Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the World editor at The Australian. Welcome aboard everybody. You know an issue that's increasing the front and center at the Money Puzzle is this enormous hurdle, if you like, for everyone of buying a home, and many people get help from mom and dad, and many mom and dads
give help. But you know, in financial in our financial world, in our investment world, it's like the elephant in the room, and because no one has any numbers on it until recently.
Now Richard Shellback is the equities strategist at UBS, the global investment bank based out of Sydney, and though he spends most of his time looking at investment markets and macroeconomics etc. As you would expect the investment strategists to an investment bank to do, he did take the time usefully to take a look at this issue and we actually have some numbers on it. I thought it was a great opportunity to have him on the show. I wanted to have him on the show for a while.
So here we go. How are you, Richard?
I'm very well, James.
I hope you are also and hollowed all the listeners out there.
Good to have you on. So this was an issue, and I'm not saying that you've nailed it or that you've done this sort of we now know everything we ever need to know about this issue. But it was a very interesting report that you guys did on this. Could you, first of all, if you can just sort of encapsulate what you know now that you didn't know about this, what would we call it phenomena in Australian life?
Sure, well, what we did know and have for some time is that this existed. It's real, it happens, So that didn't surprise us when we surveyed people and asked about it and got responses that indicated it existed.
That's not new.
But what we were able to get out of this survey of a thousand people around Australia was that the magnitude and the prevalence of it is possibly stronger than many would have suspected. So, for example, we found that a bit over twenty percent of people indicated that they receive financial assistance from other family members over the last twelve months, and similarly, about another twenty percent of people acknowledged that they gave financial assistance to other people within
their family of the previous twelve months. So it essentially means half of the sample that we surveyed a thousand people are either givers or recipients of meaningful amounts of financial assistance over the last twelve months.
They're involved basically in the bank of mom and Dad as they call it. Yeah, they're involved. And what is it the case that you discovered that mom and dad when they were asked, tended to give a bigger number, bigger dollar number than son or daughter of mum and dad when they were asked how much they received.
Yeah, they did.
And you know, like there's a bit possibly behavioral finance involved in that, but also just the way that family structures work. So when we asked the people who transferred money to a family member over the last twelve months, the common sums given were between one hundred thousand and two hundred thousand or above two hundred thousand.
That's an enormous figure to me. That's like who on earth has that in cash? If they have super for instance, where would they get two hundred thousand cash to hand over? Because it has got to be cash it's got to be liquid.
Well, they could have potentially sold down an asset in time being an investment property, downsize their house and ended up with a lot of cash through that. Alternatively, they could have drawn down super in a quicker way. There are various channels. But what we were getting in indication from the givers of these flows was that we're talking about numbers of one hundred and two hundred thousand or more.
When we ask the recipients, they sort of more indicated that it was possibly, you know, one hundred thousand dollars, eighty thousand dollars, fifty thousand dollars. Now, I think the
detachment between those two series of a product are two things. Firstly, many of the givers they're people in their sixties, seventies, eighties, They possibly have two or three children, so they're not that, you know, four hundred thousand they're giving away is split between three, and hence the recipients report a lower number.
It makes sense, so both parties may have been telling the twoth Actually.
They may have been.
Now the other element is there no doubt is exaggeration that goes on because sometimes the givers like to reflect about their generosity in a more glowing way. And the recipients are a little bit embarrassed story shame that they may be thirty or forty years old and they're getting financial help from their parents and they like to somewhat downplay it.
I wonder, yes, you know, you know, I'm able to say, oh, I never got any help from my parents buying a house, you know. But the fact is that the house.
I did the.
Numbers because I covered your report in print, of course, and I did some of my own numbers. And you see, I bought a house in the middle of Melbourne and it was exactly three and a half times my salary. And my salary at the time was fifty grand a year and that doesn't sound like much now, but it wasn't bad at the time, and I was able to buy a house that was slightly above the average cost.
Now here's the thing. I did this kind of reverse exercise where I looked and said, the house is still there, and I met out that if my adult children, and they're just like they're just a university age, were to try and buy that's it house. Now, I was able to three and a half time salary, which is exactly what it costs me, then they'd need three hundred and seventy one thousands. Basically, the house at the time was something like one hundred and seventy six and I was
way over it. It is somewhere close coming up on two million. So I made out that someone on fifty grand a year could buy that house when I was buying a house, but someone now would have to be on three hundred and seventy one thousand a year to buy the same house. The point being that there was no way that I was going to be on three hundred and seventy one at thousand year at the age
of thirty. There are very few people who are, and consequently, I don't think at all the issue should be the embarrassment of manufacture, because it's such a ludicrous amount that is needed when you put it up against other costs in our society.
Sure, well, yeah, the affordability story has changed chalk and cheese, But the uncomfortableness with the situation probably stems from the fact that not all people are receiving these flows because not everybody has wealthy parents who are asset owners now gain fifty percent of the people that we surveyed indicate that they have no participation in these flows. So it's almost split down the line. Half the people out there are transferring between generations and half are not interesting.
And have you any other data as to, for instance, the methodology, is it casual, is it gifts? Is it loans? Have you any sense of that?
What we do know is what people are using it for. Now.
The perception is that much, if not all, of it is properly related. We found that actually not the case. Now close to thirty percent of the people who receive these financial aid from other family members are using it for mortgage repayments.
And then about you know, twenty.
Five percent of people say they're using it as a lump sum to buy a property. About another twenty percent of people say that they're using it for collateral or guidance guarantee for a loan. Okay, so you know, you sort of lump all them together, and you've got maybe fifty percent of people saying, you know, it's it's.
Property related, it's property related.
But we've got another fifty percent of people who say that actually they're using that money for living expenses. Okay, So they're using those cash transfers that they receive from their parents or grandparents just to fund regular consumption.
So that could be you know, their.
Groceries and utilities and cars and insurance and everything.
That could be just going out on a Saturday night living expenses. It's a very robbery phrase, right, Okay, So I'm i to talk to you as an investment strategist rather, you know, rather than another observer on all this. Do you think this is structural? Is this here to stee? And if it's here to steed, how do you think
it might evolved? Will it evolve perhaps in a more formal manner than it has, because you've got to think the number of gifts and ar engines that are going to go off the rails and end up in the courts will mushroom in the years to come.
All right, Well, it is structural and it's here to stay, and it's a defining feature of the economy now and
will be for decades going forward. And there's a reason why the generation of Australians who are currently now in their late fifties, sixties, seventies, etc. They are the first generation that have hit retirement where they basically timed it to perfection because over their adult working lives i e. The preceding three decades, we saw a bull market in equities, a bullmarket and bonds, a ballmarket.
And residential property.
They also spent the bulk of their working age and adult life within the superannuation system. Yes, he's they're the first generation actually to hit or near retirement whereby they were paying into this nest egg.
Because it kept going in the nineties, Really didn't it, Yes, so you.
Early nineties and it kept growing and growing and growing.
And not only have they been paying super through their working life, but it's been happening in a period where equities were in a ball market and property was in a ball market. So they've timed it to perfection and they've ended up in their sort of golden years with far more wealth than they probably ever would have imagined, and also more wealth than they.
Will realistically be able to spend.
It's very interesting, you know. It just makes you think at the end of the day of what this means is you're standing at an auction on a Saturday morning and there's forty people at the front gate bidding on a house. You can safely assume that half of those bidders had helped from their Mum and dad, and you can also some of the other half didn't. And that really changes the dynamics, isn't it of the property market in particular, and the structures of our worth ladder.
That's right.
And look, the way I like to think about it is assets have become wealth, whereas in decades past, income was wealth. So think about twenty thirty forty years ago. If you thought about somebody who probably had a higher or better lifestyle financially than others, it was a product
of their income. They were in a higher paying job, right, Whereas the way that things have evolved now is that a lot of those people that appear to be in quite a favorable financial position, you scratch behind the surface and you go, oh gee, that's not you know, what's their job. Their job's not necessarily a job that I traditionally would have thought is super high income earning, but they own assets. Those assets may have been assets they
accumulated themselves, it may have been through inheritance. Baker moment, Dad xyzaid, but certainly it means that, you know, the balance sheet has become far more meaningful to household now and it's no longer just the income statement.
That's so interesting, and you know, folks are thinking just bringing it back to that simple sort of analogy about houses and salaries. I mentioned how to buy that house. At the time that I bought my first house, you'd need fifty grand a year to buy that house. Now is your first home in the center of the metropolitan city of Australia, you need a salary of three hundred and seventy one thousand. To look at it another way, you know, we were told that the huge and three
seventy one thousand is a huge salary. But if all it can justify is a house that was as basically what was once upon a time of workers cottage, as Richard is saying, it's the work a cottage. The ownership of that asset is so powerful now VISI v the salary, so you get an extra twenty grand, thirty grand, forty grand on your salary. Unfortunately it's not as powerful as it used to be. Really interesting, we could talk about it a lot more. I want to talk to you
about a few other things. Richard. Let's take a short break. We'll be back in a moment. Hello and welcome back to the Australians Money Puzzle Podcast. James Kirby here with Richard Shellback, the equity strategist at UBS. Now, Richard, because I I've got you, I think it'd be great to talk briefly, if it could, about your view, your particular
view on investment markets. As we go into early twenty twenty five, there is a perception consensus almost couple of things this year that the US market will remain the best share market, that the Australian share market will be pretty ordinary this year, that the US shares will be considerably a better place to have money. To some extent, the AX is overvalued, mind you, so or is the US, but some would say that we're even more overvalued than they are. Where do you stand on that look?
US leadership within this equity cycle has been something that we've observed for most of the last fifteen years, and developments over the last few months with respect to economic data in the US being consistently strong. The new US president coming in that's likely to follow more favorable policies with respect to regulation and tax that are business friendly tells us that the stronger for longer cycle in the
US and its equity market remains intact. So we're still positive US equities, we see them moving up this year. At the same time, the rate at which they move up won't be as strong from a price point of view as last year, because they've already that was twenty
two percent last year. Yeah, they've already front loaded much of this good news, and you're really still equities in the US begin to move up quite meaningfully from about September October when the polls started firming in favor of Trump, and hence the better earnings outlook that we see for US companies this year and the better growth outlook we
see for the US economy this year. Too much of an extent is already in the share prices, and therefore share prices may see more muted gains over twenty twenty five.
Okay, I'll just put the consensus to you, and I wonder what you have to say about it. As I understand, the consensus on US shares is that they will return something in the order of air point five percent this year. The consensus on Australian shares is that the price appreciation would be virtually flat. So we'll just get to four and a half that we get from dividends. So there's
the US been taste as good as the ax. Again, what have you anything to say about that consensus view which is out there just now.
Yeah, Look, the census view with respect to the U S equity market moving up around eight percent, between eight and ten percent, maps with our view for the U S equity market. On the Australian equity market, I'm a
little bit more positive. I believe that you know, prices can move about five percent higher, So that's the share prices themselves, independent of the dividend payments, and that's largely off the back of the fact that you know, the Australian equity market was not quite as strong last year
versus what you saw in the US. And we've got a earning story developing here, aided by interest retcuts from the RBA over the coming twelve months, which will allow for an earning's recovery across a range of sectors and therefore the overall Australian equity market can give gains this year that are comparable to the US.
Yeah, I was thinking that if you were right, if it did five percent in the yeard was four just nine on armor. This is the thing about our market, isn't it that you always have that starter of the dividend yield a four percent or so. Okay, just quickly, I don't need you to tell me or anyone else to tell me that the banks did exceptionally well last year that they couldn't possibly do all that again this year.
I just wonder what areas of the market might carry that earnings revival sector early on the ESX, if you had any views on that.
Look the sector from an earning's point of view, where we're particularly positive in Australia over the coming twelve months are the industrial space. So when I think of some of the key industrials, I'm skewing towards names that have
operations on the ground in the US. These are sometimes steel, building, material, energy, infrastructure type businesses, and what they're able to capture is the stronger top line growth environment the US economy is going to experience through twenty twenty five, and that is, as I mentioned, a product of the fact that the US economy is charging and Trump's policies are very pro business,
pro profits. The additional thing that those Australian industrial companies capture is the weakening US dollar.
Now.
Trump policies very much support a firming US dollar, and that is what we have seen. But with that meaning that the Ossie dollar ends up very low against the US dollar, it means that when those US profits are transferred back to Australia, they get that additional currency boost. So that's the space where we see the most upside, and it's somewhere where many of the stocks haven't necessarily been star performers over the last five years in the way that tech has.
Okay, you mentioned what did you say, building materials and what was the other industry sort of steel.
Building material names, some steel names, some energy infrastructure stocks.
Okay, I didn't know there was any building materials stocks left. I thought they were all taken over in recent times. A lot of the big ones, weren't they.
Very big one called James Hardy and their operations are heavily skewed to the US and it's got a cracking business over there.
I see. Very good. Okay, terrific. Look, we take a short break and you'll stay with us. I hope for some questions which I have selected. Okay, back in a moment. Hello, Welcome back to the Money Puzzle podcast. James Kirby here with Richard Shellback. Of Uba secuity strategists. Now, a couple of questions, Owen, I'm interested in the potential impact of Trump's policies on the share market. What was the impact of the tariffs in his last term, and what is
the likely outcome this time around? He also mentions a few other issues, but I think immigration plans, et cetera. But the outstanding one is tariff's Richard, they say he did some tariffs all the last time, they didn't make a big difference. Tell me if I'm wrong about that. But that's my reading of it. What's your view about the Trump tariff effort which is largely hypothetical still, isn't that he hasn't actually imposed much just yet?
Right? So, firstly, when we look back to that twenty sixteen to twenty twenty period and Trump tariffs in Trump one, I think I'd summarize it as his bark being worse than his bite. So yes, initially there was a lot of retoric on it, but the ultimate follow through and impact on economies and markets was far more muted. Now this time, in all likelihood that will not be the case.
The tariffs that are being speculated and proposed are more meaningful but Australia's in a far more favorable space than almost anywhere else. Now, it doesn't necessarily mean that tariffs will help Australia.
They hurt everyone.
Do you mean they're not going to impose part of tariffs and US because we run a surplus with them, Is that right?
Well, look, we don't know ultimately what will happen, but what we do know are a few things, which is, Australia we buy more than the US than we export to it, so you know, they're not looking to pick a fight with us. And also from a diplomatic point of view, we've got a long standing, very close relationship with the US. So we think we are so far down the pecting order in terms of the type of markets that they're likely to single out that it becomes an immaterial issue.
Im material even including arn Ora and Cole in China.
Well that's that's where it all starts linking together, because indirectly, if the US puts big tariffs on Europe and Asia, then these customers in Europe and Asia have less ability to pay for our goods because their economies slow down.
Now that's a risk and hence that's why.
I you know, began, you know this answering this question by saying that tariffs are ultimately not good for anyone, even if you don't get hit with them, because your other customers and trading partners do get hit with them. But on some of those sort of key exports iron ore, for example, you know, the Chinese property construction steel cycle is more a product of you know, the capacity of the Chinese government to stimulate as opposed to having you know, direct linkages into US tariffs.
Okay, right, okay, very interesting. Hopefully that's useful to you all, and I expect it is. The main thing was saying that Richard, was that this time they will do something as opposed to the last time, there will there will be some Australia's low on the pecking order, as you say, or low on the target range, at the far end of the target range, because why would they because they can't have a problem with us since we buy more
from them, which most people don't realize. I expect it's unusual, but it means it's unlikely to be directly impact, so the impact would be indirect. Okay. Question from Malar M A L A R. This is an entertaining question. I love your show and the Scottish accent is very reassuring. Thank you, Malar, except, of course I'm not Scottish, but I do like the Scottish accent. Who wouldn't. I'm Irish. Okay.
On the back of Donald Trump's huge announcement of five hundred billion in the AI space stargate, I'm curious about and he mentions a stock called a d I S y N, which is a small Australian company developing semiconductor chipsmid from graphene. Do you think they're worth bank stocks in? Sorry, Malar, I'm not going to answer that. And Richard Shellback is not going to go in on one Chinese stock and give a call on it either. I'm sure I don't even have to ask him, but I will ask you this, Richard.
The scare about deep Seek, which came from you know, even I was reading some extraordinary issues about how the impact of this deep Seek threat that basically there was a much cheaper startup in China that could threaten in VideA, and in a single day in video lost in dollar terms, the biggest selloff of a single stock in dollar terms
in the history of Wall Street. So we have to say that the markets were terribly, if not worried, sensitive and ready to sell off on the sense of a threat to the AI boom and companies as diverse as pure AI plays to like property trusts in Australia being sold off because of Chinese startup which no one ever heard of, announced that they could do things cheaper than in Vidia, the world's biggest stock, which happens to be
an AI play. Is the AI boom more vulnerable than we expect and could it if there's a major selloff in the market, Is this what will trigger it?
AI?
I don't mean deepsea, but something in the AI space.
Look so far, it appears to be a situation that's not reverberating through the tech space. What we saw earlier in the week when this news came out was some of the specific AI companies, both the chip manufacturers and the utilities data centers which provide the energy needed.
By them, sold off heavily.
But other tech names you know, and I think of, you know, your standard tech names that you know, household have been around for you know, often ten or fifteen years, that have nothing to do with AI actually saw their share prices move up, so investors are not looking to flee tech. What they're doing is maintaining exposure to tech, but possibly lightening up on AI exposure and instead going back to other forms of tech hardware, software.
Okey, And do you think that was a sensible approach.
Look, we're still positive on technology stocks.
You know, when we look at our market in Australia, our tech index is not AI exposed. We've got one or two that are in the data sped to space, but elsewhere they are totally detached from there, and they're generally software type businesses that offer services to other businesses to use their platforms, and hence they've seen strong earnings growth over the last three and five years.
Multiples are high, but our.
Expectation is their earnings growth can continue because they've got such great business models that continue to capture market share and still have fantastic profit margins, return on equities and motes set up around my businesses.
Well, I suppose in some way sort of packing up what you say. When Nvidia lost its title of the world's most biggest stock in the world after that set off, which was a hell of a sell off, seventeen percent in a day, well it was replaced by Apple, So that just kind of backs up what you're saying, really that the tech sector remains the dominant earnings kind of machine in world markets. Okay, very interesting, David says, thanks
for the summer series. I really enjoyed it. The first commentator of Sorrow, sorry I've forgotten his name, was one of the very best I've heard anywhere. That, by the way, was Mark Jokum of Global XCTF, so would be delighted to hear that, David. Thank you. And David also says one thought about the Fire movement fire that is a financial independence hutar early, which we had a show on which got a lot of response, he says. David says, what is the point of financial independence? Retire early? You
live a miserable existence saving everything you can. Then when you retire, you have no friends to enjoy retirement with because they're still working. That's if you still have any friends after saying no to anything that costs money while you worked. Oh I love that, Thank you, David. A contentious view which might perhaps be challenged by some of the faithful in the Fire movement. All Right, terrific, Thank
you everyone for listening. Thank you very much, Richard shellback of UBS, both on your view on the markets and particularly on the Bank of Mom and Dad, which had so much attention but so little numbers or serious analysis so far. I think you'd be well rewarded if you took a look at that again in the near future. Thanks Richard, thank you, and thanks everyone. Keep those emails coming please. We get great value from them and I get to answer. I think I get to answer every
single one of them. I hope I have. There are very few. If they're unanswered, they were in some way impossible. The Money Puzzle at the Australian dot com dotu for that correspondence show was produced by Leah Summer Glue Talk you soon.