Finance & Fury Podcast

Welcome to Finance and Fury, the Say What Wednesday edition.   Last part of a 3 part series from Ryan’s questions – looking at alternative future investment strategies Episode two weeks ago – went through debt jubilees – Last week went through policies and how these have affected asset prices This episode we will be focusing on alternative investment options – such as crypto – thinking outside traditional investments like shares or property when it comes to future investment strategies Before we start - Hypothetical question – what has more value – A litre of water or a new 60” flat screen TV Depends on your situation – and perception of value Most people would say a new TV would be more valuable – as the monetary cost is maybe around $1,000 – water out of the tap is a fraction of a cent – based around that situation – monetary only – TV is better – but what if someone is dying of thirst – water is more valuable – what if in a hypothetical situation in the future – electricity is gone – TV would have no u

Welcome to Finance and Fury. Today - Understanding domino effects within an economy – This episode is aimed to help think more about orders of effect and consequences from actions – Talked about this in last FF ep – this episode is a bit of a lighter episode – been talking about heavy theory for a while Purpose of this episode is to help explain the working of the real economy - expanding on a thought experiment to help you understand the difference between government policies – that promise the best – but can deliver the worst – It is fun to do and helps to expand thinking and understanding of the economy – and how we are the major driving factor behind the economy – how are we the driving force? It is based around our choices - and that what most policies do is just get in the way of choices -either directly or indirectly – and this can disrupt the economy from maximising itself – which is us making optimal choices Every action has some consequences – good or bad Can happen everywhere – in nature –

Welcome to Finance and Fury, the Furious Friday edition. Today is more a Say What Wednesday episode, I need to catch up on some of your questions and this one fits in nicely. This is a question I got from Ross about rethinking monetary policy. “Am currently reading Stephanie Kelton’s book the deficit myth. As she is a proponent of MMT Explaining her perception of debt inflation. And the role of government in the way money is distributed in the economy. As well as the way taxes are used to incentives behaviour rather than just a means for revenue. She makes a point that when nearing low unemployment, wages should rise and then consequentially so should inflation. She argues that the feds decision of how much slack should be allowed in the economy is often misguided, and basically says that monetary economist demand that unemployment is necessary. Which leaves a winners and loses overview of the overall economy. So to ensure we don’t pay too much for anything people have to be unemployed. How can this be morall

Welcome to Finance and Fury, the Say What Wednesday edition. Policies that governments and CBs have implemented that affect asset values   Relates back to Ryan’s investment thesis - As a millennial I understand that the government has to do their best to keep the ageing baby boomer asset prices (predominantly US share market and Australia property) high so they don't have to fund them in retirement through pension- though I am not sure I am that interested in paying top dollars for these assets in which puts me right out there in the risk curve for not a high enough potential return.   Go through monetary policy and how this has affected asset prices – and how it will likely continue to do so   Reasoning for policies that have inflated asset prices - Not for the reason of pension funds - Not sure about the government not wanting fund pension – They aren’t funding them – we are with tax money – there is no asset sitting there to fund it – If They are trying to keep asset prices high – it is for the wealth eff

Welcome to Finance and Fury. Investing in the equity or debt markets in the world with greater levels of Central bank interventions – The rebounds of the market – seems to be responding to the Fed and the US Treasury Last week – the ASX recorded its biggest one-day rise in two months – the market hit the 6,130 mark and then took a tumble – went down to close to 5,700 – then rebounded – this rebound seemed to be after an escalation in policy support from the US Federal Reserve was announced In one day -the S&P/ASX 200 Index surged 222.5 points – or just under 4% - biggest one-day gain since early April This brought an end to the start of a sell-off trend – previous 3 trading days reduced the market y 7% - since then been hovering around the same level This episode is to explain why this is the case – and how the Central Bank involvement in the markets going forward can sharp large rebounds in the markets – and provide a false confidence for investors – especially those with an appetite for shares and a

Welcome to Finance and Fury, the Furious Friday edition. Been watching a very interesting social experiment play out – the rise of the nation of CHAZ – Capital Hill Autonomous Zone – If you haven’t heard about it – it is a LARP – live action role playing for an anarchist/communist state – not really a new country or nation - Area in Seattle – about 6 city blocks – protesters have taken over a zone in the city and are calling this a decentralized state – saying that they are separate from the US gov and self-determinate in law their goals are focused on creating a neighbourhood without police initially Now that it has been going on over a week – had some time to put together more demands - a zone of rent control, the reversal of gentrification, the abolition of police and funding of community health The area is cornered off by fences and barricades at intersections – this week the city of Seattle and representatives of CHAZ agreed on a footprint for the zone – the Mayor Durkan's signed off on this – inform

Welcome to Finance and Fury, the Say What Wednesday edition. Part 2 from last week with Ryan’s question – Starting to look at this - What is a debt jubilee – what are the chances of this occurring and how would this affect the economy – Dates back to biblical times - The official term ‘Jubilee’ comes from the Old Testament- in some parts of Mesopotamia -Jubilee Year of Leviticus 25 was based on Babylonian practice for over 2,000 years -the practice of debt cancellation, called “andurarum.” When any new ruler would take the throne, the first thing they would do would be to free the personal debts – was written into Babylonian law forgive the personal debts that had mounted up - among the small holders on the land - liberate the “bond-servants” -people who had been obliged to work off their debts in labour – essentially freeing of slaves   Economic states are different between now and almost 4,500 years ago – back then - the main creditors were royal families and their close supporters – either the religiou

Welcome to Finance and Fury. Today we’ll talk about what rules the market, fear, and why it is important to have some fears but also overcome them Fears rule the market – and the more fear makes the market more volatile  Occurs on both side – fears of losing money – fear of missing out on returns Drives large crashes and drive large rallies – obviously selling and buying affect price – but the fears can be behind the behaviours of buying and selling Behaviours of the current market – Volumes are spiking on the market in trades – See a spike in volumes in large movements on ASX – March – Saw double the average in trading Been a record surge in Nasdaq volume more recently – also their equity call volumes hit their decade high – Calls – options that are essentially leveraging to buy the market in the future – works well when the market goes up At the institutional levels - Goldman's prime desk notes that while overall hedge fund gross leverage fell -2.5 pts to 247.1% (96th percentile one-year), net lev

Welcome to Finance and Fury, the Furious Friday edition. Last Friday, we went through theory versus practical reality of public infrastructure spending  – roads and railroads are needed. In this episode - Look back at an economic crash – in relation to infrastructure – I Know there are differences – but illustration of when too much of a good thing can go bad – especially when economic or development policies create a reliance to the economy on economic growth – especially when there is speculation involved What am I talking about? Crash of 1873 - What was it – To start – US coming out of their Civil War(1861-1865) – in an effort to deal with unemployment and economic fallout- infrastructure was proposed – The US has a long history of government job creation program – Job creation efforts were undertaken at the local level by cities or state by state – During the 1857, 1870s and the 1890s economic crisis and depressions going on New York, Boston, Phili – developed municipal programs to aid the poor or unemp

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question comes from Ryan. “I would love to run by a thesis I have and would love to hear your opinion on the matter.   I have recently been reading all of Ray Dalios ''Changing World Order' publications on LinkedIn and some of Raoul Pal's information and Jesse Felder's.” I remember Jesse releasing his advice to start buying Gold back in late 2018 and since then gold has done really well. Additionally Raoul's thinking is along the line of at some point the government's continual persistence of printing money to attempt to keep the market prices inflated will eventually lead to the millennial's to start investing in alternative assets that could potentially have value and increase in high percentages over the medium term.    My thinking has been shaped by these people predominantly in that although the share market may be continually propped up by the central banks- at some point all the fiat currency printing and devaluing of currency (sa

Welcome to Finance and Fury - Where are we at? Market has been going up - Looking at a chart – March in 3 particular years stand out – 2008, 2009 and 2020 – Why? They are each their own respective bottoms of the market after declines – In this episode - March 2008, March 2009 and march 2020 – are we sitting at a similar position as 2008 or 2009? Share market gone up from its March 23rd low – some analysts are seeing similarities with the massive rebound that took place when the markets were emerging from the financial crisis 11 years ago Some market analysists saying that the ‘flattening of the curve’ in terms of COVID-19 and states slowly re-opening are all helping the market look beyond the current quarter Signs that the market is looking to ahead - 6 months, 12 months out – Or is it short term profit seeking behaviours? By the market in speculation terms is myopic – so are traders buying long or seeing this as a short term profit maximisation strategy? There has never been a significant portion of the

Welcome to Finance and Fury. Can public infrastructure spending help to boost a depressed economy? In this episode we look at the theory of infrastructure spending on public goods, such as roads and bridges, versus the practical reality of this type of fiscal policy. At the moment – there are lots of Proposals for Infrastructure to boost economy – USA, Aus, EU – beyond other stimulus measures – this is one that billions of dollars can be pledged to First- what infrastructure governments spend funds on – Public infrastructure – for instance - spending on roads, bridges, train lines, sewerage systems - other such projects which are considered a public good – i.e. usable for all – This type of spending is one of the most advertised tools of anti-recessionary fiscal policy Why? When the economy struggles, politicians and public economists call for greater infrastructure spending as a form of stimulus This can be politically expedient as well - especially when the spending takes place in the politician’s state.

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question is from Charl, regarding his home loan. “My bank is currently offering a 2.29% interest rate on a 3-year fixed loan. I am currently on a 2.99% Variable rate with them and am considering taking them up on this offer. I have funds in an offset account and don’t want to lose out of the flexibility of a variable loan. Do you think I should fix the majority of my loan and keep it variable on a small component, or keep it variable for now to see where the interest rates go?” To fix or not – Currently at record low interest rates – cash rate of 0.25% But can go lower – RBA kept rates the same But expectations that rates will be low for some time RBA ASX rate indicator Future of interest rates – Will rates go up? The period is 3 years fixed – so in 3 years will variable rates will be higher? Don’t see it – shape of the economy and debt levels have created a bit of a liquidity trap What if rates were to increase – Household debt t

Welcome to Finance and Fury. How useful is investment theory when it comes to practically investing and calculating an expected return? Lot of theory when it comes to investing – efficient frontiers, EMH – working out expected returns In this episode – we will look at One aspect – CAPM – and look at Beta – see how well this can be used when selecting investing - What Is the Capital Asset Pricing Model? The Capital Asset Pricing Model (CAPM) describes the relationship between the risk (volatility) of the market and expected returnfor an investment – used in the share market mainly – Foundation for theory that is used throughout finance for pricing securitiesthat have risk – volatility –   The formula - calculating the expected return is as follows: Expected return = RF + BETA X Risk Premium Risk free rate of return - Investors expect to be compensated for risk and the time value of money. The risk-free rate in the CAPM formula accounts for the time value of money. 10-year bond is normally the risk-free ra

Welcome to Finance and Fury, the Furious Friday edition. Today we’re look at if economic data really means anything. I was thinking – and do any of these numbers really matters to you? Or even to me? Think about this – talk about a lot of the metrics – GDP, Inflation, employment statistics As an economy – would you prefer to have high GDP – or having your disposable income increase? Employment statistics – or having the ability to find a good well-paying job Inflation measurement – or have the ability to save and be rewarded in interest income? Thought about this for a while – most of these numbers mean nothing for the average person – But unfortunately they have an indirect effect on our lives - What dictates economic policy – fiscal or monetary – GDP or employment stats aren’t what matters to the average person – but the setting of interest rates and having a targeted inflation policy does have a real world effect on people   First - Issue with these stats and measurements – done by the ABS Employment

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question from Jacob. “Hi Louis – I have a question about the forecasts of our recovery. I read that the RBA is expecting the economy to have a v shaped recovery and it seems that the share market is also going back up. My question is do you think the recovery will be v shaped? Would be great to get your thoughts on this.” Thanks Jacob – that is a great question – today run through what these recovery patterns are, look at the metrics behind them and see if these stack up against what a v shaped recovery pattern looks like Before we get into the shapes – I have little faith in the RBA models – purely based on their track records and the modelling used What Is V-Shaped Recovery? Description of a pattern of recovery – Lots of different letters to describe the pattern of recovery – V, L, U, W - the shapes take their names from the approximate shape economic data make in graphs during recessions – The type of recovery pattern is represented

Welcome to Finance and Fury. One major issue for shares in Australia and around the world – with the lock downs and companies bottom lines being affected - Dividend cuts on the rise In this episode we will look at the ASX and the dividend cuts. We will also cover which sectors are being affected and the overall drops compared to previous crashes, along with if there is an opportunity out these in this. What has happened? If you have been living under a rock - The response from governments to manage Covid led to significant changes in daily life – also has had significant impacts on economic growth globally and in Australia 2020 will likely be one of the worst years on record for global developed economies as the impacts of forced shutdowns halts economic output - created unprecedented levels of economic uncertainty Forecasts from the RBA show the Australian GDP to contract by 6% in 2020, and June 2020 unemployment to be 10% - numbers might not be as bad as initially thought – see what happens next month – b

Welcome to Finance and Fury, The Furious Friday edition. I love history – valuable lessons. When looking at us To those in the past - Culturally we are different, but biologically we are not. If any one of us was put back in time to grow up in past civilisations, we would be no different to the local people in that time period – the environment we grow up in has a lot to do with our values and outlooks   One thing is fairly consistent with human nature – path of least resistance – as an aggregate – driver for technology and innovation – Making things easier for our lives - Cars – less effort than walking, less mess than horses – getting food – go and hunt or grow it, or go to supermarket or fast food - Convenience of safety in numbers and ease of living – towns and cities developed – more people to defend and also produce and specialise – trade – and with this – the requirement of having others be in charge of decisions for the whole group – But what happens when the path of lease resistance starts to occ

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question comes from Francesca. “I have really liked your podcast on the pandemic bonds, I had read about these bonds maybe a month ago in The Economist. My question after listening to the podcast on pandemic bonds was, who controls the world bank? Well I know...the member countries, but how could they screw it up so well? Thanks for keeping us update on it. And keep up with your great work Thanks!”   In this episode – look at the world bank, what they do, who controls it, who funds it and at the core – why does it have problems What is the world bank – The World Bank Group is a family of five international organizations that make leveraged loans to developing countries. It is the largest and most well-known development bank in the world and is an observer at the United Nations Development Group. The bank is headquartered in Washington, D.C. in the United States – what makes up the group – the International Bank for Reconstruction and D

Welcome to Finance and Fury. Today will be a flow on episode from “What will happen to property prices if we continue along our economic decline?”, which was posted about a month ago. Due to the updated numbers and banks coming out with their forecasts for price declines, we will cover property again. In the previous episode –looked at the Basics of property – where we were at prior to the government imposed economic decline Summary - In Australia – the characteristic of our property market prices being high come down to urbanisation, interest rates and regulations Urbanisation levels versus available credit (cash people have access to from savings or lending/mortgages of population) Concentration of people (higher demand with population levels) and the limited supply available when people are concentrated in living space But more importantly – it is the Borrowed funds by the population – household debt to GDP In conjunction with the urbanised population – higher the amount people can borrow or put toward