Alarm Bells and Rate Rises

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[Music]

Hello, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and Finance Presenter, Columnist and Podcaster for the ABC.

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

And we are The Money Café. Good morning, James.

How are you, Alan?

I'm extremely well and I've just had a fantastic week reading all this stuff about how AI is going to kill us all.

I know. It can't even tell you simple facts through ChatGPT or whatever service you use, but yet it's going to kill us within 10 years or something. It's a bit of a conundrum, isn't it? Most people would find mistakes pretty frequently in the AI models they use and yet, apparently this stuff is pretty lethal, at least according to these big AI guys.

Those who have just flown in from Mars, we should probably bring them up to date. A week ago, Tuesday, Jacob Coxon, an employee of Anthropic, quit and he posted on X, formerly Twitter, that everyone working on AI thinks that it's going to kill us all. Then a couple of others from Anthropic supported him, saying they agreed, not only that they think AI is going to kill us all, but everyone who's building AI thinks that.

Then the CEO of Anthropic, Dario Amodei, produced an essay, 3,800 words basically saying, yes, there's a real problem here and we need to have regulation, so that's a very unusual case of a CEO of a company calling for regulation of his business, which you don't often see and saying there needs to be a global kind of agreement of some sort. Sam Altman, the CEO of OpenAI, and also Elon Musk supported him.

Immediately.

Immediately, that's right. Then Donald Trump came out on the weekend saying, "Absolutely not, we're not going to do that because this is a race and the United States is in the lead and we don't want China to take over, so we're not going to do anything." And that's kind of where it stands, isn't it? There's been a colossal amount of pixels produced and words and all this...

Yeah, listeners will be shocked to hear that Jensen Huang, the Co-Founder and Chief Executive of Nvidia, has been out the last two days saying, "Oh, no, no, no... No need for regulation, please keep buying my chips in great numbers." And we saw AI infrastructure stocks, so memory stocks and computer chip stocks, they fell on Monday night, they recovered a bit on Tuesday. It doesn't seem like there's going to be any slowdown in AI development in the near term and everybody's sort of moving on with making these death machines, or are they? Who knows? Alan, I don't know what you make of this but I smell a rat when perhaps these safety concerns need to be taken seriously, I'm sure they do. But if Dario Amodei really wanted to slow the pace of AI development, he's just got to walk down the corridor and tell the guys and girls in his labs to say, "Sorry, guys, just slow down a bit!" But he won't do that, of course, because he's got a giant IPO coming up and it's in his financial interests and the financial interests of his investors to continue to plough ahead. What he's called for is this convoluted regulatory protection that would allow him, a) to get all his competitors to agree to slow the pace of AI development and therefore stop burning so much cash; he also wants the Chinese open-source models that are such a threat to be basically banned from America and he wants governments to regulate him, which would officially sort of entrench OpenAI, Anthropic and SpaceX as the chosen few in the AI race.

Do you reckon he's just trying to pull up the ladder?

I think there's certainly a bit of that. If he was as concerned as he says he is, you don't need everyone's permission to slow the pace, just slow the pace.

But he's not the only one saying it, everyone seems to be saying that there's a real problem here and a lot of it comes from this Hugging Face incident in July which is where 700 OpenAI swarm of - I love the word 'swarm'... Anyway, a swarm of OpenAI agents broke out of their sandbox and started doing things they weren't supposed to do and they weren't able to be controlled. Now everyone's going, "Crikey, we can't necessarily control this AI..." Then Jacob Coxon said, "Well, yeah, that's right, you can't turn it off. Don't forget, AI is simply computer code, so it's replicable, they can just replicate themselves wherever they like."

They're also all talking about recursive self-improvement, where the AI model improves itself. That's what they're all trying to achieve and they seem to be getting there. I think that they're all kind of careering down this road towards what they don't know and they're creating something that they're not able to control. I do think there's a serious problem coming up.

Perhaps, but again, Alan, if it's that serious, why don't they do something about it? This whole thing of won't somebody please stop us from doing what we are incentivised to do...

Well, obviously because if one of them stops doing it, that'll mean nothing, they just bail out. What's needed is some kind of deal that means everybody stops doing it, but the trouble is, that's not possible, it'll never happen. I wrote about this on Monday for the ABC and basically what I ended up writing about was sovereignty, the existence of national sovereignty, which is that there is no global governance. The United Nations is not some sort of policeman, they don't actually control anything.

Even if America and China did agree to slow it down and I do think that's vaguely possible because, despite what Donald Trump says, America is bringing in regulations and trying to slow things down and China is definitely regulating AI, so it's possible that those two could, but North Korea's not going to be in it or Russia or Iran or all these other countries. It'll be like taxation, right? They can all agree what they like about we need to tax corporations at least 15 per cent, but the Cayman Islands and Bermuda and whatever island, they're not going to do it, they'll still have no tax.

I think that's very true. I still remain somewhat sceptical about the real motives here. I take your point about Jacob Coxon, he's raised some good points. But he hasn't provided any evidence. Depending on who you believe, he worked at Anthropic for somewhere between six weeks and four months. Maybe that was enough time to get in the bowels of this...

Is that right? I didn't know that.

Yeah - maybe that was enough time to get in the bowels of this and become the leading spokesperson for a generation - and certainly, he's been backed up by the Anthropic CEO and lots of high-level executives. These guys are careering towards an IPO, there is still - we've spent US$1.5 trillion on all this stuff so far, we'll spend another similar amount in the next 12 months. There's no great evidence that AI is changing the course of economies or productivity or even people's lives or even businesses, not on an aggregate level. I just wonder if these guys need an excuse to stop spending so much money and burning so much cash and these rather vague existential threats provide that excuse. It might be the cynical journalist in me, Alan, but I don't know.

When I see three guys like Dario Amodei, Sam Altman and Elon Musk, who hate each other, coming out and suddenly agreeing with each other very publicly on a Saturday night in Silicon Valley, something about it says, "Don't know about that..."

You reckon they were all sitting around over dinner having a glass of red wine?

Well, what's clear is they're all burning cash and none of these companies are vaguely profitable, even anywhere near it. If you look ahead to what they've promised to spend in the next few years, it's trillions more dollars. Either AI is going to have this burst of revenue generation which isn't clear to me either, or something's going to break. I think something's gone wrong in AI, I'm just not sure whether it's the safety concerns, the heightened spending or a combination of both.

Fair enough. I think it's perfectly reasonable to smell a rat because there's always plenty of rats to smell in these situations.

As for Trump, I sort of wrote about this earlier this week. You sit back and you look at - I mean, Trump's heading to the midterm elections, they're months away, weeks away, really. We've got diesel and gasoline prices at record levels because of this ridiculous war in Iran that is just a quagmire now; you've now got borrowing costs surging because bond yields are through the roof, the 10-year Treasury yield is now at 2007 levels. That's bad enough, but if Trump goes into the midterms with a share market correction, which is what an AI slowdown would deliver and an AI slowdown would also crack the US economy. This week, I spoke to UBS's Chief Economist, a guy called Aaron Capstone, he says, "Business investment outside AI in America is as weak as it's been outside recessions." It's AI or bust for Trump.

He talks about winning the race and busing hoaxes. He cannot afford a 20 per cent fall in Wall Street share markets as well as these hikes in oil prices and rising borrowing costs. It's a mess for him.

Yes, it is. It's going to be interesting to watch where this heads, really - I suppose nothing much will happen, I guess. What's most likely is that all this talk dies down and everyone just gets on with it. Because over the last sort of five years or so, there's been a burst of concern about AI safety every six months or so and everyone kind of talks about it, perhaps not as frenetic as this time, but certainly, I remember back in May 2023, there was this existential risk, an open letter published by hundreds of AI researchers and academics, they published this statement, 31 May 2023, and everyone talked about it for a while and then stopped talking about it. That's kind of happened every now and then.

Perhaps the difference this time, Alan, is we do have that Anthropic IPO. It's sort of vaguely scheduled for the next few months, so we might have this sort of strange situation where Dario Amodei is going around to investors saying, "Hi, I'm Dario, my technology might kill you all, will you please buy some shares in my IPO?"

He's already saying that, isn't he?

Basically. With an IPO comes a prospectus, where Anthropic will have to detail in gory detail all the ins and outs of its finances. I don't know if you saw in the FT, the FT had a story as all this was breaking, saying, "Anthropic's going around telling investors it's profitable for a second straight quarter..." but the profit was made if you exclude the cost of training models, which is a bit like saying a winemaker is profitable if you exclude the cost of crushing grapes. There actually is in the next - if Anthropic wants to continue with this IPO, it is actually going to give us a great sort of view into what is actually happening in the next little while.

That's very good. The other thing going on is interest rates. We've got the Fed meeting at the moment due to announce its decision tomorrow morning in the market. Everyone's expecting a rate hike, aren't they?

Yeah, 94 per cent chance and Kevin Warsh, the Fed Chairman who has sort of sworn off forward guidance, has got himself into a bit of a pickle here because he gave his speech at the Fed's annual offsite, which is at a place called Jackson Hole, where he basically said, "I know the world thinks I'm soft on inflation, but I am really worried about it and if it doesn't change soon, of course we'll raise rates..." and guess what? Inflation hasn't changed much and so everybody says now that Kevin's going to have to make good on his word and raise rates on Wednesday night.

Then his boss, Donald Trump, is going to start abusing him.

[Laughs] I think probably Trump can cop this rate hike, but whether there's other rate hikes that Trump will get grumpy about is definitely an open question. There's just this sort of dissonance between what Kevin Warsh is saying, what Scott Bessent's saying and what Donald Trump's saying and doing. They're just not on the same page. Where this sort of ends up... The Fed is really the start of this rate hiking in a couple of weeks. We've got the Bank of Japan after that and then of course, the RBA. Alan, you've been doing this for longer than me but it's been extraordinary, the last little while.

A couple of weeks ago, I checked the calendar, there were seven RBA appearances in the three weeks leading into the RBA decision and that's quite extraordinary and you can see what's happened, they're using basically all of those appearances to soften us up for a rate hike.

I've never seen anything like it. A lot of it is Sarah Hunter, the Assistant Governor Economic who's basically their Chief Economist, she's popped up all over the place. You normally don't see those people at all, you see the Governor and Deputy Governor occasionally, but not that person, so it's amazing, yeah. Andrew Hauser showed up as well and they're all forming a queue at the Financial Review's summits.

That's right, we had Hunter last week and often - you will have seen this too, Alan, often the RBA officials are very much on the one hand, this, on the other hand, that. Hunter was not sitting on any fence, she was - inflation's too high, the board's worried, the RBA staff is worried. Basically, we've got to do something.

In fact, I don't really understand why the market's still only about 80 per cent probability of a rate hike in two weeks, it ought to be 100 per cent.

Yeah, the only thing, I guess, Alan, is the weakening of house prices is - does that point to an underlying weakness in the economy? Are things rolling over? Is there still an argument that the RBA is pushing against supply-side shocks like the oil hike they can't really do much about with the interest rate tool, so maybe that's the little seed of doubt in the market's mind.

The housing market is certainly weak, but the Reserve Bank never really worries about that too much. There would need to be a housing crash for the Reserve Bank to get involved, I would have thought, and maybe it thinks there is going to be, but I think the Reserve Bank is just focused on inflation and that's what Sarah Hunter's message has been. She said very clearly, I think at your summit, that inflation is number one priority, which means they're more worried about that than employment, housing, you name it, anything else.

Totally. I really didn't get the sense they're very worried about housing at all, in fact. It's a bit of a cycle, we've had a good run, was that their sort of view? And they don't see that many spillovers into the guts of the economy, I guess, from a weaker housing market.

I think the only doubt is whether there'll be a second hike in November.

Yeah, and even the doubt there seems to be dissipating relatively quickly, Alan. I think it's two for sure, well, that would be my view, but you wonder what's going to happen next year.

I spoke to Paul Bloxham yesterday from HSBC, he's not saying that recession is his base case or most probable, but it's getting there and it's because, for the main reason, housing is part of it, but also because consumer sentiment and business confidence are both in the toilet already and we're sort of hiking rates twice into an environment where everybody is very, very miserable and confidence and sentiment is very low. Also, we've got petrol and diesel prices rising again because the oil price is back well above $100 a barrel. It's all looking bad, I reckon there's a fair chance of recession.

Paul Bloxham says his forecast now for GDP over the next sort of 12 months is basically zero growth. He's saying that there might not be a recession but there won't be any growth and that looks correct to me. The economy's going nowhere.

Not only correct, Alan, it's sort of what's required, I think. That's the sad part.

Yeah.

Just quickly, Alan, on the situation with Bathla, the New South Wales home builder that's gone under, we're seeing more of - they've got hundreds of projects, some of which are out of the ground and some of which are plots of land. We've seen more of the private credit lenders that have lent to these businesses, taking control of individual sites now. What that says to me is this is going to take months, perhaps even years to sort out. The process of individually selling down all of these projects is going to be very time-consuming and pretty messy. I just think it's worth pointing out that the pain of this one is going to be very long and very ugly, I think, as we have this sort of tug of war between what are these sites worth, how much can investors get back, how much can lenders get back, how much hope do the people who've paid deposits have...? This is not going to be quick to be sorted out.

Do you know whether many people have paid deposits?

I think the numbers are something like 8,000, so whether they have some sort of recourse through government indemnity schemes isn't clear. Whether those indemnity schemes would be big enough anyway... The more people you talk to, that's what's becoming clear. It's not just that a builder's gone under, it's the fact that this builder was so big and was allowed to accumulate $3 billion of debt. It's just the scale of this one that seems to have caught everyone by surprise. Even though this has got a bit of a slow-moving car crash about it. This is a real mess.

Part of the problem, it seems to me, is that Bathla didn't have a bank, it basically borrowed all its money from dozens and dozens of private credit providers, shadow banks.

It's had no choice.

That's right, no choice, the banks aren't interested. The thing is, nobody knows what's going on, nobody's got a handle on it. If the company's got a bank, then the bank knows what's going on, but that's not what's happening here.

We had our Asia summit and Nuno Matos, the CEO of ANZ, made this point, "We made the banks safer by changing the capital rules and effectively stopping them going into the riskiest lending. But that doesn't mean the riskiest lending gets stopped, it means it moves to these shadow banks, this private credit industry, and now no one's quite sure of where those tentacles go." I think you're right, Alan, in the interest of safety, we've created another problem that perhaps we - one of those classic unintended consequences.

I know we're sitting here with hindsight and saying this, but surely they could have seen that coming. Crikey - and it wasn't the Government that did it, it was APRA on its own, it was part of Basel III and all this, the crackdown globally after the GFC.

Yeah, well, the banks are still very strong though. APRA's sitting there saying, "We got what we want..." Now, has that worked from a system point of view? I guess we've got one lender that's gone bad. Default rates in private credit haven't exploded or anything, let's hope they don't, I guess is the thing.

I know, but if there's a private credit crash, that'll affect the banks. It's not as if the banks will be immune from it.

It is, that's true. Happily though, Nuno Matos, his verdict yesterday was, "Not concerned about systemic issues, we should be fine." So let's hope he's right.

The rest of us won't be. Okay, we'd better go to questions and before we do that, here's a quick word from our sponsor.

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And the usual general advice warning: this is general advice only. If you need personal advice, please go and see a financial adviser. The first question's from Drew, it's not really a question - "I have an idea to solve all of our woes, a data centre superhighway. How about we use the AI build-out to construct training compute for frontier models along our proposed high-speed rail lines. I see this providing sovereignty in an uncertain future..." He's talking about building data centres along the rail lines...

I think what Drew's getting at here is actually an interesting idea, in that you sort of pin the data centre build-out to one - you say, "This is what we give up, this is what we get..." And what he's saying is, we give up land and maybe some copyright protections to build this big data centre complex in Australia and out of that, we get fast rail to help build up regional communities and perhaps solve the housing problem. I don't know about the merits of that idea, but what I would say, Alan, is maybe Drew should go into PR for the data centre guys, because this is the problem, they are struggling to say, "Data centre build here equals benefit for society here." And perhaps this is a different way of presenting that equation.

Well, data centres have a problem in that they're building something that's going to eat all our electricity and then eventually kill us.

[Laughs] Other than that though...

So this is not a very good PR proposition, you would think.

Well, I guess just what I mean, what Drew's saying, is the data centre industry can use the pitch, "Hey, we're speeding up the energy transition, going to be lots more renewable energy and you can get this fast rail system as a result of the sort of windfall, does that sound like a reasonable trade-off?"

So is Drew actually saying that the data centre companies should build the railway lines? Good on him, I'll go with that, sure. Your turn.

Max says, "Love the podcast. My question comes from comments Alan made about the psychology of investing. You talk about how the dot-com bubble scared people away from investing in the share market and instead incentivised them to put money in property and claim it's a largely psychological phenomenon instead of rational, what's the best investment for me right now. My question is, with the collapse of Bathla combined with the booming stock market from AI, will that start changing people's minds about the best place to put their money? What else would it take to convince Australians that property is no longer the be-all and end-all investment class?"

So just to be clear about what I said, this is both in the book and in subsequent columns and everything, the thing that happened in 1999 was the change in the capital gains tax arrangement from inflation adjustment to 50 per cent discount, which took place at the end of 1999 and that was explicitly designed to encourage people to invest in shares. That's what the report promoted and the Government accepted. The problem is that three months later, the stock market crashed.

So nobody really wanted to invest in shares anymore because it was too risky, so it tended to encourage people to invest in property instead and the other thing is, I was kind of saying that the thing about the 50 per cent discount on capital gains tax was a psychological shift, mostly a psychological shift more than a situation where people kind of calculated that this is going to give them a benefit. It was because everyone understands a discount, nobody understands CPI and couldn't figure out in their heads what it means, what the inflation adjustment would have meant to their capital gain and they all understood 50 per cent, so that was a kind of psychological shift.

But I agree with Max now - well, I don't know if he's asserting this, but I am saying that shares are a better investment now than property. Property is falling and the governments of Australia are trying to stop it rising very much, so if you invest in property, you're betting against the governments of Australia. Maybe they'll fail and a lot of people are saying that house prices are going to bounce back because we haven't got enough supply and the national project of making housing affordable is not going to work and fair enough, people think that, maybe they're right, but at the moment where we stand is that everyone's trying to make housing more affordable, so that means less capital gain.

There's an interesting symmetry, isn't there, Alan? '99, the CGT changes; 2026, another set of CGT changes that are specifically designed to make it less attractive. Maybe that's the change required.

Well, it certainly has happened and everyone's saying that that was in fact one of the reasons that Bathla collapsed, because it prompted a reduction in investor demand for real estate. I think that's a minor factor in Bathla's collapse, but it's probably one of the things.

It didn't help.

It didn't help, yeah. Scott says, "After hearing you speak a lot about dodgy builders and builders going bust due to increase in prices while being on fixed contracts, I wanted to share a simple solution that I believe should help the dilemma. I reckon all builders should be ranked on a scale from 1 to 10 by an independent body made up of builders, certifiers, engineers and a government representative. This ranking would be undertaken every three years and would be a system that gave consumers confidence in selecting a builder to undertake their construction works..." That's quite a long question, I don't need to read it all. Is there anything else he says that we should know about it?

No, I think that's the guts of it. I get the idea, I just worry, who's paying for this. I keep coming back to this Productivity Commission report that was recently released about productivity in building, which is just appalling. It's gone back at a rate of knots over the last 30 years and I just wonder about something like this. It just adds cost, it adds regulation, it adds red tape. I get the point, but we need to get out of the way of builders building stuff. I take the point that we want quality builders. You go through a licensing process, is that not enough? Do we then need another ranking thing on top of that? We live in a country that is just beset by red tape. This would appear to me to be more red tape.

There is a website and I can't remember what it's called now, I'm trying to think of it. There's a body that does review the quality of builders and it lists them on that website. There's 219 builders listed on a website as being high quality. Bathla was not on it, which is part of the reason it went broke, you need to be on that website in order to get certain concessions.

Can I ask you a question there, Alan?

Yes.

The builder who builds very bespoke architecturally designed mansions in Toorak or Peppermint Grove or Lane Cove or wherever it is, do we rank them relative to the builder who builds the sort of affordable outer suburban townhouses that are really important to solving the housing supply? Do you get 7 out of 10 if you're a good builder in that band of type of building?

I think that's a fair point. A good builder should be able to build a luxury apartment or a luxury mansion or something as well as an affordable house. The problem that we've recently arrived at is the governments of Australia, particularly New South Wales, are cracking down, particularly in New South Wales after those scandals around the Opal Towers and the Mascot Towers in 2018 and '19, where these apartment blocks started to fall apart and it was a scandal. They've now passed all these laws and brought in the New South Wales Building Commission to keep an eye on builders and the quality. Suddenly, Bathla got 40 inspections and the New South Wales Building Commission was absolutely all over them because their quality was not great.

Yeah.

The thing is, Bathla is an affordable housing provider, it's got the cheapest kind of housing, but there seems to be now a fundamental disconnect between what the state governments want in terms of the quality of the build and the need for affordable housing. Can we have, really, $500,000 apartments that are well built? It's very difficult in the cost environment we've got.

We had another Scott asking us a question and I'm going to combine it with Nicole's question, they're sort of along the same lines. Nicole's 32 and she's saying, basically, "How does she stay glass half full in this difficult world?"; and Scott's saying, "He's not quite 40, hasn't been through too many financial crises, how does this one stack up? How does the current situation compare to the previous times in Australian history like the recession we had to have in the 1990s, recessions in the 1980s and the oil crisis in the 1970s?" This is a good one for you, Mr Kohler, as a font of history and wisdom.

[Laughs]

That's a nice way of saying you're older than me.

Well, I'll plead guilty to that. We're not having a financial crisis, Scott. What we're having is - I suppose you could call it a crisis, a productivity crisis. Part of the reason the economy has to slow down to zero growth in order to control inflation, if not the main reason, is that productivity has declined and in fact, this is over decades. It's been a very long, slow decline in productivity growth and in the last 12 months or so, it actually went backwards. When productivity is declining, you cannot grow the economy very much without causing inflation.

They call it a speed limit of the economy. The Reserve Bank's view has been that the speed limit of the economy is about 2 to 2.1 per cent growth. That seems now to be coming down to under 2 per cent as the speed limit and this is entirely because of low productivity. Then the question is, well, what's the reason for the productivity declining? And the answer is because businesses have not been investing. Then you get into an argument of why not and the businesses go, "Oh, because there's too much regulation and tax and we're just kind of regulated out of business." I don't fully buy that. I think that businesses have got lazy in Australia, they've been milking the economy and I wrote that in a column.

I think that there's been this kind of mentality evolve in Australian business, where they're just kind of sitting back and milking it. It's to some extent to do with the dividend franking, that they're required to actually pay out, investors want all these companies to pay out most of their profits in dividends in order to get full advantage of franking, it means that the companies can't actually retain their earnings in order to grow. If you can't do that, if you're not really allowed to retain your profits to invest, then you don't bother. Talk about unintended consequences, I'm not saying it's all because of dividend franking, I just think that that's an element of it. What do you reckon, James?

I think all those things are reasonable. Superannuation has been another thing, it's obviously great for the country, but superannuation - if you're the CEO of a big Australian company, you basically know that superannuation funds are going to be, because of the way they're set up and the way that they're incentivised, they're going to be investing in large Australian companies, so that will help your share price go up. There is a bit of a chicken and egg here, Alan. Companies invest when they can earn a return from that investment and if they're seeing very low growth out of the economy, it's not a great incentive to invest. There is a vicious cycle that we've got ourselves into here. I don't think you can put the blame entirely on the business community.

Oh, no, I don't do that. I think the tax settings in Australia are not really conducive to investment and innovation and all that. We need basically to have a higher GST, I think. We've kept the GST rate low, but that's meant that we're sort of relying on income taxes too much, personal income tax and also company tax.

We also have a great risk aversion in this country. We don't like it when things go wrong, so we regulate the hell out of everything to try and prevent them going wrong and what we have is not a country that loves innovation. We love dampening down the risks.

Do you reckon that answers Nicole's question?

Well, Nicole's saying, "How do you think about the next World War III potential scenario and all the bad news?" Nicole, I've got an 18-year-old at home finishing Year 12, I've sort of given up on trying to predict the future for him. Just go out there and try your absolute hardest and good things will happen to you and maybe they won't be perfect all the time. It beats the alternative, doesn't it? There's no point worrying. That's why all this AI doom - I think it's always good to stay informed about it all and keep thinking about it, but you can't let it paralyse you, I don't think. You've just got to go out and my sense is that smart people that get out there are still getting the best opportunities.

Lachie says, "I'm a first-year uni student who moved to Melbourne for study, went out for beers on Saturday to celebrate the end of the soccer season, a parma and a pint of Carlton at the Auburn Hotel in Hawthorn set me back $53, that's a sixth of my season registration..." And he goes on about, "Why do we have an alcohol tax, what's going on? Does this hurt beer more than wine...?" and all this. That's what you get for going to Hawthorn for a beer and a parma, anyway, Lachie...

You talk to people in the wine industry, in the beer industry, they are getting increasingly worried about, the excise goes up every year on alcohol and obviously the costs of running a pub aren't going backwards either. They are getting worried about patronage in pubs. You overlay that with increased use of GLP-1 drugs like Ozempic. There's a lot of pressure on the hospitality sector at the moment, there's always a bit of pressure on the hospitality sector, to be fair. Again, this is our risk aversion. We've whacked alcohol and cigarettes for very good health reasons and very good revenue-raising reasons, but there's consequences and Lachie's just paid for some of them. I don't know what the answer is. Do you step back...? There is a bit of a risk here that some of those social moments are being priced out of people's lives.

Zak says, "Just wondering what your thoughts are on One Nation's recent superannuation policy announcement to let working-age people use up to 3 per cent of their super contributions for everyday living expenses for a few years. This isn't allowing people to raid their super, just contribute a little less for a few of their peak expense years. I know there are legitimate inflation concerns, but even as a lifelong Greens voter, I can't help but think somewhat reluctantly that this is a pretty great idea." I don't think it's that bad either, to be honest. Anyway, what do you think?

This is what I was going to say, the question and your response, it leads me to wonder, has the superannuation guarantee at 12 per cent got too high? Is it now at a point where people are going, "Look, I'm happy to save for my retirement, I think that's a good idea, but 12 per cent?" I'm starting to sense this, but I don't know, am I right or am I wrong?

I think 12 per cent is great in times when everyone's flush and everyone's fine, but it's not great when everyone's up against it, which is what they are at the moment, with fuel prices up and interest rates going up. I think we have reached a point where the pips are squeaking at 12 per cent, I think it's true and I do think the cut to 9 per cent for three years is not that big a deal. The only problem in my view with it is that it would lead to an increase in inflation and possibly the Reserve Bank would effectively take it all away again with interest rates going up as a result. But still, I think you're right. They legislated 12 per cent in the beginning, which I'm just trying to remember when it was done, back in 1992? Middle of a recession, everyone thought it'd be fine, but it turns out, actually it's a bit hard.

Yeah, it's an interesting moment for the super sector, I think. Super needs broad support, I think it's got that broad support, serves the country well, but as you say, the pips are squeaking. Callum says he's looking at getting a used car this week, he lives in the country and his maths says diesel will be cheaper for the kilometres that his family does, can't afford hybrids or electric. "One family member is a bit of a doomsday prepper and has made me nervous about diesel supply with the ongoing war, should I be worried?"

Yes. In fact, electric cars aren't expensive now, just get a Chinese one, they're cheap, come on!

Yeah, maybe there'd be a bit of range anxiety out in the country.

Yeah, probably, but look, one of my relatives is a car reviewer and she showed up with a little Geely, about the size of a Mini, it's got a range of 300 kilometres, we were driving around the country and it was fine. I think you can get 400 kilometres of range. It's not often you need to drive more than that.

Yeah, Callum, the outlook for diesel isn't great at the moment. Just looking overnight, the spread between diesel and oil prices hit a record in the US, it's now basically double the amount of a barrel of crude oil as it is for diesel, it's never been higher. We've got two problems here, the war in Iran is one, but actually a bit of a bigger issue at the moment is the war in Ukraine. Ukraine have figured out the thing to do to hurt the Russians is to hit their Russian diesel refineries, but that has been bad for the rest of the world too because Russia's not exporting any more diesel at the present.

We've got a bit of an issue with diesel and this is the thing with the - the oil price is telling us one thing, but it's the diesel price that does worry me. So much of commodities, whether that's wheat or corn or iron ore, is just that it's diesel plus moving dirt and we've got a real diesel issue.

I agree.

Let's finish with a question from Yung, Alan, he says, "Been listening for a long time, I couldn't resist emailing you when I saw your book being mentioned by a Korean podcaster, talking about the housing crisis in Korea and using Australia as somewhat of an example of successful housing policy. In Korea, we have something called private mortgage, or Jeonse, which is one of the key problems and Koreans are trying hard to get rid of it. There's no question here, just a happy fan who's happy to see you being mentioned. PS you've been referred to as a distinguished finance journalist in Korea." There's a screenshot that Yung's provided us of Alan next to his book, The Great Divide. Big in Seoul, Alan?

Who knew they had a housing crisis in Korea? I thought they were okay.

I think they've got housing crises everywhere at the minute.

Yeah, well that's probably right. It's definitely a global issue, no doubt about it. That's nice, I'm glad to be in people's lounge rooms in Korea or whatever.

It is a great reminder, Alan, that housing problems are global at the moment and this pressure - we sort of talk about bond yields and the bond market as it can sound a bit removed from everyone's lives. The collision of high asset prices and particularly high housing prices and rising borrowing costs, it's going to make things a little squeezier around the world, I think.

Did you happen to Google Jeonse?

No.

Okay, I just did and it's a unique South Korean housing rental system where a tenant pays a large lump sum upfront deposit, typically 50 to 80 per cent of the property's market value, instead of paying monthly rent. The tenant provides a massive cash deposit to a landlord when moving in, but pays no monthly rent during the lease, only covering building maintenance fees and utility bills and it lasts for two years. There you go, I had no idea about that.

Could be another whole book in that for you, Alan.

Is this one of the key problems? This bloke, Yung, or a woman, is calling it a key problem. It seems like an interesting problem.

Might be another column in that for you, I think.

Yeah.

Can we take The Money Café to Korea for a couple of weeks or something?

I need to do a chapter for the Korean market on my book.

Absolutely.

Well, very good, that's been great, as usual, so thank you James. Thanks, everyone, for listening to today's episode of The Money Café. I'll be back next week with Stephen Mayne, who I should mention - someone talked about him...

I think it was Lachie, said, "He's a breath of fresh air..."

"Stephen is a legend, such a breath of fresh air. I think his shareholder activism is fantastic." I agree, we agree. Anyway, if you've got a question for us, email us at themoneycafe@intelligentinvestor.com.au. Until then, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and a person on the ABC.

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

See you soon.

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