#179 Christopher Joye: Trump’s Tariffs & How the Trade War will hit Australia

his family for a long time too. But mate, what are your portfolios covering off now? So originally we didn't enhance cash fund but you have a lot more things going on now.

We have twelve traders, nineteen analysts, and we really specialize in just pricing the correct or fair value interest rate for a bond to pay us Australian assets. Our global global, very global. Yeah, so two thirds of our trading. We trade about a billion a day last year we bought and sold close to one hundred and fifty billion. But our edge is we're highly quantitative, so we have eighty

different bond pricing models we use around the world. But really what we're trying to do is conceptually simple, what interest rate should CEBA pay us on a three year seeing bond, or A and Z pay us on a five year subordinated bond, or Australia pass on a ten year government bond? And we do that all around the world all day. And we're incredibly active, very systematic, very quantitative and just very rigorous in figuring out what the

fair value interest rate is. And what we really want to do mate is find a bond paying seven percent that only pay six and a half percent, and when that interest rate drops down to our fair value target, we get a little bit of price appreciation and then we rinse and repeat. Yeah capital gate, Yeah, get a capital gain exactly. And then today we do offer strategies that actually have very high yields as well. We use some gearing. So you know our floating at HIG Yield fund,

which is also available as an ATF. The ticker is a WYLDDX. It's paying about a seven and a half percent weighted average interestrate on its portfolio, and the portfolio is ostensibly very high grade. So the portfolio is seventy percent major bank senior ranking bonds and thirty percent major bank subordinated bonds. The average credit rating is very higher

A plus. It's daily liquid, it's floating rate. But we use about sixty five percent gearing to boost the interest rates to the bonds are paying about five percent and we're getting seven and a half percent because we're using that gearing to boost the interest round the portfolio. But cool by capital Investments we set up in twenty eleven with a lot of help from you and your nephew. Luke still works for me. We were just talking about the fact that, look, if you're listening, made you could

emulate your uncle's aesthetic appeal and dress sense. Luke's really struggles the way he presents himself.

the Miami office. We've got ten guys in London, five traders in London, five analysts in London, and no one really does what we do. Like we're very differentiated in terms of our approach. Typically in fixed income, it's just you hold too maturity, you buy a bond, you get the yield on the bond less the fees. You don't trade it around. And if you want more yield, you take more risk, you take more liquidity risk, or more default risk, or more interest rate risk, and we don't

do that. We focus on super liquid bonds that are very low volatilely that are floating rate, that really don't have any default risk, and we generate the total return through trading. So in the last twelve months, you know, our fleeing right how you'd found in a long shore credit fun would have returned nine to ten percent after fees, and they're currently paying it was around seven seven and a half percent.

decision is already going to be made. But if we look at if I look forward to May, the main meeting, which I think is around seventeenth y May, off the back of the April numbers, which would be the March quarter numbers, which are pretty important to come out. Where do you see, as where you guys seeing the official rate of interest rates in Australia. I'm not on talking about bomb marks, they're not talking about bbs. I'm talking about just the official rate which off the back of

which homeline rates get set. Where do you see official rates for the calendar year of twenty five And you could be till his subject to this subject, because of course we will be subjected to data, where's it going.

rate hikes. The inflation data was pretty brisk in twenty twenty four and actually got revised up. If they'd had that information the revisions, they almost certainly would have hiked once more in twenty twenty four. But when they had that opportunity to hike, they didn't see that revised data. But they didn't cut in twenty twenty four, and that was that. Our view was they're going to hike in twenty two for again again, or they're not going to cut.

And a lot of people the market, for example, the financial market and Mark was pricing in quite big rate cuts from the RBA last year, and we said that's that's all shit. That's not going to happen. You need the beginning of the year. Yeah, you're exactly right, like at the start of the year. And we look at the FED. The start of the year, the market was pricing in one hundred and seventy five bases points of rate cuts from the FED, and we said, that's beast,

it's not going to happen. They're going to cut that fraction of that, And the market was pricing the FED starting to cut in March, and then they had the RBA a bit later than that, and of course the RBA didn't cut at all, which was the right decision, and the FED only started cutting in September and they only cut by one hundred and now they're completely on the sidelines. But in December this year we started publishing in my run, a weekly column for the Financial Review.

I started saying the AFR that I thought they cut in February.

Why is that quarter so important?

to be comfortable that we can lower rates. And then in December we all wake up, and she turns around and says in her statement after the board meeting that basically they've adopted an easy bias and they're laying the groundwork we felt to cut in February, and there was only one new data print available between December and the February meeting, which was the generary release, which was the fourth quarter data, So she kind of had busted her

own decision making rule that she'd announced only a few weeks prior. So you take the fact that you've got this inconsistency and their messaging why are they so keen to set up the grounds for potential easing in February, and the fact that they knew and we knew that we were forecasting a point five trim mean print and at printed took point five for the fourth quarter, which

was implying that it was annualizing around two. But crucially, the trajetory of the data was heading even though the twelve month rate might have been above three, the trajedory of that data was heading towards target. And remember, they think that the normal or neutral interest rate in Australias around three and a half. There have been some recent reassessments of that where it might be closer to three.

But if they're at four point three five and they're you know, they think that through the cycle interest rate that is neither stimulitary for the economy or contracting is around three and a half, you can mount the case if you're them, and you want to cut, and near a bit dubbish and maybe you're a bit politically compromised that it would be pretty nice to kind of punch out an interest rate cut in February, knowing that an election would be held after then, and that cutting in

the middle of an election in April would be difficult. Right just now, which is now, that's a situation we sit in. So we did not think they should cut. So I was very clear. I wrote this repeatedly in the Financial Review, and I think everyone understands is we said, we don't think there's any case to cut, but we think but we think they will cut in February, So we forecast the February cut. Yeah, yeah, one hundred percent.

We're very very clear. I wrote it repeatedly. We don't think they should cut, but we think they will cut. And people were a bit confused because we've been very hawkish in twenty twenty four seving no cuts and no case for cutting. But I knew people would get confused, so we made it very very explicit that we thought they would cut in February, but we didn't agree with the logic, right because by her own logic, she needed two quarters of data and suddenly she's very comfortable with

one quarter of data. And the key point is the point five percent trim MI in print was statistically biased. So all the smart forecasters knew that it was going to print off for some statistical reasons, right, so it wasn't necessarily a high quality signal. And then they cut in February. So then this all bigs a question. The puzzle was, well, why did they cut? You know, if you know what we know, which was maybe it was

statistically biased. The cost of living subsidies that Jim Chalmers has given the community, and that the state governments have also replicated, they are sandbagging the inflation data. They're artificially suppressing the inflation data. They're doing that deliberately to try and get the RBA to cut, and lo and behold they've cut. But obviously when they're cost living subsces expired, the data pops back up. And you know, my simple

kind of calculus is Charmer's appointed Bill Michelle Bullock. So he single handedly selected her, and it was a controversial appointment in the sense that he was expected to appoint someone outside of the bank and he went for the inside. So he hand selected Michelle Book, he hands selected her deputy Houser, and he's appointed a lot of the board members. And now there's this new committee that will set interest rates that he's also selected.

stuff showing that. Like you know, mind standing is he put a lot of pressure on the board, and he has an appointee to the board, his Treasury secretary as well. So Steve Kennedy sits on the board.

Like you know, I think he should be doing everything possible if he honestly believes, and he probably does believe that rates should be lower. And our mate Stephen Cook Coulis has argued forever and to day rates should be lower. He obviously is very sympathetic to the labor cause.

print and that was the perfect excuse to cut. And as soon as they went to that easy bias, the market had it like seventy percent priced, and they know that if the market's got a priced then it's very hard for them not to cut because they can then say well, the whole world thinks we should. Yeah. No, but that's that was deliberate because what the RBA says, well, market expectations. You know, every bond trader in the planet thinks we should cut rates. It's obviously the right thing

to do. And so they cut rates. And you know, by the time they came to the meeting, I think it was like eighty percent priced, and they could have eviscerated the pricing. Takes thirty seconds for Bullet to stand up in jarring and say, oh, we did she has no problem and numerous occasions, and she did this after the February meeting saying she thought that market pricing was junk. So she could have set up that conversation prior in January.

At any point in time, they could have said, and this is another reason why I was very confident they were cutting cutting. They did nothing to dispel market pricing, and they often do.

one and done. And that market pricing, which was for a very I thought reasonable and cookiin I would I think be at one with this market was only pricing two and a half more cuts throughout the whole year of twenty twenty five. And she said, you know, market pricing was unrealistic, and she and her proxies at the RBA had went out on this campaign to completely dismiss

market pricing. I just think it's madness. So if you're going to cut once, presuming with a case like you want to move the cash rate meaningfully and materially, and twenty five basis points does not mean it's no material and does nothing to the inflation data. According to their own modeling less.

the AUSY inflation data. But just before we come back to that, I just want to square away this point on the single cut. The single cut is meaningful in this respect. And I wrote this repeatedly. I don't think I wrote it twice in the Financial Review in January.

It radically changes the atmospherics, the zeitgeist. And what's amazing and I expected this to happen, is if you look at the house priss data, dude, if you look at if you go to core Logic's website and you go to house price indices, if you go to the back what is called the back series, and there's a chart, it's a dynamic chart, and you can de select all cities, all select cities, and if you deselect every city about Sydney and you look at the chart, what you'll see

is house prices fell by about two percent soft but like house prices rose in Sydney about eighteen percent from January twenty three to September twenty four, massive boom right, But from September twenty four through to the RBA meeting in February they fell two percent, but more or less the week they met, they started rising again and they look like a straight line. They're rising quite quickly. Now house prices are increasing again and exactly the same thing

has happened with even greater force in Melbourne. So house prices in Melbourne only rose five to six percent, very different situation between jan twenty three and about March twenty four,

but they started falling earlier. I mean, Victoria is a bit of a failed state like Basket Kay's lots of problems, and so the housing market's been much weaker, and so house prices in Melbourne I think, Yeah, they started falling in March, and they fell all the way through to the RBM meeting in February, but almost perfectly synchronously with the RAM meeting. If you look at that chart, it looks like they're rising there, risen one percent already just

since February. So the housing market has reacted instantaneously. And that's why one cuts meaningful because it changes the narrative rather than people debating about hikes or rates remaining high for long. Suddenly we're talking about cuts and how many cuts is it? Two? Is three? So your question is how many this year? I think they'll try and chisel out two or three over the course of the year. What I can be looking for, and I think the

risk is they do more. Yeah, And I think the game changer for my view is the election of Donald Trump. So I had no strong view on who would win the US election. We didn't that's not our wheelhouse. We don't do political forecasting, so we just trade, you know, the data as it materializes. But once Trump was elected, we had very strong views. Those views are first in and this was a very contrary view. We told everyone who would listen. I've written a million times in the

AFAR he's dead freaking serious on tariffs. He's not negotiating, there's no art of the deal. Bullshit Trump and it's quite complicated. And I'll come back to why he's dead serious on the tariffs in a second. But there's big implications for Australia, mate, because what's going to happen is you're going to have these huge walls erected around the US economy, and the Chinese ain't going to be able to sell jackshit into the US economy. They're going to

block China from the US economy completely. So what are the Chinese? Our biggest supply of goods into Australia is China. And if China can't sel byd cars into the US, where do you think they're going to dump the cars and all the other goods Little Old Australia and the EU and other markets. But we're going to get a ton of cheap Chinese goods dumped into Australia. Are we going to do anything about it? You know, if they

are in turn eviscerating our manufacturing. Not that we produce cars anymore, but you know, if that's impacting our ability to compete against the Chinese, is Olbow done going to do anything about it? No chance. We've got no spine on this stuff, right, So we're going to have actually a lot of I think deflationary forces, cheap goods, cheap goods the result from the trade war. So it's counterintuitive because you think trade war price is going up inflationy,

it's very inflationing for the US. But if you look at the pedinis and the Institute modeling, and we've I've written on this six to twelve months ago. She's not. After the November election, I wrote on this the Pizza Institute modeling. When we tear apart the data as we've done, shows you get deflation. In Australia, price is actually four because the cheap goods get dumped on us. So what does that mean for the RBA. Well, you've got too thinks. China's can you say fucked?

And so that's not good, frustrating. So you don't have the Chinese economy, which is already struggling, that's going to be amplified and really exacerbated by Trump. He's going for the fucking jugular right. Trump is a killer and literally and figuratively because he doesn't mind running those special Forces operations taking out guys in yearmen or Solomoni, the Republican general, the Iranian who was sitting He was leaving at Bagdaddy Airport and Trump flew two hell fire missiles into his

convoy of cars and assass at him. He likes his little assassination programs, Old Trumpy. I'm not saying I agree on Disagram. I'm just saying he likes that stuff. You know, he's he likes it. You know he was sick. He gave an interview the other day and he goes, you don't understand I am a bad motherfucker. He didn't use the word motherfucker. He's like, I'm a bad Man's funny.

Another story about Trump. Apparently he was sitting with the Taliban leadership in person before they evacuated Afghanistan, and he looks the head of Taliban in the eye and he says, we're gonna leave Afghanistan. But if there's one hair on one head of one American soldier that's in any way adversely impacted. And he pulls out a photograph. He said, this is your home, this is where your wife and

children live. We're taking them all out and apparently they didn't did this squad, So that's a segue.

starting to happen. And so what that means is for the IMBA, they could cut in May quite comfortably. The inflation data could start surprising on the downside, particularly if they extend these costs of living subsces, which they seem to be doing. And yeah, you could get a decent number of RBO rate cuts, but two to three I think as a minimum makes sense for this year in total.

sort of around let's say four. Yeah, can you see a period like this is a bit weird to me, Like it said, a bit weird to me, But then wage growth is the same about three point two four point two around that territory. It seems to me that we've sort of got a restructure of where all our numbers are sitting. They're all sitting, They're all going to sit somewhere between three and a half and four and a half unemployment, wage growth, inflation, cash rate, blah blah blah.

I mean a cashree might get to do it up, but it's going to bounce around a little bit. I've never really seen that before in the past. Do you think we've as a result of COVID, we will we have a restructured statistical environment or is this just a reaction to what happened during COVID and we will go back to our old system, our our old structure that

we used to have in the past. So twenty or thirty years of inflation on average between two and three since since ninety six, I think it was someone around that territory we had like nearly twenty five years of inflation around that number.

capacity to cut rates. But I think what's changed since the pandemic is the size of government. Government spending as a share of the economy is the biggest since World War Two, basically instrope. And you know, if you look at jobs, fifty seven percent of jobs growth in Australia over the last few years has been accounted for by

public sector. Yeah, well not just the public secttion. Just three sectors within the public sector, health, education and public administration alone have powered almost sixty percent of all jobs growth and there's no change in that dynamic. So what's fascinating, I think for around the world to not just you, I mean globally yeah, globally, but what and that's a key point. The difference in the US is they've had

some cathartic crises. They had arguably a tougher pandemic. They definitely had a much tougher two thousand and eight crisis like that, a huge in cristal unemployment, unemployment barely budge. We didn't even have a recession in Australia. They had a much, much tougher two thousand and one recession. In the US we haven't had a proper recession since twenty one.

But the key point is Australians, I think, are really in the throes of Dutch disease or what it is known as moral hazard, which basically means we've been this wonder down Under that's been incredibly fortunate for a crazy amount of time. And that good fortune has been driven by probably three key things. Huge endowments of natural resources that have made us very rich because we can sell them to the rest of the world for high prices. And then at the same time we've been lucky that

there's been a commodity price boom. Secondly, we've run the strongest population growth in the developed world for about thirty years, and we continue to run crazy strong population growth, and population growth just brings demand in their country initially because these guys come with money often and that's a net

demand shock. In the medium term, the population growth actually expands a pool of available workers, and I think this is what's happening with the wage In contrast to say the US, where they're deporting people and the borders are closing. In Australia, we've got people rushing into the country and that's actually relieving some of the pressure on labor costs. And we needed that because in the pandemic, we'd close our borders and you know, the unemployment rate was incredibly low,

the lowest in half a century or thereabouts. And labour costs have obviously accelerated. But resources population growth have been the two key drivers of austral and prosperity for a long time. But then finally our physical amenity. I mean, Australia is the most beautiful country in the world and

the physical meney is incredible. And then with super now taking twalks in our ways is super portus huge amount money into infrastructure, as did governments, and the quality of oz the infrastructure is like I think coming up to you know, it looks second to none. If you look at just the Sydney the tunnels, the metro railway, the light railway, the way we've equipped our cities, and the

quality of US cities. You go to America, anyone travels to America, you look at the poverty, the crime, the just the dilapidated nature of the infrastructure.

is strong, low crime. And so I think that that contrast between New York, California, the Democrat States, and the Republican States has galvanized this this kind of intellectual crisis whereby the Trump Musk paradigm is on the ascendency, and they amazingly, Musk is probably the only guy in human history he could do what he's doing right now because he just doesn't give a fuck. It doesn't give a fuck, and he's the richest going in the history.

a sympathetic leader, somebody that I'm backing. So he must more or less help Trump win the election. And now that he looks like he's living in the White House, he's permanently appended to Trump's hip, and Musk has the solutions to almost all of Trump's policy problems. Trump wants to cut taxes, but that costs eight point one trillion US over ten years. Now, unless you find revenue to pay for the tax cuts. Issuing a point one one trillion debt would create a huge debt crisis in the

sense of just much higher instructs. They can pay the interest, but you get a massive increase in US interest rates, and that would be potentially catastrophic. So he needs the tariffs to pay for the tax cuts. This is what people didn't understand. He wasn't bluffing on the tariffs. He's dead serious in the Taiks because the tarts he announced a date raised about two trillion of revenue.

but the tariffs are important for another reason. Basically, I think the US judges that over the last thirty years, the Western world took the view of there was a lot of vaninglorious, hubrious post World War two, which was democracy's defeated socialism, and we have the dominant political and business model, and everyone in the world is going to bind to that. Model, and they're going to embrace it, and they're just going to become accolytes of our belief system.

So the idea was, we'll trade, We'll do free trade with everybody, well, reduce tariffs, we'll get rid of protectionism. And the Russians and the Chinese, when they look at the prosperity in Europe, the UK, US, Australia, New Zealand, Canada, there's no way in the world they can't embrace that prosperity. So they're going to trade with us, they're going to reduce trade barriers, and they're going to ultimately migrate their

political systems away from authoritarianism to democracies. Well, the Russians and Chinese, basically, I think thought we were pretty gullible, and so they just used those free trade opportunities to appropriate intellectual property, to use state subsidized firms to build market share, control markets, build national champions companies like Hai, Huawei, Byd, etc. And basically Western manufacturing shifted to China. The supply chain

shifted to China. Remember we talk about outsourcing. Outsourcing was great for Western companies because you could build it in low cost China and bring it back to the US and everyone benefit of the Chinese benefit and US consumers

benefit through lower costs. But at some point the penny dropped that the Chinese weren't going to sign up to the Western liberal democratic business model softly, and they weren't actually playing by the rules they had agreed to play, because you know, the Chinese government was giving their firms all these unfair competitive advantages. And Musk is the best example.

He builds a factory or factories in China, assuming he's going to sell zillions of Tesla's to the Chinese, the biggest consumer market numerically in the world, and the Chinese are still the IP and create a bigger, bad, stronger EV company called BYD that starts decimating Tesla's market share. So Mask's Navy created this monster in the form of BYD. So the Americans basically realized, actually, we need to reshare

or domesticate all of our manufacturing. We need to bring back all the supply chains because now there's also security dependencies on the Chinese. I mean, the Chinese are making things that we use in our military kit and we actually now recognize we have man man up in a serious connectic conflict with the Chinese. So Trump's plan with the taros is probably if you don't believe in free trade,

it's the right plan. And the other reason it's the right plan, and nobody understands this is the US economy is an autarchy, and what that means is doesn't really trade with the rest of the world aside from the Chinese and their proxies like Mexico. So the US we have a statistic called trade intensity, which is exports plus imports divided by your economy or GDP, and US trade intensity is only about twenty five percent. The average advanced economy is sixty to seventy percent, the EU is one

hundred to one hundred and ten percent. And so the US doesn't really need to trade with the rest of the world if they bring their manufacturing back, which is what they want to do, and Musk has proven with SpaceX and Tesla, you can manufacture in the US, particularly now that everything's robotic. Labor costs are not such a big deal anymore because it's all automated. So that's the plan.

It's the right plan because the US is the heart and harb of all the research, innovation and genuine sort of entrepreneurship and commercial and business inside and so it makes sense that if you can't trust the Chinese, you got to bring your manufacturing back that'll net benefit the US.

And then basically so they bring up all these tariffs and they say the rest of the world, if you produce a good in a country outside of the US, you won't be able to import it into the US, will make you cost ineffective or cost will put you in a competitive disadvantage. So I think companies have now signed up to two trillion dollars of manufacturing spending in the US.

all the manufacturing capacity. And then at the same time, novel the Chinese, which is geostrategically important because the Chinese were growing big and powerful because they were stealing Western market share and stealing Western clients and innovation and IP. Now the final piece of the puzzle is Musk. So at the same time, one of the big problems we have in society is just the growth of government. Again, there's been more jobs growth in Australia the last few

years in the government sector than the private sector. And Musk realizes that there's this massive corruption inside these bureaucracies, and there's huge overreach which is crushing innovation. It's crushing entrepreneurship, it's crushing idea generation, and it's basically crushing productivity and prosperity. So Musk is the only guy in the world, probably in human history, got the ability to go in there

and he did it with x or Twitter. He cut apercent of their workforce instantaneously, and he built a better product. So because he's the richest man in the world, he rocks up and he says, I want to get to Mars, but I've got to remove the public obstacles. At the same time, I mate Trump has promised a point one trillion tax cuts. Well, if I just reduce government spending, this is Musk's model. If I reduce government spending by fifteen percent, which is not that much. You and I

have run business. We run businesses. You know, if we have to cut costs by fifteen percent, done, done, easy, right, if we need to. Now, in the US you've had untraveled untraveled, you know, historic unprecedented government growth for decades, right, but particularly since the pandemic. So you cut it by fifteen percent, you raise a trillion a year of savings. Now, the US budget deficit is less than two trillion, so you have the budget deficit. So over ten years, you're

basically generating ten trillion of savings. So Musk's cost cutting program alone pays for all the tax cuts and something right. And the truth is, like I reckon, they could cut government spending by thirty percent, like if they really went hard. So fifteen percent is probably just the beginning. Now, the problem for the global economy, the problem for interest rates, and the problem for Australians is this, and you fear superbalances.

They've got to do the government spending cuts fast and hard, because they've got to do them before the midterm elections in November twenty six, because otherwise at that point they could lose control.

come later. So you've got this asynchronicity in the timing of you get to demand a negative demand shock, So they're destroying public spending on the one hand immediately, but on the other hand, the growth engine comes later. And so what that means you probably get a bit of a recession in the US in the next couple of quarters, or at least a growth air pocket, and that at the same time probably emboldens the FED to start thinking about cutting rates. You will get this temporary inflation shock,

but it is temporary. Yes, consumer inflation expectation is relevated, but I think the FED will probably continue cutting rates particularly when they see the negative growth data from the DOGE initiative run by Musk. And then the other thing is the trade wards creating mayhem in markets. So US equities have drop ten percent, NOWSAX dropped thirteen percent. People are very risk averse, very nervous. So you might say, well,

what about his tax cuts. Well, chances are people are going to save a lot of those tax cuts and they won't spend them. So I think in the short term this is very bad for markets because markets can't see pass their nose. Market's going to focus on the growth shock, the fact that companies that service governments are not going to be earning nearly as much money. All those consulting firms, all those building contractors, I mean, all the service providers to the US government are going to

get but bashed by my Musk. And that's short term very negative. But in the long term it's super positive because you're going to get this massively revitalized US manufacturing industry and trillions of dollars a new investment in productive equipment that's going to create a lot of autonomy for the US. US won't be relying on anyone by the end of this problem.

to deficit. We have a problem in Australia with government spending is now the high since World War Two, and interest rates paradoxically would be a hell of a lot lower in Australia. We're not for all of this government spending correct And the problem here's the really kind of far reaching.

productivity because productivity sounds like economist jargon. Productivity is just entrepreneurship, innovation, idea generation. Productivity is just doing business smarter.

you can undercut your competitors and appropriate market share. So the problem that Charmers has is he has no solution to the fact that we have the worst productivity in decades and Australia is mired in a massive productivity problem and in the long run that's disastrous. It's kind of like Dan Andrews. Dan Andrews, and Victoria spends crazy amounts of money. In twenty nineteen, just before the pandemic, the Victorians only owed the West of the world fifty to

sixty billion. Today or within a few years they were close to three hundred billion. Well back in twenty twenty, when Victorians borrowed money as a government, they paid an interest rate that was very similar to what the cokmalp pays today. They now pay one hundred basis points in extra interest. Because no one wants to buy Victorian government bonds and they're likely to be downgraded. Queensland is likely to be a dangrade in our view. New said, Wales

is likely to be dangraded. And because we haven't had a cathetic crisis, because we don't have yet a California, although Victoria is heading that way, or a San Francisco, there's no counterfactuals. And because there's so much public spending, the government of the day is actually conflicting economically the voters by sharing them with all this cash. But they're making Australians very complacent, very very lazy. And this is

the Dutch disease that we're talking about earlier. The fact that we've got really dumb growth in the form of huge commodity exports coupled with really very primitive population growth. None of that is productivity, and productivity is the only thing that can grow wealth. And again I don't even like the word productivity in entrepreneurship and innovation is what

drives prosperity, and we don't have that in Australia. Tax rates are going up, not down, arguably at the margin, particularly once you're adjust for indexation or bracket creep, and I think what you'll see over the next few decades is that Australian businesses will leave Australia because we're going to become so uncompetitive to the rest of the world.

You'd be much better setting up in Singapore to buy Abu Dhabi, Italy, Portugal, all these ascendant countries are doing tax deals to attract the best and brightest businesses and brains and people are moving like you know, Nico Okaine, I think his name is. He was the top guy at mcquarybank. They paid him over fifty million a year. He resigned to take a job in Dubai. Why because presumably he can get much better economic and send him in Dubai. So the top McQuary banker doesn't want to

live in Australia, notwiderstanding. He's a presumably a very proud Astraian who loves, like we all do, the amenity of living in Australia.

Australia requires landers. In Australia, it doesn't require, but suggest to lenders Ausralia that a threshold of three percent over the prevailing over the lending rate when they're assessing a borrower to buy a house, and the suggestion is that, like, if you do what we say, then you will have

to hold less capital. If you don't do what we say and your portfolio is you know, you're learning your threshold, the extra amount that you look at in terms of person's ability to service that loan is so you if you only apply two percent, then NUEB As a result of that, you know, we might ask you to hold a little bit more capital. I guess that because we think that loan might be more risky. Whether portfolio loans

more risky. One of the things I don't really don't like, and I know I have a kindred thought process with you on this is to some extent that plays right into the hands of elitism in Australia because only the elite can afford and the elite's kids can afford, which, by the way, are our kids to borrow those amounts of money because we have to top them up. You know, we're always going to be topping them up, which you know you expect parents to do if they have a

capacity to do it. But the problem is, in terms of affordability, pability is not just the price of property but the ability to pay for the property. You always borrow the money to buy the probuct because most people borrow anyway. So given the market interest rates at the moment, and they're more likely to come down and go up. What do you think about the the three percent threshold sitting on top of people's ability to borrow and or

servicing our servicing assessment? I see the Dunton's command set is unfair. What do you think about that three percent?

or very little sense. So it should be dynamic, you know that serviceability Baffer. I think should be dynamic, and it should be calibrated according to whether the cash rate is at any point in time. So I definitely think at this point in time there's scope to lower it. Yeah, I mean, you know here and now you say prudently at least by one hundred basis points.

four thirty five cash rate. You know, we're going to cut it to two hundred see see how things go, and potentially will cut it a little bit loud, you know, maybe down to one hundred and fifty because.

assume it. It never goes above or below. But you adjust the t in lockstep with the RBA making changes so that up or down so that everybody gets affected and or everybody gets the benefit of it. So you know, during a period when we're trying to you know, damp and spending, instead of just putting the RBA of the RBA putting up the cash rate, which puts up your

mortgage rate. On top of that, whoever it is, puts up the GST rate five base points, two base points, twenty base points, what it is trying to make sure that they affect everybody, because you know, we have these conflicting markets. You know, we have all the people mortgages who are paying more. And then say someone like you know, your parents who might be so alive, don't have a mortgage. You know, I have money in the super fund. Blah

blah blah. They're not they're not affected, and they're they're out spending like drunken sales and taking the trips to Ballin and Bali and spending money in.

pay more taxes, he's earning more income. But how's it fair that he actually pays a higher percentage of his income in the former tax than the guy that's choosing not to work hard. That's kind of perverse. So this this tax regime where we get taxed proportionally more the harder we work.

NDIS is supporting one in ten kids. And I think the problem will be twenty or three years hence, and I think there's a little echo of this in Dan Andrews in Victoria. So Dan Andrews decides to spend more money than any Victorian has in the history of the state, and government's a solution to every problem. But now increasingly it's looking like a failed state. No one wants to live in Victoria and people are leaving. Businesses don't want to operate in Victoria. Bauxes taxes are high and rising

everywhere because they're having to pay for the debt. You know, Victoria will shortly be paying about twelve bin a year or circle five three to five hospitals worth in interest payments align on their debts. So they've gone from again fifty to sixty billion a debt to close to three hundred million a debt. And yeah, none of these guys seem to have any solutions for the long term. They just seem to be optimizing for I want to win the next selection, I want to become prime minister. I

want to be maximize my personal power. I think a lot of these there's a self selection bias in politics where you get a lot of narcissistic individuals who are not actually genuinely interested in policy reform. Even the smart guys. We don't need to mention him. But but I wasn't talking about my mate Malcolm Terrible just to the evouence a doubt. There's others on the left side of politics that probably fall into that coor. But it's funny. You

know many more politicians than I do. But I know a lot of politicians, and finding the guys that are actually, you know, really earnestly committed to making the world a better place, it's hard, Jacko. You know, all these guys are the kids who are at UNI, who are doing student politics, yapping around trying to kind of self promote themselves to advance their personal power and control and influence. So I think politics is a funny, funny business, like I would never want to go into pot.

You get these highly bificied, bifurcated, polarized environments where you get a Biden versus a Trump. But I think Trump's I think the difference with Trump this time around. Mate. My final comment is, and you know, I'm not politically parties, and I don't think myself and I thought Trump Mark one was pretty mercurial and campricious and hyperbolic and everything that people criticize him for being. But this dude is is a year shot off and he's had multiple assassination attempts.

He's coming up towards eighty, He's only got one term. There's no third term at this point. He's not kind of doing this to win another election. This is all a legacy trade and that's why I think he's going for the jugular. He's really serious, and that's why there's been no Trump put option for the market. If the market keeps on thinking he's going to acquiesce and he's going to bend the there and say, oh, it's all okay,

I'm just trying to negotiate a good deal. But he I think, is really really focused on far reaching reform that's going to be his personal legacy. He wants to change the US. He does want to make the US great again, and so I think it could be a very turbulent, volatile time and it's certainly an extremely uncertain time. So yeah, policy uncertainty is heightened and that makes decision making hard. So I think for markets tough for the

next six to twelve months. At some point that manufacturing miracle will assert itself and the markets will start focusing on that, and that's where I think you can see a recovery. But I think in summary, in twenty twenty five, rate cuts from the FED and the RBA, disinflation in Australia high inflation in the US. I do think we're in the medium term in a higher for longer environment, particularly when the manufacturing investment starts coming online. So I

don't see massive rate cuts. I do think that people that are struggling under the weight of high interstrate burdens, businesses and households, the marginal borrows are probably going to continue to struggle. We've got record high insolvencies in Australia, but we also see the same thing in the UK, US and New Zealand, and I don't think that's really going to change fundamentally. I think we're still living in an inflationary world. But there's these cross currents now because of the trade Will.