Rates, Profits, Margins & CBA

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[Music]

Well, hello, I'm Stephen Mayne, Contributor at Eureka Report, Founder of Crikey, Shareholder Advocate and City of Manningham Councillor.

And I'm James Thompson, Chanticleer Columnist at The Australian Financial Review.

And we are the Money Café.

The Money Café.

Now, James, to quote Jason Clare when Albo got Covid last year…

Yeah.

…well, the boss has got the bug, so you've got me.

Well…

That's what's happened. Alan's got the bug, Covid.

Yeah, I'm not sure if this is his, maybe his second time round the block, but as they say, there's a bit of it around, so hopefully he's resting up and he's back on deck soonest.

Well, I think it's going to be a bumper Saturday Weekend Review, because he's lying low, but he's going to step up for the weekend wrap, so we can all look forward to that.

Okay. Very good.

Now we probably should get into it. So today, I think is the busiest day, this is the Thursday of the reporting season, we've got 20 results listed on the CommSec website. But we probably should start with CBA yesterday, given they've got the 874,000 retail shareholders who are hanging on every word. What did you make of it?

I thought it was a pretty good result, actually. You know, this is a very, very well-run bank, record profit. Yes, the shares were sold off and there were some concerns about Net Interest Margins, which is a sort of key guide to profitability inside a bank. But I think that you need to see that in the context of it's very strong buying of the banks since the start of the year. I think CommBank was up 8 per cent year to date coming into yesterday's result. And that's a lot of people getting in before they announce a big fat dividend and a share buyback, and some of those people have exited stage left yesterday.

Yes.

To be expected. But the bit I found most interesting, Stephen, this bank, despite its size, easily the biggest in Australia, despite the maturity of the market, they managed to add a record 700,000 transaction accounts in the December half. Now that's reasonable going for a ship of this size.

Yes. Well, they've got now what, 40 per cent of Australian payment flows are now coming through the CBA. So just the size of it is phenomenal. I mean, you're right, it was priced to perfection. It peaked at $111 on February 3, but still losing $12 billion of market value in one day after declaring a profit of $5.2 billion. I don't think I can recall that happening before. But…

Yeah.

Look, the float price was $5.40. The stock’s now at $103 shareholders have had a pretty good run, haven't they?

Stephen, I wonder if Matt Comyn, the Chief Executive, would be that worried about having his shares fall on the day, I wonder.

Oh, he needs that politically.

Yeah, exactly.

Because I mean, if he'd come out and announced a record profit and the shares had gone up to a record high, he would've got smashed about political intervention, gouging, you know, your Net Interest Margin’s up 23 basis points to 210, that share price tumble was politically very convenient.

Yeah. Yeah, but I think CBA salted the mine a little bit because they came out and they were very, very specific. Oh, look at our margins, they're not, you know, okay, they peaked in October, but they've been under pressure since then. Comyn’s quite astute at managing the sort of political zeitgeist and I think he was keen to both balance talking up the bank and talking down the result yesterday. He did a pretty good job.

Yeah, no, I agree, and a couple of stats that jumped out at me. I had a listen to the 83-minute conference call yesterday, where 12 all male analysts peppered him with questions. Liquids, so cash liquids are at $193 billion at December 31. That is just an incredibly strong position now. So, they can throw in, you know, a massive dividend plus an extra billion on the buyback. Don't forget, they've still got this $51 billion Reserve Bank loan at 0.1 per cent, which is repayable in 16 months. I also thought it was amazing, they said that the CBA alone has got $95 billion of fixed loans coming off onto variable this year, calendar this year. And the other line that jumped out at me was, he mentioned that there's a lot more scams going around, and that the ACCC had said there'd been $2 billion in scams in 2021, and his quote was, and it's more than doubled each year since then.

Yeah.

So, he's talking $5 billion a year in scams that people are being hit in Australia. That was pretty scary too, I thought.

Yeah, yeah, and I think all the banks are doing things about this. CBA yesterday talked about a bit of technology that essentially uses voice recognition to tell whether a call is genuine or not. So they have got some new stuff out in the market, so clearly the banks are responding to a big problem. If you get an email from your bank, check it four times before you do anything.

Absolutely right. Now in terms of the results season more broadly, I mean, I guess we could talk about today. You’re interviewing five CEOs today, this is Thursday, with the 20 different results coming out.

Yeah, that’s right.

Which, which five are you doing?

Telstra, AMP, Magellan, ASX, and we'll see if I can get to talk to NAB's boss. They've got a quarterly coming out today, so pretty…

Okay, then you're not even going to get Goodman Group or Newcrest or Origin or Sonic Healthcare, I mean, it's just ridiculous.

You know, you’ve got to say, Stephen, for a journalist who's trying to give all these companies, you know, you mentioned all the ones I'm not going to get to today. But we'd love to get across these companies. My plea to the investor relations teams of Australia, you've got all month, spread your results out. You don't all need to go on the Wednesday and Thursday of the big two weeks. Give us a hand!

Well, this is the bizarre thing. There's only 13 on the four Fridays of the season.

Yeah.

Yeah, but there's 20 today and there's 20 next Thursday. So why don’t they like Fridays and what's this obsession with Thursdays?

I’m not sure. Mondays are light, Tuesdays are relatively light. I mean, guys, if you want investors to be able to digest your results with any detail, spread them out. Give us a hand!

Yeah, and it's funny, the AGMs is the same where very few have them on Monday. And that's mainly because you've got to wrangle your proxies over the weekend, because proxy voting finishes 48 hours beforehand, but very few have them on Friday, either. I don't understand this, Friday is the busiest day of the week except for ASX AGMs and company reports. Maybe it's the old thing about no one reads the Saturday papers or something, but that's the thing I don't understand, is why don't things happen on Friday in corporate Australia?

I'm not sure, not sure, I'm with you on this.

Yeah. Now I wanted to mention a couple of gambling issues. The Star Entertainment, I see they're getting absolutely pressured by, you know, the investment banks to do a $500 million capital raising because you know, they're stock price has tanked from more than $6 to $1.47. I actually reckon they should hold the line and not do a capital raising because the New South Wales government is outrageously proposing to introduce a massive new tax. They've got massive new fines coming. I reckon they should plead poor and say we're breaching our covenants to minimise the slugging they're going to cop from both Queensland and New South Wales state governments.

Yes. Well, that is essentially what they've done this week, Stephen, they've basically sort of tried to tell the New South Wales government, hey, if you bring in this new higher gambling duty, then we're going to have to slash our workforce, and change the business. But I think the matter is too pressing now, Stephen, and the size of the falls this week, you know, they've lost 30 per cent of their market cap in a week. That just puts too much strain on the balance sheet. I take your point about crying poor, but you've got to reassure your investors, the owners that you can make it through.

Yeah, well, I mean, normally I would agree with that, but the short sellers are piling on as well. So, you know, I just think this time they should just hold the line and dare their banks to actually put them under, because I don't think the banks will and the governments will ultimately save them, because they're basically in joint venture with the two state governments.

Yeah.

I reckon they should do what Seven West did. Seven West Media has now gone 11 halves in a row without paying a dividend, and they've reduced their debt down from $600 million to $186 million. Just say, “No dividends. We're toughing it out, all cash flow goes to reducing debt and we're not going to do an emergency raising because whenever you do an emergency raising, it's retail shareholders who get shafted because they don't take up their rights, they get diluted and there’s 70,000 retail shareholders in Star Entertainment who will get dudded if this discounted emergency raising gets done.

Well, Stephen, why didn't they raise, when they came out and issued a profit warning basically on Monday, why didn't they raise then? By allowing this speculation to build, there's no incentive for anyone to buy shares in Star at the moment, because you know you’re going to get them cheaper in the raising. I don't understand why they didn’t halt and raise immediately.

Because the New South Wales government has announced an outrageous $364 million tax grab over three years, which is a ridiculous, ridiculous impost. And why should they raise all this money to pay a ridiculous new tax, which is still up in the air with the election and with Labor is not locked into it. There's great political uncertainty, so don't create a pile of money that then governments can just come in and grab off you.

Yeah, but…

That’s what I reckon is their tactic.

Well, it's backfired badly because they've hurt…

In the short term, yes.

Yeah. They've hurt their retail shareholders. They're long-suffering retail shareholders have been badly hurt this week.

Well, indeed, indeed. Now we should get onto Glenn Stevens.

Phil Lowe, you mean?

Sorry, Phil Lowe. Yes. Yes. Not the Macquarie Chair. Yeah, Phil Lowe, what did you… I mean, what'd you make of his 90 minutes or thereabouts yesterday, in front of the polies?

Oh, look, I mean, I thought he made lots of good points. You know, you just keep coming back. This is a hugely smart guy, but he's not very street smart. I mean, I just don't understand why he - I don't mind him going to give a briefing at Barrenjoey or talk to the guys at Barrenjoey. You want the RBA Governor to be out and about, that's fine. But mix that with, you know, plenty of public communications, and make it clear that that's what you're doing. You know, don't… I just think he's got a bit of a tin ear at the moment, Phil. He's under pressure and, and you don't need to be doing this sort of thing. I mean, if you want to go and chat to some people, go and organise some public forums and chat to the public and find out how people in mortgage belts are going, you know?

Well, he did say yesterday that he went and visited the CEO of ACOSS and talk to financial counsellors in Surry Hills, so he was a man of the people, in one of his comments yesterday. But it's a bit of a pile on though, isn't it?

Oh totally, yeah.

So, and, you know, yeah, good story for The Fin Review to find out about the Barrenjoey thing. But look, it's open season. I was disappointed the way he was trying to hide behind the board. I mean, it was almost 10 times yesterday when he was stressing that, you know, it wasn't just me, it was a board decision. But what that doesn't cover is that he would've made a recommendation. He's the Executive Chairman. He's the guru.

Yeah.

He's got a bunch of Non-Executive Directors sitting there. Whatever he recommended to the board, the board would've just said, “Yes, boss. You know, you guys are the gurus”. To then sit back and say, oh, it wasn't my decision, it was the board's decision. And unless he's going to come out and say, I recommended we freeze and the board rolled me and said, raise, then hiding behind the board is rubbish.

Yeah. I think you're right. There's no chance he's there in October, is there, Stephen?

No. No. And I was glad he changed his language yesterday where previously, he's been saying he might be up for another go, now he's just promising to serve his full term, and that's only September. So unlike Macfarlane and Glenn Stevens, his two predecessors, he's not going to get the seven years plus three to have a nice round decade in charge and we've got the very difficult decision of who succeeds him, which is not clear cut as John Kehoe wrote in an excellent piece in The Fin Review this week. It's not easy to find the next person to take on this hot seat.

No, and I thought, John… I agree, it was a really good piece, and I thought he made a great point there that who do you want in this job? Do you want someone who's a trained economist, years of looking at this sort of stuff, lots of experience in central banking, or do you want some sort of politician who is liable to move to the whims of the moment? I mean, Nick McKim from the Greens calling for Lowe to be summarily sacked and Jim Chalmers to…

Take charge!

…to take charge and cancel the rate rise. I mean, honestly, that…

Yeah. It's ridiculous, I think they should, I mean, we've got the ‘renovators delight’, as Alan calls it. We've got the review coming in at the end of March. I actually would prefer a board full of economist experts rather than your than your typical public company, you know, one accountant, one lawyer. Yeah, I think a panel of experts would make more sense. But look it’s…

But when you look at the Fed, Stephen, they're not infallible either!

No, no, that's right. Well, the Fed… yeah, correct. So I do like the way the Fed is trying to ease off quantitative easing, so doing the opposite to the tune of a trillion dollars this financial year, which is far more aggressive than the winding back that the Reserve Bank is doing. Because I mean, Matt Comyn did say yesterday that money supply is still expanding in Australia, where it's contracting in the US.

Yeah, yeah. No, it was a good point.

Now, I wanted to, just back to the reporting season, I noticed in your little writeup of the Seven Group result yesterday, you described Ryan Stokes as quote, “One of Australia's best Chief Executives”. Now I don’t know if you ran that past the Nine CEO, Mike Sneesby, your boss, talking about the opposition like that. But I do agree he's probably the best child of a billionaire CEO since the Lowy boys retired from Westfield. Peter Wilson at Reece, he's also a son of a billionaire, he’s done a great job as well. But yeah, what do you think, you know, if we’re going to talk about our favourite CEOs of all time, why do you think Ryan Stokes is so good?

Well, I just think he's very thoughtful about how they drive those businesses. And I think it's interesting the way he's latched on to some really big trends like resources, infrastructure, energy and built this sort of conglomerate around that. Running a conglomerate like that is fraught with danger. Often you have, you know, two or three of the engines misfiring where you want them firing all at the same time. Stokes seems to have an ability to get, you know, two or three going really strongly at one time. I don't know. I think he's an impressive guy. Very level headed, sort of quite humble, as you said…

Yeah.

Not all billionaire sons are like that. I think he's done a good job.

Yeah. Look, I agree, I mean, he is quite calm. I remember one time Kerry Stokes, he's the only bloke who's ever called security on me at an AGM and to sort of physically take the microphone off me, it was getting pretty willing and afterwards, Ryan came up very polite, calm, just smoothing over the situation.

Yeah.

So he's very well adjusted.

Yes.

He's got an excellent sidekick there in Richard Richards at Seven Group.

Yeah, yeah.

But look, and our favourite CEOs, the other day you wrote a strong piece about Scott Charlton and exiting Transurban and Paul Perreault…

Yes.

…exiting CSL, and they've both done it more than a decade.

Yeah.

I would have both of them in my top 10 all-time CEOs, I reckon. Tell us why you like them both?

Charlton, I think has done a good job of, you know, protecting a big monopoly. And, you know, yes, he's got lots of… his starting position’s really good, you know, lots of private capital, low rates, as government’s desperate to recycle assets to fund their budgets. But, but I think he's taken maximum advantage out of that, the way he's used unsolicited proposals to build out the concession lives, taken the company, Transurban, global or to a certain extent.

Yeah.

And managed to bring in these big partners like the super funds in Australia and Canada. It's a pretty good package, I reckon, he's set up. And Perreault…

Yeah, I agree.

…Perreault, I just love the way the guy thinks long term. You know, you sort of go to these analyst briefings and you listen in every six months and you sort of get the sense, you get the sense with Shemara Wikramanayake at Macquarie too. Yeah, they're a bit interested, but they're really trying to think 5 or 10 years in advance, and I think that's what makes these big companies get bigger is when you've got to CEO who can do the execution of the near term well, but their real passion is that long term.

Yeah. Well, I mean, Shemara, I think the secret to Macquarie, has been having three long term in-house CEOs in a row, Alan Moss, Nicholas Moore, and then Shemara, and Scott Charlton, you know, Transurban has only ever had three CEOs as well.

Yes.

You know, so I think there's something, Wesfarmers, you know, lots of long-term CEOs, Paul O'Malley is another favourite of mine. He was at BlueScope for, you know, a decade or thereabouts. But overall, the all-time number one for mine, still has to be Brian McNamee for his 23 years as CEO at CSL leading into the Perreault period when he left in 2013, he'd grown it to $28 billion, and then I also love Catherine Livingstone. I think she's done the best job of being an excellent CEO and an excellent Chair.

Yep.

So she did a great job for six years at Cochlear, and then she was a tremendous stabilising Telstra Chair and then a stabilising CBA Chair.

Yeah, and I think Matt Comyn, you know, he's right up there at the moment. If he's not at the top of the poll, he's very close. I guess we'll have to see the end of his tenure to see where he sits in terms of all-timers. But he’s…

I think he's the best big four bank CEO I've seen.

Yeah.

And I love the fact that he's been there a long time. I mean, he was sort of the bloke who built CommSec, which is a magnificent franchise in its own right.

Yeah, no, good point.

And then the other one is Qantas, Alan Joyce. I mean, look at Scott Charlton. It's pretty easy sitting back and clipping the ticket on tolls.

Yes.

It's a lot harder, you know, running a global airline like Qantas or even something as complex as CSL. So yeah, I think Joyce, just for the toughness of it, and again, with Qantas, lots of long-serving CEOs.

Yeah, yeah.

I mean, James Strong, Geoff Dixon and Alan Joyce, you know, well over 20 years combined.

Yeah, something to be said for that institutional knowledge, isn't there?

Now, we should get onto some questions, so let's start off with David, who is basically, if I can summarise it, we've got a few war and peace questions this session, James, so we might end up doing some summarising. But David's basically saying that supply constraints have been contained and everything's to blame from MMT, from all the money printing and do we agree that all this global inflation is basically down to excessive crazy money printing by central banks?

I don't think it's overly helped, the money printing, but when you look back at it, it's hard to know what else they could have done in that pandemic moment. I mean, yes, Australia went over the top probably with the size and scale and the lack of rigour around JobKeeper. But the need for those programs was pretty big, so, you know, I'm not sure what the alternative is. I do find it interesting with MMT, Stephen, and look, my understanding of it wasn't amazing, but I was led to understand that when inflation rises, that's the time you jack taxes up to take the edge off inflation. But…

Yeah, fiscal policy, yes.

…we haven't, I'm not hearing a lot of MMTers call for that at the moment. Or maybe…

No, no, that's true.

…or maybe we're just not talking, the media is not talking to them in the right way. I don't know.

Yeah, I mean, I still think it was, you know, like the US Federal Reserve, the balance sheet got to 9 trillion thanks to all that money printing since the GFC. And the fact that we basically printed $281 billion between November 2020 and February, 2022, printing money and buying bonds, and then we lent the banks $188 billion, you know, at basically zero. I think we did flood the system with too much cash.

Yeah.

And I do think that contributed to the housing bubble in particular, when combined with crazy low interest rates, so I agree. I think that the Coalition just went too hard for too long on that, and the Reserve Bank, on that whole stimulus money printing, JobKeeper piece.

Yeah. Yeah. All right. Well, Mitchell asks, “Why did the RBA not raise or at least put a hold on the cash rate when it was at 2 per cent? I feel as though anything below 2 per cent is asking for trouble. Housing was still booming and people were talking about a bubble back then. So why the need to keep dropping? Is the Japan economy the way of the future”?

Well, I agree, we probably went too low for too long, and then we had the infamous promise of staying at record lows ‘til 2024. So, yeah, I think there's probably a few people who are arguing with that now, is that it just got ridiculous. And that housing bubble and that surge in household borrowing, people entering the market, you know, albeit a lot of them at fixed rates was just too much stimulus. And yes, you know, but everyone seemed to make that mistake because inflation is hitting all over the world. It's not just an Australian phenomenon.

Well, but the flipside of that, Stephen, is we've got short memories, don't we? Because it's like two years ago when all of Phil Lowe's speeches were about how do we get inflation up? How do we get wages up? There's been no wage growth for a decade. So, I think we've got short memories, you know, rates were that low because there was no inflation and at various times we needed to stimulate the economy. I mean I take Mitchell's point, but I think there's a bit of recency bias and hindsight coming into play here.

Yeah. I thought Rob Scott at Wesfarmers was interesting yesterday, where he is saying that the foreign inputs on inflation are largely falling away, you know, container prices and oil and stuff. And he sees the threats as being domestic industrial relations changes, pushing up labour costs, energy costs and transport costs.

Yeah, I mean, so those things are going to be much stickier than we think. So that's…

And we need to clean up our act on that in terms of Australia being an extremely expensive place to live globally.

Yeah.

And you know, some federal policies are making it worse.

Yeah, yeah. You want to do Tony’s…

Tony, “The big news is all about inflation, but what is the real figure”? And then we get a nice long explanation from Tony where he’s basically complaining that his insurance premium has going up 25 per cent on his very rarely driven Corolla from $434 to $545. And he's getting stuck into AAMI, which is owned by Suncorp, about this, and basically challenging whether the real inflation rate is actually 7.8 per cent when this little anecdote is he's copped to 25 per cent increase in his insurance premium.

Yeah.

So can we trust 7.8 per cent, James? Is it the real figure?

Well, I think we can trust it. I'm not too concerned about that. I think Tony's got a very specific problem here, actually we've all got this, and it is a good point. I know, you know, it's dangerous to pick one thing and say, oh, you know, inflation's much worse. Insurance is a really interesting area. Insurance costs aren't just rising because of inflation. You know, they're rising because we're having a lot more natural disasters and the reinsurance companies, those are the companies that provide insurers with insurance, they're increasingly saying, we're not so keen on Australia anymore, and they're jacking up their prices.

So, we're getting a bit of a double whammy in insurance. We're getting the inflation from supply chain, labour, car parts, and then we’re getting the inflation from higher reinsurance costs. But it is an interesting one because insurance is one of those non-discretionary items. Most people will not give up their insurance. So, it’s one that we are going to feel for a while to come, I reckon.

And if Tony's only paying $545 for his insurance for his car, he's doing quite well. And I'd just like to, to make a comment about AMA, which is Australia's biggest listed panel beater. You know, you got to feel sorry for them. Their shares have gone from a $1.40 in 2019 to down, 21 cents. So, the panel beaters of Australia have got to get fed, they've got to get paid. Well, I was out there paying $2,800 to AMA the other day when I stacked one of our cars. So just think about the battlers, you know, in the car repair industry who have to deal with those big insurers and AMA has been a disaster for shareholders and they're Australia's biggest panel beater, so they're certainly not ripping anybody off.

You're a kind soul, Stephen.

Now John wants an update on what's happening with the Origin Energy takeover with Brookfield and EIG, and of course we've got the Origin Energy earnings out later today.

Yeah, I don't expect much of an update. The negotiations are still going on. There's a lot of talk that Brookfield and EIG might look to reduce the price from $9 a share. But the delay here is when we don't have a lot of details on how this gas price cap is going to work, and we probably won't get them ‘til March. So until we have some more clarity there, it's hard for EIG, which is buying the APLNG asset inside Origin, it's hard for them to come to a price. So be patient, I think the deal's not dead but it's dragging on and time is the enemy of mergers and acquisitions.

It is very, very rare to have a named price and then to get a reduced figure. I mean, maybe we had it with Link but it's very rare. I wouldn't be surprised if this bid fails if Brookfield and EIG get spooked by the $12 gigajoule price plus the coming Gas Code and walk away. And frankly, I'm a bit troubled by the idea of Brookfield, which is just ridiculously large. I mean, they bought AusNet, they're just too big. Them snapping up the domestic retail operations of Origin and then the Gladstone LNG thing going offshore, foreign-owned, I don’t know.

Yeah.

I'm just not a fan of that. And an $18.4 billion enterprise value, it's a big public company and I frankly would like to see it remain listed on the boards here, not disappearing into foreign hands.

Well, I think the problem with that, Stephen, is if AGL's going to get anywhere near making the transition it needs to reduce emissions, it's not going to make it as a public company because it just won't be able to find the cash to do that.

Yeah.

So it's a delicate balance.

Yeah, and I'd like to see these gentailers get unbundled. I'm really uncomfortable with people being major powers, you know, wholesale producers and then are massive players in the poles, wires, gas distribution and marketing piece. I just think it's just that integration is too much market power and I think it's distorting some of the market decisions. So frankly, I would rather see a breakup rather than, you know, and I guess this is partially a breakup because you've got two bidders who are carving it up. But then you've got the foreign ownership piece, which I'm also not too much of a fan of.

All right.

Now, Lachlan is flabbergasted by all these articles in the paper projecting that Melbourne's population is going to double by 2050 and he's basically saying this is going to be unsustainable and the climate and pressure on infrastructure and you know, is it true? Do we really think that our cities are going to be this big in 2050? Now, Lachlan, I just want to say, that Melbourne doubling by 2050, that's only 3 per cent a year, mate. So it's just the power of compounding. I mean, you know, 3 per cent population growth, 100,000, that's not that big and that's just doing that for 27, 30 years, you know, that's, that's almost doubling in 27 years. So it sounds like a big number, but you know, and the other thing I'd say is that think about our population is so low relative to the world. If you look at Ireland, Ireland's got 5.1 million people living in 84,000 square kilometres. Whereas Tasmania's got 541,000 people living in 68,000 square kilometres. So Ireland is a quarter bigger than Tasmania and it’s got nine times the population, so people who say the world's least densely populated country can't handle a bit of growth. I don't know, I just find it surprising.

Fair enough.

Here ends the rant.

Yes. Well, I think look, I, I'm not sure we'll quite get to double by 2050 Lachlan, but it's not impossible to imagine. I do wonder if we're going to be able to attract that level of immigration. I think right around the world, every country is going to be hunting for these younger skilled workers. I think Australia's going to have to work a bit harder than we might think to attract them, given those climate issues and cost of living and some of that stuff.

I disagree, it's the great lifestyle. I mean, we're one of the four biggest cities in the world, Melbourne, for foreign students along with the Paris, London, and New York. The great story of Australia is we're basically selling migration, selling citizenship. And there will always be enormous demand to come here with the lifestyle, the Medicare, the great social safety net. I don't think there's any issue with Australia being able to grow as fast as we like from a population point of view. Yes, the challenge for great skills in particular areas, yes, I agree we are competitive, but just that general, you know, do you want to live in Australia? I mean, it's just a great sell, I reckon.

Yeah. I'm going to ask one from Jane here. She'd like to hear our thoughts on the current housing crisis. “Wondered how much of this is to blame on the rise of houses and apartments becoming short-term rentals?” I would say very little, Jane. There is a problem in some areas. Hobart's a good example. David Walsh, who built the MONA Gallery down there has admitted that he's created a homeless problem because there's so many places down there used for Airbnbs and short-term rentals. But I think that's quite a localised problem. I think generally this is a supply issue and our tax settings encourage people to buy investment properties, which reduces the number of properties available for people to find houses and apartments. Anything there, Stephen?

Well, I'm against regulating this space because it's a great little earner for people in the gig economy. They can get more than just a regular rental. It adds to hotel supply. I mean, so when the Australian Open is on, we can get an extra, you know, 30-40,000 people into Melbourne with all that Airbnb capacity that comes into play. So I'm against you know, councils regulating or limiting. I know Mornington Peninsula now charges $311 a year if you want to register for a short stay place down there. But overall, I don't think it's contributed that much and I'm against clamping down on it too heavily.

Yeah.

Now Lucas is demanding, wants to know, who is still spending?

Oh, I think this comes back to something I said last week Stephen, I suggested that it was still sort of younger families spending and Lucas' view is it's the Baby Boomers who have owned their homes for more than 10 years. They don't have a lot of debt. They're retired or semi-retired, so they've got plenty of time to spend. They can all dine out. Many of them have got investment properties. I guess my point is, I take Lucas' point, but those people don't have as much to spend on as sort of what I'd call young to middle-aged families, they're not, Baby Boomers don't have big grocery bills because there's only a couple of people living at their house. They're empty nesters. So the bulk of the spending is done by the age groups between, you know, 25 to 55.

Yeah. The Boomers are travelling more and eating out more after Covid and they've got the cash to do it, I think is his point as well.

Yeah. But my, my point is that everyone's still spending, including, and particularly people who are in that 25 to 45 age group, because you need to keep spending to keep up with life.

Yeah, well that's true and also, in terms of why we haven't – effectively sort of saying why haven't we gone recession? Why aren't the increases in the interest rates biting harder and part of that is because only half of it's actually fed through. But don't forget the governments are still spending ridiculous amounts. I mean, everyone's still in deficit, effectively fiscal stimulus is everywhere and high commodity prices means that the farming sector is booming. So the farmers have got truckloads of cash to spend and the miners, it's a mining boom. So we've got the best terms of trade in the world at the moment and the, that's pretty hard to slow the economy down when you've got that sort of setting.

Yeah. Lucas does make the point that a couple of years out of the target band is not the end of the world. I think that's right, but only to a point. I mean, this is what Phil Lowe and Jerome Powell in the US are concerned about. A couple of years where inflation runs hot, you start to get people expecting a wage increase to match inflation every year. You start to get businesses that feel that putting up their prices every year without fail, is par for the course, and then inflation is very hard to get on top of. So a couple of years outside the target band is okay as long as inflation's coming down, but this is what – the unanchoring of inflation expectations is what Phil Lowe is very worried about, and rightfully so, I reckon.

Yeah. Look, I agree, now look you've got five CEOs to interview James, on this busiest day of the reporting season, so we better wrap it up there. But thanks for listening to today's episode of the Money Café. Alan, post-Covid, will be back next week with Senior Chanticleer Columnist, James Thomson, I think you're the only one now, aren’t you, James?

No, Tony's still around ‘til the end of March, so…

That's right and then you've got someone else coming in as your deputy, so you've gone from junior to senior. That's right. So send in your questions for Senior and Alan to themoneycafe@eurekareport.com au. Until next week, I'm Stephen Mayne, Contributor at Eureka, blah, blah, blah. And…

I'm James Thomson, Chanticleer Columnist at The Financial Review.

Talk to you soon, thanks everyone.

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Got a question for next week? Please send it to themoneycafe@eurekareport.com.au.