,
you got this. I can understand the skepticism argument. Yes,
you've got to be cautious, but I can also understand
that it's becoming part of the investment universe, and therefore
we thought we had to consider it. We had a
(06:48):
lengthy debate. I put up all the skeptical arguments is
to expect that I might in the end even I
decided we should have a look into this, and we
did in May last year. As you say, we invested
twenty seven million dollars in bitcoin when it was then
priced at sixty two thousand. It was less. It was
about point zero five percent of our super funds, so
(07:09):
less than point one percent. Probably close too point one
percent now because it's gone up in value.
Speaker 1 (07:13):
But it seems to me that between the lines, the
most compelling argument you've put forward is it a fear
of missing out.
Speaker 2 (07:21):
No, I wouldn't say that's the argument. I think the
main argument was that it was becoming part of the
investment universe, and it's moving from the shadows from the
wild West into the investing universe. And the last year,
I want I think one of the big factors in
our minds was the approval of ETFs by US regulators
on this front in regards to bitcoin. So Trump only
came along after we'd made the decision in May. And
(07:42):
you can argue that when you think about it, it
does offer some diversification. It's not perfectly correlated with shares,
and there is some tendency for it as a growth
asset to go down when shares run to trouble and
it goes up by more than shares when shares do well,
but it has an imperfect correlation with shares.
Speaker 3 (07:58):
What is your view on it?
Speaker 1 (08:00):
If we accept it to an asseid class and you
have clearly and you have put your money where your
mountains if you like AMP, what's your view? Is it
correlated or is it non correlated? It started as a
sort of libertarian completely anti establishment thing where people would say, oh,
I don't trust the banks, I don't trust the government,
et cetera. It moves and moves towards the mainstream, that's
(08:21):
beyond doubt. If the US is talking about a strategic
reserve with crypto, then it is core mainstream. But I
want to ask you, as an acid class, do you
see it or do you know yet whether it's correlated
or non correlated? In other words, is it a gold,
a digital gold that we can depend on when things
go wrong, or is it simply correlated where it just
(08:43):
flies up when the market's hot and flies down when
the market's cold.
Speaker 2 (08:46):
Look, I think there is an issue that as time
goes on it becomes more institutional, it'll be put into
the growth bucket potentially, and therefore there might be some
correlation with share markets, and gold has that to some
degree as well. You think about the initial phases of
the GFC, gold went down, and it's partly because you
can see a little bit on the In the last weekend,
(09:06):
US starts dropping bombs on Iran, investors are a little
bit nervous they can't sell shares because the share market's closed.
There was some downwards pressure on bitcoin at that point
in time, and I think the correlation when I last
looked at it was something like zero point four percent
against the share market. It's not one percent, so it's
not correlating one for one, but there is some correlation
there with the share market. And that's partly because as
(09:27):
it becomes more institutional, then investors see it in that
particular bucket as a growth asset and when they want
to sell shares, so crypto might get a bit of
the selling pressure. But in a broader sense, there is
another way of looking at it, and that is because
it has the limited supply. I suspect that over time
it probably offers more of an inflation hedge than shares
to because of that limited supply, you could always say
(09:49):
we should also be skeptical of gold. It's only got
value because we believe it has.
Speaker 3 (09:54):
Become accumulated historical.
Speaker 2 (09:57):
Historical experience that it's got value. But these days it
doesn't do much. It's not used in teeth. You can
use ceramics, so the porcelaina whatever it is in your
teeth these days, so it's a bit different. It's used
in jewelry. But interestingly, that's a tiny fraction of the
actual demand for gold, and there's little relationship between drill
demand and the price.
Speaker 1 (10:18):
So you're seeing that it's just a speculative.
Speaker 2 (10:21):
No, it's a I think it's become what's happening here
is that bitcoin is almost becoming like a digital version
of gold. It's a store of value. It's not necessarily
speculative where people just buy into it on the grounds
that it may go up, but obviously people hope that
will occur over time. But you can say, we do
have gold in our portfolios because it's in their commodity exposure.
(10:46):
So if bitcoin is becoming part of the mainstream, maybe
this case to have bitcoin in there as well.
Speaker 1 (10:51):
And the case is more so than it's a store
of value rather than it's a bit respeculative option.
Speaker 2 (10:58):
Yeah, I would think so, no doubt. Most people say, Okay,
so it's two thousand and nine, it's gone up exponentially,
maybe that'll continue. I think you've got to be a
little bit careful there. There's the old disclaimer that all
fund managers use. Past performance is not a guide to
future performance. It was a new asset class when it
came along in two thousand and nine. If you look
at it from each look at every four years, it
(11:19):
goes through a cycle. Each trough to trough in that
cycle has seen a slowing in the rate of increase
in the value of bitcoin, or each peak to peak
is sen a slowing in the rate of increase, and
I think that's normal. It's just like a startup company.
Initially you can make huge gains a lot of risk
around that, but it will slow down over time. But
I think ultimately it settles down to providing probably somewhat
(11:40):
steadier gains, although I yeah, we get to see the
downcycle which will come of course in bitcoin, but it's
part and parcel of that new asset class.
Speaker 1 (11:49):
Why do you think no other super fund has followed
you into the market. It's been quite a while now,
four five months, but extremely lucrative. Right, you had forty
percent on this particular investment, but most of your peers
institutionally remain so cautious that they will do it.
Speaker 3 (12:08):
Let's put it that way.
Speaker 2 (12:09):
Yeah, we undertook the investment in May. I think by
the time it was formerly announced it was November December
or thereabouts, but that's still six seven months ago. I
suspect that over time you will see some of those
super funds invest I think a lot of them had
probably said we're not going to do it and didn't
even have any plans. I suspect you probably find there's
(12:30):
a couple out there who probably do have plans.
Speaker 3 (12:33):
Are you guessing or do you know?
Speaker 2 (12:34):
I'm purely guessing here. I don't have any inside information
about other super funds.
Speaker 3 (12:38):
All right, okay, And just one other thing.
Speaker 1 (12:40):
Having put in twenty seven million and having made what
forty percent, do you think AMP will put in more?
Speaker 2 (12:46):
Like As with all asset classes, they're all the precise
exposers always under review, and we will continue to review
our exposure to bitcoin along with other assets. So I
can't indicate either way on that.
Speaker 3 (12:58):
You can't hold it out, though I'm.
Speaker 2 (13:00):
Not gonna roll it out. I'm not going to roll
it in. It sounds like.
Speaker 1 (13:04):
You're used to talking to journalists, that's clearly obvious.
Speaker 3 (13:07):
Or we'll take a short break. We'll be back in
a moment.
Speaker 1 (13:15):
Hello, Welcome back to the Australians Money Puzzle podcast. I'm
James Kirby and I'm talking to Shane Oliver, chief economist
of AMP, specifically in this first section of the show
about crypto, and of course Shane works for AMPS, the
chief e columnists there and they were the first financial
institution super fund in Australia to make an investment in crypto.
(13:38):
It's interesting, Shane, self managed super funds way ahead of
you in that respect. There's a billion according to the ATO,
there's a billion dollars in SMSF funds in crypto. So
in that respect it should be no surprise that a
major fund would sooner or later go into crypto. Now,
I just want to bring in now some of the
(13:59):
issues that came up in the first show, and I'm
going to just read the question which is from Scott,
but it also reflects observations by Vince and Henry and
Dean and Stephen and many others who came in and Basically,
they wanted to take what Jackie Clark said, some of
her skepticism, if you like, about crypto, and they tackled
(14:20):
it and said that she was the wrong person to
talk about crypto. That I totally disagree with that she
is the right person. She is a classic example of
someone who is skeptical and doesn't want the organizations or
the institution she represents to go in there. That's why
I have Shane on today. His organization has gone in there.
So there was a couple of observations there that some
(14:41):
of them are on technicus as I say, which I
don't think we need even go into, because there is
still an element I think Shane of belief that if
you don't believe it, you don't need to know that. Honestly,
you don't need to know the technicals. But why should
you go deep into understanding its complexities if you don't
believe it in the first place.
Speaker 2 (14:59):
Wait, you don't need to. You can take the approach
of just investing broadly. I'm not an investor in individual things.
You had a question in there which you haven't asked.
Do I have it personally? No, I don't have it personally.
Speaker 3 (15:11):
It was on my list story.
Speaker 2 (15:13):
But then I don't have BHP or CBA or any
other thing. Personally, I'm a macro guy. I invest in
the big picture, and so therefore I have my money
and Super and it's in AMP funds, and might have
some money outside Super and his index funds. But obviously,
when you buy a property, it's a specific investment, like
the family home, the one I'm sitting in right now.
But that doesn't prove that I have a negative or
(15:33):
positive view on it or not supportive of the decision
by AMP. The fact that I haven't bought it individually,
but because I haven't bought other things individually either. But
I think, just on that SEMSF observation, we had members
over the last few years have been asking should you buy,
and Crypto always get a little bit worried because by
the time they ask, it's usually when crypto has gone
up in value double to or forty percent. No one
(15:54):
of course was asking when it collapsed eighty percent through
one of those downturns. But so it doesn't surprise me
that SMSF investors are already in there because we had
members who are interested, and that indicated to us that
we should be looking at it, which we did. But
I've lost track of your original question here because you've
raised a few points there, But hopefully that's covered it.
Speaker 3 (16:14):
I did really a few points. Look.
Speaker 1 (16:15):
One of the things, obviously was a lot of the
crypto people when someone is skeptical about it, the crypto enthusiast.
If you don't see you don't understand this, you don't
understand this, you don't understand how.
Speaker 3 (16:27):
It all works.
Speaker 1 (16:28):
I don't understand CSL. CSL is one of the top
ten companies in Australia. I don't understand what they do.
Speaker 2 (16:33):
We've had that one from Central Banks as well. They
don't understand it. On the one hand, I think if
you don't understand it and you don't feel comfortable, then
you shouldn't invest as an individual. That's true, but then
it is also true you don't have to fully understand
everything to invest in it. And in my super funds
or my investments outside super well, I haven't bought specific stocks.
There are some companies in there which I won't understand
(16:54):
their model and what they're doing and why, but I
don't need to. And that's the key here. If you've
got all your money invested in bitcoin, then I think
you should understand it. But if you've got a well
diversified portfolio, you just see it part of the investment universe.
You just got some exposure in there, just like you've
got some exposure of other things, then you probably don't
need to have the same degree of understanding. And it
is a little bit technical when you get into it.
(17:16):
I've in the interests of finding out what it was
several years ago. I've read a lot about bitcoin, but
I don't consider myself an expert. And if you put
me up head to head with some of the people
who might be listening to this, who spend a lot
of time, then they would run rings around me, And
that's fair enough. I don't disagree with that.
Speaker 1 (17:32):
It's very interesting you see that. So there was always
that traditional response, if you don't understand it, don't buy it.
But really there's a point of which that stops. CSL
would not be where it is today if everyone, yeah,
it didn't buy it because it didn't understand it.
Speaker 2 (17:44):
That's right. Sometimes you do have to have a bit
of faith in these things. And I think the broader
issue is if you don't understand it, you're fair enough.
Maybe you look into it. That's one way to go
about it. The other approach is you don't understand it,
but you think there might be something in it, then
have it as part of a broad diversified portfolio. Don't
just put all your eggs into it.
Speaker 1 (18:03):
Very interesting and of course now people can obviously everyone
listening news now that you don't have to go off
to some bitcoin exchange and go through all the red
tape if you like to get involved. You can just
buy an ETF and the ets are regulated.
Speaker 2 (18:17):
That's incredibly important because it was one of the reasons
I think a lot of people were skeptical because they'd
heard it about all the problems on the exchanges, money
being hacked and all that sort of stuff, and the
exchanges running into trouble, that this is issue a few
years ago. I think that was when it was part
of the wild West, and that's now starting to change,
which is good. And by the way, we haven't actually
bought bitcoin, the physical bitcoin. You don't have physical bitcoin.
(18:39):
We bought futures.
Speaker 3 (18:40):
Was that because that was the only way to do it, chin.
Speaker 2 (18:42):
Or No, It's just the easiest way. As a super fund.
It was just an easy way for us to do it.
I mean oftentimes we'll buy we don't buy physical shares,
will often buy futures on them or maybe the ETF.
So it's just another way of getting exposure. It's an
easy way to get in and out. It's quite liquid.
That's just start and parcels the way we do things.
Those features are obviously tied to bitcoin, so it's effectively
Bitcoin exposures.
Speaker 1 (19:03):
So yes, course, yes, yeah, yeah, but it's just it's
just a particular structure, all right.
Speaker 3 (19:08):
Andrew said.
Speaker 1 (19:08):
The reason that Jackie Clark and allegedly the Governor of
the Reserve Bank and many others who should know better
say they don't understand bitcoin is that they want to
think of it as an investment that should have an
intrinsic value. It's not, and it doesn't. Bitcoin itself may
not survive, but now we know how it works, the
(19:29):
genie won't go back into the bottle. Bitcoin or whatever succeeds.
It will be better understood when its price goes up
at the same time as intrinsically valued investments go down.
This is a core sticking point with many expert investors,
this lack of intrinsic value. You got over that, how
did you get over that at a MP.
Speaker 2 (19:48):
As a long time investor and someone in the investment community,
it does worry me a little bit. It's it's an
easy to value a property or a share or whatever
you because there's that that that rent that is delayed
physical rents, literally rents or dividends. But there's lots of
investments that we have that don't have that. Warren Buffett, Berkshire,
(20:09):
Hathaway doesn't pay dividends. So there's lots of examples of
investments out there that don't have paid dividends. You can say, well,
don't have intrinsic value, so how can you possibly value them?
So there are ways around it. Yes, it is a
sticking point, and I can understand why people have expressed
that concern, and I've written it down as a reason
for skepticism in my own notes on this. But I
(20:30):
think there are rays around it, and you just need
to accept that there are other investments in your portfolio
where they're not paying dividends.
Speaker 1 (20:37):
Yeah, Okay, we'll take a short break and we'll be
back in a moment. Now, San this is a great
time to have you on the show because it's the
last episode of the financial year, and we have talked
on and off over many years. I wonder has there
(20:59):
been a year it looks like super funds are coming
in with a return of around nine percent. Inflation in
our society, in our economy has dropped nicely, the share
market is looking like ten percent plus.
Speaker 3 (21:12):
Can you recall a year Maybe you just disagree with this.
Speaker 1 (21:14):
Entire contention, but can you recall a year where the
results were so unconvincing? They're so good that they're unconvincing
because I cannot see how they are.
Speaker 2 (21:23):
So I think there's been lots of views like that.
To be honest with you, the old line that chares
climb a wall of worry, that there's so many things
to worry about, and yet the share market's done well,
we can't believe it. I think twenty seven en was
an example of that that Trump talk over and shares
did pretty well. Twenty twenty was another fantastic one. We
(21:43):
had a pandemic and the share market at one point
there fell thirty percent I think thirty five percent. Global
Australian shares were down by and yet we had okay.
It turned out okay in the end, once investors look
through it. And I think the same thing's happening this
time around. Put Trump aside, he's a lot of the
source of uncertain whether you like him or not, is irrelevance.
So I might say he's tariffs. Ultimately he might be
(22:04):
good for the US. I might say what he's done
in the Middle East might be good for the global
economy in the worlds. But the dust still has to
settle on that. But by the same token, in a
big picture sense, we've come into an environment where inflation
was a problem. In twenty twenty two, we had inflation
in Australia over eight percent, in the US a nine
ten in Europe. We've got it down so eventually all
(22:25):
those countries have inflation somewhere around two to three percent,
including in Australia, and so we've gone from a world
of high inflation fears of that interest rates would even
have to go higher. Now we've gone to a world
with lower inflation. And we've done that at environment where
we've managed to avoid a technical recession, if you like.
We've come close, and there's risk there. But even if
(22:46):
you look at Australia unemployment what four one four point
two percent still very low. Similar story in the US,
so that's why the share markets are celebrating. The environment
hasn't been so bad. And then, of course you overlay
Trump on that he caused constant nation with his tariffs
in April, but then he's backed off a little bit.
Some people say Taco Trump always chickens out. Maybe not.
(23:07):
I think that issue will come up again.
Speaker 1 (23:08):
What about the earnings. Maybe re earnings are better than
we think of. Inflation's falling.
Speaker 2 (23:13):
Well, maybe that is the case. They've certainly surprised in
the US coming to the last reporting season. For the
March quarter, the expectation was four percent earnings growth turned
out to be about ten or eleven percent earnings growth,
and so US companies just kept surprising. On the upsides,
Australian earnings have been negative, but there is an expectation
of some improvements. We are setting the Reserve Bank cut
(23:33):
interest rates in Australia. We've now got inflation at the
lower end of comparable countries. Remember all that nonsense last
year people were building out we've got an inflation problem
relative to everybody else. We haven't. When you look at
it on a graph, it's about the same, or we're
at the low end which is good. So I think
share markets are seeing that. And when the share market
(23:54):
thinks of lower interest rates, it thinks that's more people
putting their money in shares because they're getting less on
bank deposits. The valuations on shares start to improve, and
so I can sort of understand why markets have gone up,
even though it's surprised. The strength of it has surprised me.
And I wouldn't have thought we would be doing this
well on Liberation Day, if that's what you want to
(24:14):
call it, Donald Trump's Liberation Dates.
Speaker 3 (24:17):
Yes, I know it was awfully hard, but here we go.
I have to ask you, how do you see the
year ahead? Financially?
Speaker 2 (24:22):
Year ahead, I'm at risk of getting surprised again because
I reckon returns will slow down. I would have thought
they would have slowed down a year ago. I didn't
think they'd be this good. I thought they would be okay,
But I was thinking, I think a year ago, if
you look at my report in July, I was looking
for something more six or seven percent now of super funds,
and now you're going to get what is probably around
nine I think chat West the other day financial year
(24:44):
to date eight point five percent up to May. It
looks like Journe's turned out to be a reasonable month.
Touch Wood we still got a few days ago, but
I reckon returns will slow down to around six seven percent.
The valuations are a little bit of a concern. The
p's in the US where we around about twenty five
times for IT earnings. In and Australia we were about
nineteen or twenty times for earnings. That's above longer term averages.
(25:05):
Bond yields are still relatively high, so there's not a
great equity risk premium in there if you compare the
earnings yield implied by those pes to the bond yields.
But by the same token, I think if we avoid
a recession, and I probably I think we probably will,
then it turns out okay. So I think somewhere along
the way we'll get another bet of worries about tariffs.
(25:26):
Historically in the last twenty years, July is a good
month for shares, but we know that August and September
are often a bit rough seasonally, and I suspect that
that could be tariffs. The tariffs come back into the headlines,
you could get more vulnerability or more volatility coming out
of the Middle East, but you've got to be careful
about that one. The lesson from the events of the
(25:47):
last few days that unless there's a disruption to oil supplies,
then eventually markets will just move on to something else.
And that's what's happened here. Even though I think the
risks were very high, but it all depended on what
Iran does. Run back down, but they probably concluded let's
live divide another day.
Speaker 3 (26:04):
Very content response.
Speaker 2 (26:06):
Yeah, it was a contained response, and they self interest
lay a role there. I think regime survivability was the key,
so that could come back as an issue and cause volatility,
But I think the broader picture is one of constrained
growth globally. We hear from the IMF and Well Bank
it's going to be somewhere like two to three percent growth,
but it's not recession. And if it's not recession, then
(26:27):
earnings can continue to grow or at least grow. Interest
rates probably continue to come down. We're going to see
I think four cuts in Australia, the next one in
July and then another three after that August, November, and February.
That will help our market put money in the hands
of people with a mortgage and those money will go
and spend that. And I know a lot of people hear
(26:48):
that and say, well, I'm a self fund of retire
read relying on money from bank interest. But the amount
of money in household dead is double, roughly double the
value of people with bank deposits. The value of money
in bank deposits, so aims to those with the mortgage
is actually swamps by two to one the losses.
Speaker 3 (27:04):
So it's twice I see what you mean, Yeah, twice
to speak.
Speaker 2 (27:07):
And our family twenty five to forty five with a
couple of kids is far more sensitive to changes their
income than a fifty five sixty five year old person.
I'm going to char I'm sixty, but I don't change
my spending that much given my income. But mortgage is
under control. That sort of stuff. My mother goes on
the cruises and that doesn't change much with interest rates,
But it does for younger.
Speaker 1 (27:29):
Families because they're so funly chuned.
Speaker 2 (27:31):
So there's so famly tuned. You get a slight rise
at interest rates, they got less money to spend. That's
bad for the economy. Cut interest rates, they suddenly get
relief and they could spend a little bit more they
won't go bond because spend a lot. But I think
all that points to an okay environment. But as I
said at the start, the valuations are a little bit stretched.
That's going to constrain things a little bit. That's why
I say six seven percent return from super funds, not
(27:53):
another year of nine or ten or something.
Speaker 3 (27:55):
Okay, interesting logic.
Speaker 1 (27:56):
So the temple, the fundamental GDP if you like economic temples, healthy,
but the evaluation, because valuations are stretched, that puts a limit.
Speaker 2 (28:06):
Yeah, they are a little bit of stretch, but there's
the problem with valuations. They're useful guides, but they're not
very good to time markets with. And a lot of
people have been saying for the last few years now
the chairs is too expensive and blah blah blah, and
they keep going higher. That's because your earnings come in
and they turn out okay, particularly in the US. But
valuation is very hard to time markets. So it's a
(28:28):
risk factor there. At least the market's vulnerable should something
go wrong. But as we saw in the Middle East,
that turned out not to be the event, and it
remains to be seen what happens with tariffs. But I
reckon this is the big one with Trump. If you
think about the next financially, it takes us up to
June next year. He's going to want to get his
party doing well in the midterms. He doesn't want to
see a massive defeat for the Republicans because it will
(28:50):
look bad on him. So he's probably going to as
time goes by through the next financial year, which takes
him in the run up to the November midterms in
the US, he's probably going to want to do things
a more market friendly. And that's why I think he's
loaded his tariffs up front and sort of get some
of the bad news out of the way early, and
then if he gets more friendly as we come up
to the midterms.
Speaker 1 (29:09):
Okay, we will see, we will see terrific. All right, Look,
thank you very much. I have one last thing I
wanted to just in terms of questions of correspondence, and
we had a lot, and thank you everyone for the corresponding.
Speaker 3 (29:20):
It was very thoughtful.
Speaker 1 (29:20):
I thought on Crypto and as I say, I thought
it deserved a second twist, and having had if you
like the bare case on, I wanted to put the
bookcase on. I think that would be very useful. Of Course,
I have crypto people on in the future for them
all in the past. But I wanted this debate if
you like to come from outside crypto per se in
conventional investment markets, which is I think the best way
(29:44):
to debate it. All right, terrific. One last thing I
wanted to just read for you. It's from Pete and
he says, I have my money puzzle bingo card in
front of me and it has only three things. Number One,
taxing upon realized gains and super funds is staft. Number Two,
all the brokers say the Commonwealth Bank is overpriceding yet
(30:04):
it hasn't fallen. Number Three the three million super tax
and super is not indexed.
Speaker 3 (30:09):
Can you believe that? Do I win? Says Pete. Pete,
You're you're in the winner's enclosure. I think that's for sure.
Very keen alert.
Speaker 1 (30:18):
Listening there from Pete. Thank you Pete, and thank you
everyone for listening. Keep the emails Rolling the money Puzzle
at the Australian dot com dot u. Shane Oliver, chief
economist at AMP, put you onto the gun there today
in two different ways. Thank you very much, really good,
very clear, articulate response of course to all the questions,
which is what I would expect from you. Thanks a lot,
we'll have you on again.
Speaker 2 (30:39):
Thanks Jans, take care,
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