A listener, production, market. This is Motley Full Money. Welcome to Motley Full Money, the podcast that didn't spend $4.9 billion buying a bank this week. Well, I didn't anyway.
Andrew Page from strawman.com, did you buy a bank this week? I don't invest in industries that are about to be disrupted. You know that. So no.
You know what I love? There is never ever a potential break in this podcast. There might be lots of tangents, but the general throughlines as the cool kids say, they are eternal. And I'm very pleased that you did that.
I'll always find a way. Always find a way. By the way, I did get a question asking you to rent on property this week, which we might cover on Sunday. And I say, man, just for something different.
But I say, the question, man, you really hate me, don't you? And you said, well, property in Bitcoin, what else can I ask you about? So there was that. There was that.
How did you week? Busy week. Early season. Earning season.
Just a bunch of other stuff going on with me as well at the moment. So yeah, it's sort of like trying to keep the head above water. But good. We got a link you reopened to strawman.com last week.
If I could talk to that. We did. Yes, me and the door I sent over. We did.
We got a bunch, really. So it's really exciting. And welcome aboard if you're a new member. Great to share.
That's a new straw people. Is that the collective noun for a member? That's what we tend to use. Yeah.
Andrew, I am curious. I'm just going to be one of your. I'm not a fan. Why not strawman?
Why not straw person? What have you got against the women in our business? What is that about? I think I've said this before on the pod.
It was back when this was just an idea and an act. And I thought strawman was cool because I wanted this place where people could post ideas, but also challenge them. The idea of being the best way to improve an investment idea is to challenge it rah rah. And I thought strawman is going to cause a bit techy.
You know what is that? You know what I mean? And anyway, I liked it. And then I've since always regretted it because it's not quite the logical fallacy definition.
Right, right. And it's very not obviously something to do with investing and all that kind of stuff. But then you know, once it's sort of in the dyes cast, it has been cast. I don't like Google.
People stupid name it's like, oh no, that's a good name. It's a good name. It's cool. That was my argument in the day.
It's like Uber. Uber makes sense. Yahoo. Are you getting me?
We're next to the ratio mark. Thank you very much. Exactly. Exactly.
So yeah, that's the origin story. Well, yeah, yeah, I saw people who have joined at strawman most recently. I'll show you all look after the matter. I'll get massive value from the membership.
You got it. Or is it from your online? Have you solved that really yet? No, no, either or either or either.
I like it. See, that's the sort of, you know, you're stuck in the main yard. You're leaning that sort of over and you take matter like it. There are too many vowels in it though.
We've been through iterations of this. You either have no capital letters or no vowels. You know, SDI, WMS, the cool thing about five years ago. Not sure what the name you convention will be, but I'm not sure how to respond to that one.
A lot of the cool sites these days, it's the domain suffix that's done. I-O or .xyz or .xyz or .x. .com is, you know, it's a bit pass-away now. So there's a lot of options there.
Google, I don't know, Google. Alphabet, Pericom, they're official corporate domains. I do see that X, Y, Z from memory, I think. Oh, you might be right.
I'm not sure about that. But yes, there's all those dots. Something, my Australian, I'm Australian, I'm Australian, mutual bank, it's Australian, mutual.bank, I think. So it's plenty of that sort of stuff.
Can we see? Is there a dot straw man domain in our future? So very early quick tension. And I'm going to screw this up completely.
But it is a fascinating story about sort of domain name standardization. You're old enough to remember. I know you are because I'm the same age. Yeah, thank you.
Back at the turn of the century, one of the real sort of gold rushes was for domain names. People would go on and it was, I didn't think it was going down. I was, whatever. I'm drawing a blank.
But people, ordering people, were running on buying Scott.com. And you could sell it to someone else. I was really wanting. I had this speaking of straw man.com.
I paid a thousand bucks for that. Yeah, yeah. And because there was the way that the protocol works is you can only have, you know, it's got to be a, there can only be one apple.com, right? You can't lead to multiple addresses and the rest of it.
And everyone wanted.com. In fact, the US is the only country that has.com because it was not a problem. Everywhere else had like, you know, New Zealand's got NZ, where .au, that, you know, but anyway, there has been changes to that where that now you can have different, by having a different dot whatever at the end of it, you significantly broaden the possibility. So I haven't, I haven't done the analysis on it, but I would suggest that a lot of people buying domain names while there are some crazy stories out there of people making a fortune of them.
For most part, it's been a terrible investment. Yeah, it's incredible. What's the meaning of my body, by the perspective of Scottie? If you got it right, if you really liked out, you didn't ask me, I can't understand what's back in my brain somewhere.
Right. Me, me, me, all the way to the basis, basically, I'm just going to stop. It's had the right demands, all the right people, the right times, I made a lot of money. Wow.
So before, let's back on track, before I do, though, for all the talk about straw man, I worked for something called the Motley Fool. So, you know, I'm in a very small glass house throwing a very large rock for that company names. Let's be very honest, I had to explain what that is. Even recently, like this is, the business is 30 years old in the US, we're 13 years old here and still explaining what Motley Fool is and where it came from.
So there's always- I love what I was there. It was always, you'd often get the Motley crew. Like things like, which is much better referencing a lot of ways. But, yeah, very- Shout out by the way to Fazie Ibrahim, the now- MBC Geno who used to work on Skyby's who actually introduced me a Scot for the Motley crew of Live on Satsby.
Oh, brilliant. See what I mean? It's always a very easy slip to make it. Very, very simple.
Hey, I've got a lot of people watching going, wow, the bed is not aged well. Hey, B. Nice. Don't think I don't know why you say we're at the same age.
People look both the up-haters like, wow, one of those really, really well. It's going to have a low-actof-follower, easy-act-follower. You've done the comparison job for like, what about the same age? How about that?
I just got a very good two-pay guy, that's all. I did get some great fun to it, I guess, today, about my luck, fallically. Oh, really? Playing the man and not the ball.
Oh, it was funny. Yeah, just right. I made some points. I got a wig.
It's not quite the same. Why is that? You said I found all the photos made back in pickers. I was like, yeah, I'm not sure why.
Just playing on, because he just, you know. Not quite the zinger, though. It really was. It was very, very funny.
It was like the full thing, right? We were saying, oh, yeah, yeah, yeah. I'll do it. I bet you're not the 1,000 of the first person who used that word.
Let's start with the macro, wages. We're out this week. For the year to December, wages were up 4.2% average, ordinary time, wages up 4.2% inflation. No one will ever remember this one, 4.1%.
That extra is 0.1%. The first time in three years, real wages, that is the money you get less inflation than you're getting in slug with, the first time in three years, that wages have grown faster than inflation. Something of a, let's say, if I'm a key point, I think, to a right, an inflation point or a crossover point, doesn't mean it doesn't happen forever. It doesn't keep happening necessarily.
but after three years. Kind of nice to be putting a couple of cents more than we're paying out. Yeah, I mean, you know, I mean, I'm gonna take the glass half-imp operation. You really are.
You know I am, so I'm gonna do it. No one. And look, it's good. So the line's on the chart, I'm moving in the right direction.
But this is a, the training 12 month period. When you look sort of, I think a reasonable starting point is probably pre-pandemic before the world just went crashing. Yeah, right, exactly. The before-to-do.
And so it's a question of context, it's a question of perspective. And so two things can be true at the same time. In the sense that over the last year, we kept up and exceeded inflation, so what I'm saying is with the charts moving in the right direction, the line's moving in the right direction, it's great, but we wanna see, if we want to get back to the same purchase, how the amount of hours I had to work to get a big Mac, for example, to get back to where it was four years ago, we need to see those, we need to see that wages growth because stay above inflation for a while. And again, it's, my other point, not to be, not just make it a negative point at all, just to make the point is that these are, within that you've got the investment banker who got a 200k raise.
Correct, correct. And you've got, you know, the Ricky who's gotten a pay cut for example. You've got someone who has a very different personal CPI basket, you know, which the average doesn't capture. So it's all a very messy and necessarily messy thing.
Yeah, but I just make the point because often when you talk about this, people always personalize it, which is natural, we all know it. So what are you talking about? I've gone backwards. I'm paying 20% more for insurance.
Oh yeah, exactly. All these idiots in the media saying that we don't need to worry because, you know, or on the other hand, actually I've never had a bet. I don't know what people are going to do. Right, exactly.
Yeah, yeah. Yeah, exactly. Yeah, so yeah, what do you think? What do you make of it?
So the other thing, oh, well, this is, I've said so many times, I've got to put a couple of customers on radio and I've done it. It's a really weird time to be giving commentary on this sort of stuff because good is bad and bad. It's good, right? It goes really strong.
Oh man, that means you're going to put, right now it's going down. Well, it comes in too fast then it means the economy's, it's all that stuff where you're kind of, you know, in a normal cycle, in all parts of the cycle, because we haven't done it for 30 years, we haven't had a proper economic cycle with a recession for 30 years, a proper anyway, excluded the COVID one. You can't lose, it's a really weird scenario. So it's speaking of the glass half-lint empty, let me do both.
Great, the wages, average wages are increasing faster. So that's great, the flip side of course is that while, whatever any cost item, energy, fuel, food, wages is higher than the inflation rate, then it becomes something that drags inflation higher over time. And I'm not a wage price spiral kind of guy necessarily, but there is a really, the syntax that the real facts are, if wages are higher than inflation, they are going to get a drag inflation upwards. And more so in areas where we have personal services, think about the headdresser, the physiotherapist, the nurse, the whatever, when the major input is the wage and the wage is growing faster than the average price, the business owner is going to be more inclined to put prices up than not or things being equal.
And so there's just a, there's a reality there, I think we need to probably be mindful of. Now the missing link is productivity, of course, because how we increase living standards over time is we get to buy more stuff. Now if the stuff goes up as fast as the wage goes up, we don't get to buy more stuff, we just have this rising tide where I get paid double, everything costs double, so I don't really win. Unless I get paid double, the stuff doesn't go up because I'm more productive.
I can use more widgets per hour or I can add more value than the increase in my wage. That is, that has been the story of the 19th and 21st century, it's the 21st century so far, mostly, productivity has been the answer. That is the only way you can increase living standards outside of inflate a bit of population growth. That's literally how these things improve faster than the cost of providing them, is when you produce more with the same or more with less or whatever combination of that you like.
So I guess my, my so what out of all this is probably, unless we want this to be a cycle, I don't want to wait price spiral or whatever, there's a lot of pejorative in that, but the simple reality is, like with the RBA across the board on prices, if prices keep going up, then cost keep going up, so price it go up, so price it go up, that's kind of the way these cycles work. And returning it to some sort of normality means doing it in such a way that the cost of producing the item, whatever it is, goes up less quickly, so we can keep prices from going up. And that's the only wrinkle in the wages data. Now look, people say, I've got to wait drives about time, I've got one, my thing is going backwards, those things are all absolutely true.
The problem is from this point forward, unless you want to keep getting worse, we have to solve that productivity nut. In some form, is it business's job, kinder, is it government's job, kinder, is it just a side doing its thing, kinder? Is it going to have any way, because technology tends to march on, probably, but that is still the serious conversation outside the usual screaming and shouting of interest. That's the key question that now we kind of, hopefully cross fingers, you know, go for a bit, hopefully we've cracked the inflation nut for good, at least for now, I've never for good.
This is so carried away. Then the next thing's got to be right, how do we make sure people can earn more money, and that does kind of the productivity question. You touched on some really interesting things that I'd love to expand on it. Of course.
Because it is, again, it's a very generalized kind of number. It's the point, I love to try and sort of think things up through first principles. It just helps me sort of, I think, get a better understanding of things. And I think one of the, I think he's I've had in recent years, is that technology is deflationary.
All times and everywhere and always, he's always true. I would compute that with 128 meg of RAM for $3,000 that year. Yep. The example I love is just like, we're on an island, I'm fishing with a spear.
You invent a fishing rod, someone invents a net. Before we know it, we've got a trawler, and we're hauling in 300 tons of tuna. And we're doing it with a few people on a boat. It creates more supply for the same level of import.
So this is just, for me, it was always a strange realization, because then you go, well, wait a second, prices have always gone up. And we've never had a faster pace of technological. The last 100 years, I mean, we take it for granted, because we're sort of living in the moment. But when you sort of step back and look at human civilization, there's a very long flat line, and then like a jet of bang.
Yeah. Industrial revolution and things have just been accelerating ever since. And not just prices, right? We're talking about productivity, output technology, the pace of human, the increasing living standards for the 20th century was, I don't know these numbers, mate, but I would suspect something like the equivalent of 10 previous centuries.
Like it's extraordinary. I can buy a t-shirt for $2 after it's been made, shipped across the ocean, put it in a warehouse, driven to a shop displayed by someone, like this supply chains that need to make that happen. And what's even the bigger mind blow is that that has happened in an inflationary environment. In other words, if you had a perfectly non-inflationary, I'm not going with you.
I'm not going with you. I'm not going with you. I'm not going with you. I'm not going with you.
I'm not going with you. I'm not going with you. I'm not going with you. I'm not going with you.
You know, the price of the t-shirt would actually be 10 cents. Yes, 10 cents. So where I'm going with this is that that's true for products. So we've just got the incredible machines that can make things these days.
It's definitely true for anything in the digital realm. So we don't think of the value that I get out of Google, for example. Well, Netflix, right? That should cost us zero.
Yep. So the ability to make a piece of content, distribute it endless number of times. Yep. What you cannot dematerialize and what you have yet to see any material technological enhancements to is services.
Or if I'm a barista or if I work in a restaurant or I'm cutting hair, I'm a plumber. Yeah, I can have a slightly better range than the rest of it. But I can't, I'm not going to get the 10X boost that other technologies are going to give me. And so when you do have, so when we've had this inflation impulse as the experts like to call it, we all had these narratives around it.
And I feel as though the truth probably lied in a bit of an overlap of all of those. We had this big, like 7% plus we got to in Australia. Actually, we did almost eight and it was, it was huge. Yep.
Why was that? Massive supply chain disruptions. But it's couldn't get around. There was less supply prices went up.
But in the, in the, in the, in the, in the, in the, in the, in the. I wore some government spending for all that stuff, right? All of that stuff, right? Yeah.
That happened. And that's, that's what gave us a big push under the, under the surface though. We're still seeing this other form of services inflation, right? So we've solved this supply chain inflation at the moment and prices have come down.
Yeah. But where it's proving more. It's like, it's like, I think it's. No problem.
Oh, sorry. Excellent clarification. So, so what you've got now is you have a situation where the underlying service oriented inflation is big because when that, when prices were all high, I demanded a high up salary. It's got a lot of us were able to sort of get that.
Yeah. And then our prices go up. Now our price is going up. Is someone else's costs going?
Correct. Which is the spiral. Which is, which is the spiral. And in Australia, I believe, correct me on this if I'm wrong, but our economy is 70% services based.
I'm just sure that I would, I believe it's going to be something like that. Around two thirds. If you want a bull pocket. And so this is my point.
So people can tell we won inflation. I said, well, no, we won that part of inflation. The other part of inflation, I think is actually here and going to be stickier. And, and I think while we have seen some success, again, there's all lagged out with people managing to negotiate again in aggregate higher, higher wages.
And that's now tipped above what the trailing inflation rate is. This is, this is all really good. But there are still people, I can guarantee you right now, there are plenty of people out there who would love a pay rise and have a pretty good argument to make for one. So, so there is a, there's an inertia to these things.
Which is why I come down on the side of, I think, while we are definitely past the peak, inflation is going to be stickier than, than we perhaps would like it to be. It'll be a while before anywhere in YouTube. So, I think that's my personal view. Even though we may continue to sort of train down a little bit.
But we'll see. I think stagflation, I was going to ask you this actually. I think that might be sort of a potential option for the global economy. Do you have any thoughts on that?
No, no, in the sense that no one knows what's going to come next. Of course. Yeah. I mean, look, the potential for it, I guess.
Yeah, yeah, absolutely. I think the next, well, let's go on to tell us if we can tell inflation for 4.1 down to 3. The yanks are already down at 3 ish. The, here's the other thing about stagflation, mate.
It's not all that unusual uncommon or even unreasonable. I know the transitory is the kind of word that people have a lot of reaction to. But, you know, we will have slow economic growth because the RBO slowing the economy is not a slowing economy to deal with inflation. And there will be a crossover point like waves and inflation where the economy is slowed or slowing because it's only due to inflation.
And at that point, inflation will probably still be too high and the economy will probably slowly growing. And some people will say, ha, stagflation. Now, stagflation is the only way it's stagnant and it's some sort of extended period. We should do a little go.
We should do a little go. But we should do a little go. It's very quickly. Doesn't a very anemic economic growth, if any, while there's persistent inflation.
Correct. That's worse than both worlds. Yeah. And so, there's a lot of economic activity and inflation stag.
One of the always portmanteurs like Tom Cat and Benifer and all those kind of great things that we got. The economy is their first people. That's all I'm saying. But yeah, so look, I don't know, I don't think it's the most likely outcome because inflation seems to become, yeah, pretty quickly.
We seem to have. Yeah. But my only thing is that's the product led. And I think you see that when you look at the data.
It's the services. Exactly. Totally, totally. It may be enough.
But you're right. I mean, this is the other thing, by the way, the RBI said, you know, people were saying at the beginning of this, why is the RBI raising rates, inflation is all imported and what can they possibly bring? We'd have to take the wrong thing. We could put a lot of the money in.
We'd have to put the money in. I mean, I'm trying to do that. I'm trying to do that. I'm trying to do that.
I'm trying to do it. I'm trying to do it. I'm trying to do that. I'm trying to do that.
I'm trying to do that. But I'm trying to stop becoming endemic in the Australian economy. That was always and ever the job that I was trying to do. Now, frankly, they moved too late.
They probably didn't move fast enough. And we have had it become endemic-ish in the Australian economy. That's exactly your point. There was no imported services inflation.
By definition, because the services are provided here. So I guess some people can move that labor around the world, but that's a theoretical reality. It's not actually going to happen. So the reality is that endemic nature of, you know, we paid more for stuff.
So people want to get a pay rise and charge more for stuff. And that's how you get endemic inflation. That's the spiral. Not just wages, but just prices are spiral, frankly.
That's what high-end, high-end inflation is. So that's what they've been trying to do. I would suspect stagflation is less likely because of the rate of decline of inflation at the moment. But by no means impossible because we could snag that at 4% for another 12 months.
In a 12 month time, we could be talking about, in a worst case scenario, a recession and a 4% inflation. That would be, you know, effectively stagflation at that point. We've already been talking about inflation for a long time on this slide. And we've got to put a capital recession for last 12 months.
So, you know, it's partly the terms that we choose to use. Frankly, the capital growth has been negative for a year and inflation has been over 5% for that period of time. Guess what? We went through a capital stagflation effectively.
Hopefully again, coming out of the other end of it, but it's also worked to be done. And I don't think people should, as I said previously, declare victory just yet because 2024's got a few curve balls for us, I would suggest. One final thing I just have to add. It does the more I've sort of meditated on it.
The more I'm sort of firm in the view is that, again, it's this natural human tendency to do something about it. And I think when you're dealing with dynamic, complex systems with all kinds of feedback loops and unpredictable blaks on behavior, it's, you know, what you're really saying is, like, let's take an isolated example. Again, first principle is thinking it's always easy. And for whatever reason, there is a shortage in, of t-shirts from China.
Maybe that shortage is because we're all just doing so incredibly well that we're going to come up and buying 10 shirts every day. And then the RBA says, okay, that's inflation, we need to sort of deal with that. We're going to make the cost of money higher, stop you guys doing that. In other words, you're causing the price to go up, which is technically true, right?
Or maybe it's a supply shop. Maybe for whatever reason there's something happening in China and we can't get as make it go up. But my point is actually neither of that is, I think, particularly helpful. If the RBA did nothing, let's take the null hypothesis as the scientists call it.
And we're all buying 10 t-shirts today. What does an efficient global free market do in that scenario? Now does the world have a shortage of cotton? Does the world have a shortage of mechanical looms and the factories that don't know?
And if there was, the best cure for high prices is high prices. Because if that was sustained for any length of time, China's just ramping up. India's going to get in on the action and everyone else is too. And we're going to start.
They're not hard to make. They're super, again, when you've got the t-shirt that you can see on Zoom right now, I'm wearing a really cheap rubbishy stretch out of all proportion, crap from overseas. But whatever demand I have for that will eventually be met by the market. So my argument is, it's like, I don't do anything.
Because by trying to solve that, what you're really doing is you're punishing the things that we can't have an effective and easy supply response, which is things like addresses, things like brickies, things like services, kind of thing. And that is why you sort of, you can hold the view that, OK, we're going to do something and it's imperfect and we're just going to do it. But the more blunt way of saying it is, there are higher prices in areas of the economy that we can't do anything about and will likely sort themselves out over time because that's what free markets do. But to try and be seen to be doing something, we're going to deliberately target people who have an over, or an over exposure, more of an exposure to services-based things where we're just going to make life harder for you.
It's not going to change the number of t-shirts that you're buying, by the way, because you can get already as many as you want right now. But it will stop you spending on other things, which is going to impact someone else's business, which is going to impact their seller, which is going to, again, it's sort of, we use nice work, but we are going to make you all suffer for a lot of things that aren't necessarily your fault and what we're doing won't necessarily fix either. The t-shirt problem is still the t-shirt problem, and there's the supply side response. Am I making any sense?
I think I don't necessarily agree. I think there's a role to chop off the tops and the bottoms, just make the pain less severe in both ends, to reduce the booms and fill in some of the busts, just to make that less. The next five years for the supplier response to finally do its job and a few times it was trying to put it out of work. In the meantime, I would say, yes, because it always must, you're absolutely right.
But putting people out of work anyway, that's what I'm saying, the implicit thing here is by making business harder, we are going to... I mean, Bullock said it, but I slipped the tongue, was it? And I certainly know they've said it at the fair side. We want unemployment to go up.
It was just, wait a second, so we want people to lose their jobs, we want people to lose their jobs because they're spending too much. Let's just kind of weigh all the BS here. That's precisely the mechanism that they're looking to go for. Which I just make the comment of, it's just sucky for situations where given the unintended consequence, given the bluntness of it, and I guess we're just winding our way back to the usual conclusion we have, which is it needs to be far...
If you want to do the thing that you're doing, which is a very noble thing, which is chop off the tops, get rid of the bottoms, it needs to be a far more targeted fiscal respect. I can give you a kind of deal with that one. I have a single question for you, which we'll try and ask you to do quickly on the move on. But I'm curious as to given that, given that the market sort of stuff out, when you look at Venezuela or Zimbabwe or frankly, why in Germany, there are reasons why some of that high inflation became a problem.
But the hyperinflation that feeds on itself, which we should have already resolved high prices and don't have it won't, whatever. Great question. Yeah, did you have a sort of Bitcoin? Yeah, but that idea, I think my concern is why did that happen there and what could have they done to avoid it?
Yes, I might perspective as the reverse of the same question, which is, if you're the other side of the question, I think it's a very, very, very, very, very, very, very important question. I think that the other side of the question is why did you have a sort of a question that you're thinking, I really like to make sure we don't end up there. Yeah, you should do something about that before, because you know, one thing gets to a certain point, it becomes the snowball, right? Yeah.
And yes, I mentioned that. It'll have the same response eventually, because eventually the whole thing breaks out again. That is the extremist version of it'll find its own level and you're not wrong about that. But if you're a central bank is saying, I'd kind of like to make sure we don't have a big Venezuela and I think that maybe some action might be useful just to make sure we don't.
I'm not wrong, but I do see that and kind of go, I can see why people might say, let's just be frustrated by that. Let's kind of dab it down before it gets to the point of unintended consequences or feedback loops and other things that can make it massively, you know, automatically worse before it gets better. Oh, such firm views on it. And the very good, in sympathy to you or keep it short, I'll try.
There's a great book of anyone's interested called Broken Money, Bily Nolden, which is a fairly recent one, which is a big history of monetary misadventure and what went wrong. So you mentioned why I'm, you know, Lebanon, Argentina, all these places. So the characteristics that they always have in common is just rampant and uncontrolled and very poor monetary policy. They printed a bunch of money.
I'll say it, they printed a bunch of money. Now, when I like, literally, there's a lot of money printing, you see those pictures from Y-Maje people with wheelbarrows. Literally money printing in some cases. You're just a bank note.
It just had zero to bank notes. The other more, I think a lot of people gloss over this, the more nuanced mechanism there is that when you lower the cost of capital as a central bank, you make it more easier for banks to lend out more money. So there's more, there's a fractional reserve creation of a monetary base. I believe that's the M2.
If you want to look at various monetary levels. But in all cases, in all cases, the monetary base was expanded massively. It wasn't that people were spending recklessly. It was because we had the same amount of stuff, but the shells and pebbles that we were using to sort of price and transact in it were just vastly, vastly increased.
And what makes it particularly pernicious and dangerous is that there's, you know, not to put to find a point on it, there's a lot of rampant corruption in these countries. You've got a lot of money flowing. If you're close to the spigot, you tend to have an unfair advantage over other people. And this isn't any government thing.
It's just like the closest to the spigot is the government. And it gets very large. It invests with good intention a lot of the time. It's sometimes just overt corruption.
But you have all this, not only all this overt money creation, but it is all this malinvestment. Because the head of some local province decides to build a 400-plus. That should do himself. It doesn't create anything for the economy.
And so that's how I'd answer your question. So I think the RBA in the framework that we operate in has got to do the best that it can. And yes, it needs to try and avoid that scenario. But the better way to avoid that scenario is by, we're too quick to solve problems.
Like the economy's hurting, quick RBA, fix it. And this is like a harsh trip that I know never goes down well. But the reality is that it's good to have a level of failure in the economy. We need that.
Because without that, we get more and more zombie companies, which leads to bigger and bigger and more recklessness and misalocation. And frankly, we all just get poorer at the end of the day. So in the modern era, we've transitioned more towards trying that we've solved the economic cycle. And we're going to do this in policymakers and people who have levers to pull should fix that for us.
And guess what? It just makes it kick the can down the road and we have an almighty calamity like ALR 2008 when it finally breaks. And we just sticky tape it back up and we fix it by again, printing all this money. Whereas a more reasonable background of small but containable and in fact overall healthy failure of business is a much better thing.
Either way, you've got misery, right? But do you want misery inflicted on the entire society or do you want a bit of targeted misery in areas where there was, it turned out to be reckless and reckless spending reckless spending. And it's a brutal viewpoint, but it's a brutal world. It's like, get us that way and put it.
And we should have a separate conversation about how we as society support that. I think we should have a lot of creating business and forgiving bankruptcy. We should be like the US, it's one thing they do incredibly well. And here we do much better than the US, we have much greater social security nets and the rest of it.
But when we're trying to solve the problem just to come full circle with these big central bank decrees, I just don't think it works that well. I'm going to leave it there with an anecdote from Chaimunga. I've been listening to the Paul Chalizomani book in a few minutes last week. He talks, he gives the example, so you know about fairness is a really interesting one mate.
He kind of says, there's a thing in the US Navy. He says, if the Navy gets it up for 24 hours straight and is all tired, hands over control to his subordinate, goes to bed and the ship runs around, the captain loses his commission. He didn't get caught in Marshall, but as a matter of what's his fault, the captain loses his commission. And is that fair?
Well, no, it's not fair to the Navy captain because he didn't do anything wrong and he was tired of the other girls in charge. But what it means is you've got skimming the game. You know as a captain, if the ship runs around a matter of what happens, you lose your job. And his point was actually about the captain itself being fair enough, you're doing the right or wrong thing.
It was the idea that sometimes a little bit of unfairness means all the rest of the ships won't run around because all the captain's know exactly what's on the line if they screw up. And he says, look, the captain was fine. This is your point about safety nets. He doesn't get caught, Marshall.
He still needs pension. He's going to get employment somewhere else. He's not going to be happy about it. He'll be totally fine.
And yes, it's totally unfair for him because it wasn't his fault. But what it means is overall at a fleet level, they're much less likely to have a ship run around. It's interesting. I'm not sure I completely agree with it nor I completely agree with you.
But I have a lot of sympathy for that view in the context of a little bit of unfairness is as societal. It's probably unfair for the person. As a societal level is a bit of outcome. Yes.
I can see where you draw that line. That's your point about targeted unfairness or targeted misery. There is some really mature conversation we need to have as a society. This is not going to go too far down the rabbit hole or too far in a tangent.
But that's why we let people drive in on the freeway. We could solve the road until tomorrow by spending the old cars at 30Ks now. We could do it tomorrow. So what is the...
we implicitly place a value on those lives. We are prepared to tolerate this number of lives per year because we want to... people will be able to trade 100Ks now on the freeway. Now economics is really the study of trade-offs in a lot of ways.
Absolutely. That's exactly what it is. Motley for more. Subscribe to the free newsletter at full.com.au forward slash listener.
It's a profit announcement from this week. And a CEO for two CEOs deciding to depart the scene. The big one was probably Woolworths. CEO Brad Duchy stepping down.
He famously was on four corners earlier in the week. He said I'd made a say that. We said again. Sorry about this on the record.
That made the socials as these things tend to. Wasn't it horrible by the way? He just spoke and wanted to change it. That became the talking point.
You're on the record. Yeah. I almost felt sorry for him to be honest. It's a little bit guttery for me anyway.
Subsequently, he then decides to resign or announce his resignation two days later. The Woolworths board says no. We've been looking for a placement since September last year. We can take them on their word to convince it.
But maybe just one of those things happens. We announced a $780 million loss. Thanks to some big write downs. Their normal lives, profit operating profit was up two and a half percent on a 4.4 percent increase in revenue.
At the same time, let's roll them together. We can kind of break them all apart again. NAB. So profit down 17 percent.
And a $200 million increase in provisions for bad and doubtful debts. In other words, those with mortgages or car loans or credit cards that won't end up paying that back based on weakening economic circumstances. We saw Jane Hurdleker, the CEO of Virgin, step aside. She was going to be, was going to be, the person in theory is going to take this business back onto the public markets when Bain Capital, the private equity mob decided to re-list it.
She will no longer be that person. A lot going on. That's probably my end-end buying some corporate banking business. So many, so many bits of corporate news and big corporate news this week.
Do you want to kick it off with the bullies mate? Do you have any particular thoughts? Just to finish the first one. Sorry for him.
At the same time, you're on $7 million a year and you run a very powerful company. I feel as though it's part of the job. I think we are right as shareholders or investors to demand that you know you be the kind of person that can answer questions. I'll agree with a lot of interviews with CEOs on instrumental right?
Every now and again we try to line something up and I say, I don't want to talk about this or I only want to talk about that. It irks me because I feel as though I'm not out to attack you. If I ask a question that you can come forward, I feel as though you're an adult and you can just say, well listen I prefer not to answer it because of this and this and this. If it's not an unreasonable question, it's not unreasonable to ask.
It was a bit of got your journalism. I get all of that. It wasn't really the biggest misstep he had other than deciding to walk out. If he just said that and moved on it would have been far less.
I don't know anything. I don't know anything to the individual. Yeah, exactly. But he made it.
And to be human is to be human as they say. But suck it up sweetheart. You're the CEO of a billion dollar company and you will get asked tough questions and that's just part of the job. I'll say that much.
With Woolies, I thought there's a lot to say here. It comes dovetails into the inflation thing. So try and cover the same ground again. But obviously it was all about this cost of living.
Everyone's angry. I think all of us know that we go to the supermarket. Our prices have gone up. And this is not something that we can talk about the RBA increasing prices.
Increasing interest rates. It's not going to consume less food. I might change the mix of my food. Yeah, you might buy this for something else.
But you're talking about food. I got to eat. So they saw a five and a half percent increase in... Here's the other thing I need to say.
So when you look at it overall, the group, we saw that EBIT, so this is the pre-tax pre-interest profit. It was up 3.3%. And that's a 4.4% lift in sales. So they margin actually shrunk.
But, you know what? It's again. Glass half empty. It's framed up.
They also own big W. They also own supermarkets in the NZ. Both of which had a pretty horror half. If you look at just Australian food, the supermarket segment.
Now, this accounts to 70% of their revenue. In this, we saw a near 1% lift in their gross margins. So this is the other thing you've got to do. There's a lot of teasing apart from the nuance, but you need it here.
So there's a fixed cost to run the business. This is going to be what it's going to be. The gross margin is just like, well, I buy the carrots from the farmer at a dollar and I sell them for $1.20. So I've got a $1.20 margin on that.
So why has your... Well, two things. Wholesale prices have gone up. Yes.
That's the first one. That's not, well, that's not, well, that's not, well, that's not, well, that's not. The amount that they sold to you, though, had a bigger margin. In fact, the gross margin increased by a percent.
Now, what is that gross? Well, let's go back to the EBIT margin. Overall, when you look at, I mentioned this on the pod before. So sorry to repeat myself.
Overall, when you look at Ozzy Super. Well, sorry. Back up, back up. Finish one point at the time entry.
The first point being is, yes, food prices went up. Yes, the big part of that is wholesale. Yes, Woolies added extra to it. If they had kept margin steady, your groceries wouldn't have been as expensive.
Now, I know you're going to say, and you're going to be right on this, you're going to say, yeah, but it's not like you're $200 worth of groceries. Whether you spent, they made $7 off that or $5 off that is not going to solve the inflation crisis. So that is a... Also, one more, I'm going to like just quickly what you do, just a couple of things that can come back to it.
Is gross margin is not the only additional cost that a supermarket will incur during the year. So it's got higher costs, it has to make that up with higher gross margins or fine other ways to... Excellent. No, no, no, no, I don't want to get away from that.
But they put the price up, right? So it's hard for them to say, well, you can almost say, this is a good thing. Ethics aside, right? What do I want?
I want a business with pricing power. Does money have pricing power? Oh my God, they have pricing power. Exhibit A, B.C.D.
and E is all in that thing. They did it because they can. And so I'm just making a point that you can't tell me that you coped it on the chin here, you passed it on, and then some, and then some. Now, your point, EBIT is, or profit, I'm paying more for staff.
There are other costs within the business, and that is very true. So let's look at that operating profit again. So the Australian food segment, that was a, that went from a margin of 5.8 to 6.1. So it went up as well.
Now, there was 0.24% I think it was when you take it from the second decimal place, it was the increase in the profit margins from the food business. Yeah, but is it egregious? Not necessarily, but you know, you did better than, in a very tough, supposedly environment, you did better. Right.
So let's just call a spade a spade. Is it material to overall and everything? Okay, that's a separate question. The other thing, and this is the point we've made before, was that when I looked at our picture, I found this really good report from 2022 from McKinsey.
Not that I'm a big fan of McKinsey. Certainly. But you know, for whatever it's worth, they had a report on average margins across US supermarkets. And the report was of how that's changed between 2018 and 2022.
Anyway, the EBIT margins for 2022 in the US, if you look at Costcos and Safeways and all the various brands that they have over there, is 4%. And I believe from memory, Europe's about the same. So you have a scenario here where, well, these are the separate conversation, but what is an appropriate margin? Do we have to decide that publicly?
Or is it more laissez-faire, whatever the company can get away with doing? But again, just statements of facts and then I'm sorry, but I'm hogging the market. I'm lying out the landscape here. But the statement of fact is not only have gross margins gone up, they're passed on that increases and then some.
Not only have they're operating profits in supermarkets, yes, they've been higher costs, but they've more than passed that on as well. And they're running at a high level of operating profit than their peers. 6%, 4%, doesn't sound like a lot, but it's a 50% increase. So why is it that Australia gets to charge that much extra?
The commentary that's out there is so mind bogglingly bizarre, but we've got more distance. Like, well, doesn't that make it more expensive? Make it cost higher, doesn't make it much easier. Shouldn't that make it less, if I'm in a high level, I'm in a high level.
If I'm in a highly concentrated dense environment where I have far less shipping and logistics costs than the rest of it, shouldn't that make it cheaper? That's an argument to make prices. So the answer for my money is, well, why? Because they can.
Why can they? Because they've got extraordinary scale and market power. Is that a bad thing? Yeah, probably at a point.
I don't know where that point is. Should the government do something about it? Yes, but not regulatory response. What they should do is foster competition.
And then I'll finish my final point being, it's a very natural response. I get people listening to this. We'll be going, yes, the government needs to do something. Let's play the thinking through.
Okay, we're going to do it. Now to operate a supermarket, you need to meet all of these regulatory conditions. And all of these regulatory conditions will be well conceived, at least intention, I should say. But what the practical bottom line is, is that to operate in the supermarket space, you now need a much bigger resourcing to manage all of that regulatory burden and compliance burden, which means, what have you just done?
You've just added to the incumbents barriers to entry. It is now hard. The tip of it, I hear, is the banks, right? There's so much regulation around banking and people go, yeah, of course that's appropriate.
Yeah, it is. But the perverse unintended consequence of that is that it's virtually impossible for anyone else to get in there and compete with the banks. So what it's, it's kind of a seven name for it. It's called regulatory capture.
And, and, and quietly, if, if Woolies was found at the, at the end of a hostile senate, who said, we're going to do all these stuff on you, secretly they'll be, they'll be clinking the champagne glasses. Because while it will have an immediate, always going to short term impacts, longer term, it just entrenches their incumbency. Okay, I'll show up. No, that is a great tool to force.
I'm going to throw a couple of thoughts, just random thoughts to add to what you've said. First thing I want to actually point out, this is not, well, I'm not, I'm a bit of a, a bit of a run on this one, but I'll get going. The, if you look at the, so you talked about the food business for Woolies. If you look at the performance by business, Woolies supermarkets, actual supermarket, you know, physical supermarkets, the usual things we know are supermarkets, sales were up by 3.2%.
Woolies Metro, so little, in the, in the place, food stores, little ones, lower footprint, probably higher rent per square meter, but also probably higher prices. So up 9.1%. The e-commerce business. Oh, yes.
Up by 21%. Now, I don't really know what the gross margins are for that, that e-commerce business. In part, they're actually including e-commerce sales from the stores. So you kind of can't separate them out because they're saying, well, you know, clicking on the click and click on the online ordering, we're tracking the sales going through the website, but they're fulfilling it.
So how do you, you can't ever really break that apart. But it's fascinating, because that is now close enough to 15% of the store originated Woolworths sales. And you start through those maths. Now, again, the 21% store originated sales up by 3%, so it's a good 7 times, obviously a bit, times as fast or faster than the supermarket physical supermarkets business.