Ask Alan: 29 August 2019

G'day. Welcome to Ask Alan and thanks for joining me it’s great to see you. I'm right into book selling mode at the moment. I've got my book on the market, It’s Your Money, and I've been travelling the country a bit doing events, a bit of radio. It's been quite good and getting to meet lots of people. I've got a bit of RSI from signing the darn books, I’ve been going to book shops and signing them, so it's all happening and appears to be going okay.

So if you want a cheap copy, you can go to our web site and get a discount. In the briefing last week, there's a code. If you use Smart Invest, as a code on the publisher's web site, Black Inc or Nero, anyway, the link was there, you'll be able to get a discount. So I hope you do that. I'm publishing a few extracts in my briefing I did last week, and I'll do another one this week. I'm not quite sure what to pick, but anyway, we'll find something.

Got a few questions today. It's great. Good questions, as always. So let's get stuck into them.

Rob says, "Hi, Alan. I enjoyed your latest interview with ResiFund. Was an average return on investment after fees covered in that interview?"

Well, what they talked about, the bloke, I can't remember his name, Matthew someone, what he talked about was the yield, and they're targeting a 5 per cent yield after fees and costs. So that's not total return. That's the rental yield that they're targeting, which is boosted by some debt. So, obviously, the total return and the capital gain on top of that is in the hands of the gods or the market really.

So who knows what the property market's going to do? I actually think that now is not a bad time to invest in residential property. After two years of declines, the market does seem to be turning but as to what sort of gains can be expected out of the next few years, who knows? I don't think that bloke knows, either. Anybody who says they know is probably lying. So that's what they're talking about, Rob, was a yield of 5 per cent after fees and capital gain of who knows.

Jamie said, "Would it be possible to get Elizabeth Gaines, CEO of FMG, Fortescue Metals Group, on for an interview? I received four very glossy company updates and I got rather caught up and excited in their promotional material."

Well, indeed. That's what the idea is.

Anyway, "There's a lot to take in from there hydrogen JV with CSIRO to new mining ventures in SA and overseas. If anything, it might be a great chat."

Absolutely. We've often asked for an interview. Haven't yet succeeded in getting one, but we'll press on and we'll put in another bid right now. Jamie, I agree with you. I think it'd be a terrific interview and I'm definitely up for that.

Matthew says, "Hi, Alan. I've got my tin foil hat on today."

Well, good.

"Is it just me or do you think that Trump is picking a fight with China using tariffs as the weapon to push down GDP and consumer spending so he can force Jerome Powell's hand to pull the lever and reduce the cash rate. Inevitably, then hoping to then trigger a stock market upswing and reduced the US dollar, all of which would lead into the 2020 election campaign?"

Well, I do think he's focused on the campaign. I think he's picking a fight with China for a variety of reasons, largely to do with appearing to be tough for the 2020 election campaign. As for Jerome Powell's hand, I think that he's trying to set Powell up as a fall guy if there is a recession so he can blame him. If there's a recession, he can say it was because the Fed didn't cut rates. So I think that's what's going on there. I don't think he's picking a fight with China in order to force a rate cut. I think a rate cut's coming anyway.

And then Matthew goes on, "Do you think in retaliation that Chinese will stall the talks and not end the trade war so it stymies his re-election campaign, and do you think the Chinese actually want Trump in the White House for a second term?"

I doubt that they do, really. I think he's a pain in the neck to them, so I'd say they would like to see the back of him. I'd say that Russia wants to see him win a second term and Russia is probably going to try and help him. It's possible that you'll see China and Russia competing with each other on social media during the election campaign. China trying to stop him getting re-elected and Russia trying to get him re-elected. So it could be most interesting.

But, look, I agree that it feels like tin foil hat time, Matthew, if that's what you're on about. I think that it is difficult. These are very dangerous, uncertain times, that's for sure, and I think, as I'm going to be writing in this Saturday’s overview for briefing, I do think that these times call for a more defensive investment position because we really don't know what's going to happen.

Jamie says, "Edith Cowan University PhD candidate Pauline Zanker has developed a blood test that can detect melanoma. Apparently, it's around 81.5 per cent accurate, and they're about to begin clinical trials to back up their findings. The Western Australian Newspaper, it mentions that Pauline has big plans for her biotech business, MelDX. I've done a company search, can't find this business or if it's listed. Anyway, if you're interested, the melanoma blood test could be a game changer and certainly improve health outcomes. Might be worth interviewing Pauline."

Well, absolutely. I did look it up after I looked at your question, Jaime, and it's very interesting. She's detecting melanomas via antibodies, which would get it quite early. I also saw the reference to a company called MelDX. I can assure you it's not listed and I'm not even sure the company exists yet. Certainly, she's talking about creating a company to raise money to get this thing going.

So, look, I'd say it's a long way off. Whether it's worth interviewing Pauline just yet, I'm not sure, but the whole thing looks very interesting and could be worth investing in. But remember, this stuff takes ages. It's such a long, long lead time for these things and we haven't even got onto the runway yet. It's five or ten years away.

But anyway, obviously, if you get an early detection process for melanoma that's a blood test, that's great, and it would be worth a lot of money in the future, that's for sure. But MelDX, as far as I can tell, does not exist yet as a company.

Roger says, "Hi, Alan. Many thanks for your podcast. You quoted someone two weeks ago that low interest rates were driven by rising life expectancy increases, which increases desired saving, while new technologies are capital saving and are becoming cheaper, thus reduced demand for investment. The resulting savings glut tends to push the natural rate of interest lower and lower.

I was under the impression that low interest rates were driven by the action of various central banks helped along with their quantitative easing programs. Is the overriding factor the glut in savings or the central bank actions? With so much debt around globally, can you envisage interest rates going up without significantly impacting on world economies? If so, won't central banks be forced to keep interest rates low in perpetuity or am I thinking nonsense?"

Definitely not thinking nonsense, Roger. I think what you're highlighting is that the situation with inflation and low interest rates is complicated. It isn't just one thing or the other. It's definitely true that central banks are cutting interest rates, of course, and that's a key factor in reducing interest rates, clearly, because they're reducing the cash rate. But they only focus or they influence one thing, which is the policy rate. In Australia, it's the cash rate. In the US it's the Fed funds rate. In Europe, it's the discount rate. But it's various ways of talking about the same thing, which is the rate at which banks lend to each other or the central bank lends to them and that has a flow through effect, and it's definitely being manipulated by central banks.

But there is also a savings glut, a lack of demand for investment, which is also pushing down interest rates, and in particular long term investments, and long term bond rates are being driven down by money pouring into bonds and pushing the prices up. So there's tonnes of things going on. That's the point. And the other question you're asking, which I think is a really important and good question, is can interest rates go up without significantly impacting world economies? And I think this is another issue that needs to be focused on, which is the amount of debt in the world.

If interest rates go up either here or anywhere, it is going to have a much greater impact than it's ever had because of the amount of debt. Australian household debt is the highest in the world. If interest rates started going up here, imagine if mortgage rates went back up to 7 per cent or 8 per cent, the impact on Australian households would be enormous.

Likewise, US, Europe, Japan, a huge amount of debt, a lot more government debt in those places, so it would have a massive impact on the government, but also households and companies. So I agree with you that there is a problem in that central banks can't really put up interest rates, and I think that that's really where they're at, and that's part of the reason interest rates are coming down because they really need inflation. They're desperate to get inflation, which will, over time, reduce the amount of debt but they can't get it.

So I think that the reason they're going for it, trying to get inflation up, is to get the amount of debt in the world down so they're in a better position to increase interest rates at the right time, when the time comes, but they can't at the moment.

Roger's got another question. "On another matter, when central banks expand their balance sheet and buy bonds from banks by quantitative easing, does the resulting liability they generate charge an interest rate?"

Good question. I don't think they do. I'm not sure. It's certainly the case that what they're doing is buying bonds with money that they have created so that they're actually expanding the supply of money and I think that the liability is not... They're not borrowing the money from anywhere. I think it doesn't carry an interest rate because it's actually a liability created out of thin air. It's not actually loaned to anybody or owed to anyone.

Ryan says, "Hi, Alan. What's the best way to find out when analyst briefings investor road shows, et cetera, are on? I often hear about these things after they've taken place. With the exception of AGMs and earnings calls are rarely announced to the ASX and they seem to be a bit of a cosy, closed shop for professional analysts. Can you suggest how I might get on the list in the little black book for these things?"

Well, I agree with you. It's a problem. The earnings road shows, investor road shows, typically just happen after they announce their results. So you would need to get hold of the calendar for the results coming out. The brokers will have them. CommSec puts out a calendar of upcoming results and you can guarantee that on the day that the company announces its results, there will be some kind of analyst call, and you can also guarantee they'll be on the road after that going to see analysts and the professional investors.

I think one of the problems, Ryan, is that small investors don't get much of a look in on these things. Whether you can get in on the analyst call, I think you should be able to do that. If you found out when it was, you could find out the number. What they often do, I find, is that they put on their web site the details for the conference call or the webcast that they do and that's public knowledge. You just need to know what the company is. What I haven't seen is a list published somewhere of all the companies doing webcasts and analyst conference calls so that you can choose which one. You'd need to know the company, go to their web site, and have a look at the ASX announcements on their web site to see whether the analyst conference call or the briefing is advertised and the number put out there. So that's all I can do. I'll see if there's some other way of doing it, and if there is, I'll let you know.

Joseph says, "Hi, Alan. Any plans to have the SpeedCast CEO on. They've had an absolute shocker six months."

Have they ever. Well, they've had an absolute shocker week. Shares fell 30 per cent one day and 33 per cent the next, so they've basically halved in just a week. It's been appalling.

"And I'd be interested to hear what the plans are to return the business to growth and pay down debt. Thanks, as always."

Well, look, we've put in a request for the bloke who runs the place. His name's Jean-Pierre or Pierre-Jean. Pierre-Jean, I think, Beylier. He's a French fellow. So we'll hear back soon and hopefully we'll get him on soon. I think it'll be a very interesting interview. They were talking the thing up, the satellite communication, providing internet to ships at sea and remote locations, emerging markets and so on. I think it looked like a good thing, but obviously not. It's fallen in a big old heap.

Well, that was the last question. Thanks very much for your company. It's been great talking to you. I'm going to head off to the Money Café and talk to James Kirby now, and we'll answer a few more questions there, and you can check it out on the Money Café podcast. Thanks a lot. See you next week.