Barrels, boards and big questions

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[Music]

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

And I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey of shareholder activist.

And we are...

And we are...

The Money Café.

The Money Café, Alan.

Good morning, Stephen.

Morning, Alan. Now, let's not waste too much time on Trump and Iran because we'll all be wrong tomorrow and it will change, but after three weeks of 3 per cent plus rises in the market, which is unheard of and I think it was 13 days in a row of Nasdaq increases, we sort of had record highs with everyone thinking the war's over after the declaration of the Strait of Hormuz being completely open on Friday night and of course, fast-forward five days and it's not open and there's an extension of the ceasefire and are they going to Pakistan to negotiate or not? What's your take boss?

Well, firstly, the market has more or less held onto those gains. It was an incredible rally of 12 or 13 per cent over three weeks, one of the strongest rallies in history over such a short period of time. The market's easing a bit now, it was down 0.6 per cent - this is the US market - down 0.6 per cent last night. Oil was up 2.5 per cent, so it's kind of down a little bit but still holding onto those gains. The ceasefire was extended this morning last night by Donald Trump in a Truth Social post, in which he said, "Based on the fact that the Government of Iran is seriously fractured, not unexpectedly and upon the request of Field Marshal Asim Munir and Prime Minister Shehbaz Sharif of Pakistan, we've been asked to hold our attack on the country off, of Iran, until such time as their leaders and representatives can come up with a unified proposal." I think that's not really the case, but anyway.

He hasn't put a timeline on that, which I think is quite interesting. It's now an open-ended ceasefire.

That's right, it's open-ended. He's extending the ceasefire but continuing the blockade of Iran's own ports, so Iran has said they're not going to talk, basically, while they're blockading its ports.

Their position is, you can't keep on commandeering our ships. The US have taken over control of one cargo ship and they're not going to deal whilst the blockade is in place, so Trump probably needs to declare the Strait completely open and lift the blockade and then have talks and then of course, they'll fall over on uranium and Trump will say, "Give us it all," and the Iranians will say, "No," and the standoff will continue.

Also, Iran has said that they've put mines along the Strait of Hormuz on the most frequently routes, so before it can be used those have to be cleared, that will take a while. Bloomberg is saying this morning that the process will take weeks to clear the mines, even once they start it, which they haven't started yet. They've got GPS jamming going on and insurance companies just aren't interested in insuring the ships going through the strait at the moment and there's no sign of that will change. I think the strait's going to remain a problem for a long time. At the moment, the Asian refineries are going through their stockpiles to try to keep prices down, hoping that the strait opens before they run out of their inventories, but that doesn't look like happening. I think there will be a crunch time some time in the next few weeks.

That's right, it's not sustainable. The most acute pain at the moment seems to be with jet fuel, which at its peak jet fuel, which at its peak increased six-fold in price, went from $20 to $120, it's come back since there, but there seems to be serious shortages. Airlines aren't going to be able to sustain their current service level and then obviously you get the fertiliser and the diesel will be very, very difficult as well. I guess it's a question of who can sustain the pain if the blockade remains in place? How much pressure will China put on because they'll be needing access to Iranian oil and other oil? Even, I read yesterday the UAE have apparently requested a financial backstop from the Americans.

So, in other words, yes, they may be rich, they may own Emirates and Etihad and everything else, but there's a cash issue with no oil flows and they've requested a backstop from the Americans to support them financially. So, who's got the staying power to hang tough? The Americans probably win that, their market doesn't seem to worry, it's very tech driven, they're relatively self-sufficient on fossil fuels and oil, but it's the other markets, Japan, South Korea and everyone else where the pain is going to be dramatic and I think those countries putting pressure on Trump will probably be what drives some sort of a breakthrough, but it's looking quite far away at the moment.

The Fin Review's got a story this morning saying that the Government is racing around trying to organise fertiliser cargos to keep the farmers going and obviously, to try to line up diesel. Those are two things that are really problematic, I guess.

It is interesting, what you learn in a crisis. We're the world's biggest users of diesel per capita, as a country, which partly reflects that we've been slow on the energy transition and partly reflects the nature of our economy, massive in mining, massive in farming, lots of trucks and they all run on diesel, so we're very, very exposed and dependent.

I've got an interview later this morning from the Chief Executive of Viva Energy which owns the Geelong refinery for my ABC podcast, so that will be interesting, asking them how they're going?

Ask him if he was happy with his $600,000 dollar share sale that he did? Because he owns about $20 million bucks worth of stock, I think he got some options vested, so he cashed in marginally, his portfolio, because he's been there a long time and so he was there with the float back, I think, seven or eight years ago - I'm not saying it was an inappropriate sale, but he's got a very big equity position and he's a very well regarded guy. I think you'll have a good chat with him, because their AGM's coming up and I've been to their last two or three AGMs, they're an interesting company. The other stats you hear, is their refinery in Geelong does 120,000 barrels a year and the biggest in the world is in India, which does 1.2 million barrels a year. Our biggest refinery is one-tenth the size of the world's biggest refineries. We had seven at subscale... Even the biggest one in Singapore is 600,000 barrels a year, so it's five times the size of Geelong. I did like your graph on the news the other night, showing all the different refineries across the country that slowly got closed down over the last 20 years. We used to have eight...

We used to have 10 and eight closed down over a period of a couple of decades and now we've got two and one of them caught fire, which was not ideal.

It is interesting that the Coalition - some people are angry with Tony Abbott for de-industrialising, he and hockey just let the car makers all close and it certainly was mainly under the Coalition that we had most of the closures. In the early days of the closures, there was no Government support, so they had this sort of very, very hardnosed position of not interfering, not bailing out, no hand-outs, let the market decide. It was only at the backend of the Coalition Government when I think Angus Taylor was the minister, where they stumped up a couple of hundred million to save Brisbane and Geelong which were the last two and they would have gone as well, but for Government bailouts.

Now you've got bailouts everywhere, you've got Whyalla, you've got Gove up in FNQ... Any big plant that looks to shutdown this days, Governments are writing big cheques to keep them open, which is this whole self-sufficiency, sovereign capability narrative. So it's completely flipped now and if the car companies were still here today, we'd be bailing them out big time from a sovereign capability point of view.

That's an interesting point and I think you're right, yeah. I pointed out in the column in the ABC the other day that there was an energy white paper in 2004, which warned that these refineries, the ones that were left, because at that point three had closed, but the ones that were left were marginal in their economics and could close and Australia would be left vulnerable if that happened and the Government completely ignored the white paper, it just went on and didn't worry about it.

It is interesting that Sydney got left with none. Shell had one on the Parramatta River and then Ampol had one as well, so Sydney had two and then they went to zero. So our biggest city does not have a single refinery, I guess that goes to the value of the land.

One of the things I'll ask Scott White today at Viva, is how many refineries does he think Australia needs? Is two enough? Should there be more and would he build one?

You'd just resurrect, wouldn't you? Like, you'd resurrect the Mobil refinery in Melbourne's western suburbs, you'd start on a site where - because just imagine the NIMBY planning, "Let's build a new refinery..."

Yeah, I know, you're right. I don't know whether they can be resurrected. There's the Clyde refinery on the Parramatta River, the one that Shell used to own, I think it's mainly still there, I don't think it's been pulled down.

It's like any petrol station that closes, Alan, it's a massive cleanup cost, often it gets socialised, often owners of petrol stations in the bush, particularly, they'll often just walk away and hand it over to the council or the Government because it's more expensive to clean it up than the value of the land in the first place, so they're permanently... You don't get too many housing developments on old oil refinery sites, that's for sure. They just get turned into import terminals, mainly, so they can still handle fuel, they just don't process it.

The other graph I had on the news last night was China's sales of solar panels and electric vehicles and batteries in the month of March soared. I think they're up 30 per cent to $21.9 billion dollars US, so China is cleaning up now because everyone's rushing to electrify and have renewable energy instead of oil and EVs instead of internal combustion engines and they've positioned themselves as the big producer of those things and so they're starting to clean up.

It is interesting, isn't it, how you can have all the Paris agreements you like, but the biggest oil shock in history is actually going to turbo-charge the transition to clean energy or probably give it the biggest kick along, bigger than any sort of Government dictate or global agreement can give, because you're right, it's cheaper and it can't be disrupted. The Chinese are benefitting and the Americans are doing fine because their economy is driven by big tech and they're self-sufficient in oil, so the big two, the G2 super powers, seem to be trucking along well. The Chinese have got huge oil reserves as well, they planned for this day. I think you wrote about the Straits of Malacca, if that got shut, that's an even bigger chokepoint than the Straits of Hormuz.

Just from memory, it's 23 million barrels of oil a day go through the Straits of Malacca, versus 21 million through the Strait of Hormuz. It does have more oil going through it, the Straits of Malacca and it's actually narrower, it's only 2.8 kilometres across, so easy to close down but the countries on either side of it, which is Malaysia and Singapore, are not war-like, as it were.

It's funny how Trump's already joked about turning the Straits of Hormuz into the Strait of Trump and did you see the piece in the New York Times yesterday that the Ukrainians have been proposing to rename parts of the Donbas, Donnyland, because the way you get a deal with Trump is you suck up to his ego and you try and rename something. I think it was Azerbaijan and Armenia, there was a big transport project, it was called the Trump International Peace Bridge or something. It's just so pathetic, isn't it? It's absolutely pathetic that this is how international deals get done dealing with this buffoon. Sorry, I'm getting a bit... Did you see he's lost another Cabinet Minister? Lori Chaves Deremer, the Labor Secretary, is out for having an affair with one of her security details. They're starting to drop like flies now, the old Trump Cabinet, just like Trump Mark One. It took a while, but they're starting to fall over now.

Yeah, well I think he's mostly sacking women, isn't he?

Well, three women have gone. Pam Bondi, Tulsi Gabbard and this latest one - and then you had the whole - Kash Patel was about to be sacked, he thought, and the Atlantic wrote a piece saying that he's just on the drink the whole time, they can't track him down when they need him for big FBI decisions...

This is the guy who runs the FBI?

That's right, he's the guy who was seen spraying beer all over the ice hockey rooms after they won the gold medal at the Winter Olympics. He's just sued the Atlantic for $250 million US dollars for suggesting he's a big drinking, unaccountable buffoon. He's taken a leaf out of Trump's book who's still suing The Wall Street Journal, still suing the BBC, Trump, billions of dollars, it's just crazy.

How many boards are you running for?

Well, I've lodged for 12 in the month of May, I've pulled out of one because they have agreed to go to a hybrid meeting. That was a good little compromise. Four are public, Brisbane Broncos, Future Generation Australia, Grange Resources and Vista Group, which is over in New Zealand. That was my first board nomination in New Zealand and the rockets are going off over there. They're not used to cowboys from across the ditch nominating for their boards, there's all this media and people are weighing in about whether it's appropriate and I'm just saying I'm sick of asking you Kiwi companies to put up a remuneration report for the vote, so I'm going to start running for a few boards until you do.

Of course, Vista Group have not published my platform, they haven't said why and the same with Brisbane Broncos. I put this big platform in about Rupert Murdoch and News Corp shouldn't control the Broncos, it's time to go back to a conventional ownership model like most NRL and AFL clubs and they've just censored the platform. We need the Electoral Commission to run these elections, Alan. You can't trust corporates to run a fair election.

It'll be a bit of a problem if you actually get onto that New Zealand board, right?

But this is the whole point, Alan...

There's not much danger of that though is there?

That's right, I've run 75 unsuccessful board tilts before this latest 11, so that will bring it up to 86. I'm probably going to settle in at 250 AGMs a year and maybe 20-25 board tilts, so one board tilt for each 10 AGMs and it's just an influencing exercise. The only company which does an institutional placement with no SPP for retail, automatic board tilt. Perth miners that don't run hybrid meetings that force you to fly to Perth, automatic board tilt. Some of them are moving, like Elsight, this Israeli defence company based in Perth, they've agreed to run a hybrid after I lodged my nomination, but I haven't pulled out because they've still got a history of a very discounted placement that diluted retail shareholders. So I've said, "If you commit to do a share purchase plan, I'll withdraw."

And they wouldn't do that, so I said, "Okay, I'm going to continue with that run." It's quite effective in terms of moving market practice and people have to take it more seriously, because words at an AGM, they're just words and people can just sort of - but a contested election is an event, it actually causes something to happen, the board has to talk about it, you fight about the words, you have votes, it's just more impactful and I think companies will move to avoid a board contest and so few companies have them, it's good experience. You should be used to running a contested election in your professional career as a director, what's wrong with it? We're a democracy... Anyway, we'll see what happens.

In your notes, Stephen, you pointed to a piece in The Age which I haven't been able to find, Anthony Catalano parts ways with his publicist...

No, that was just the Fairfax papers covered the fact in their gossip column that the platform at the Broncos had been censored, if you like. I did run for News Corp's board in 2002, I actually got 12.9 per cent, would you believe, which was an incredible effort given that Rupert had 40 per cent against me. That was one of my best ever results in 2002 and Rupert completely censored the platform, didn't even say how old I was, so there was no explanation to the shareholders about why I was running and I still got 12.9 per cent. These days, I struggle to get - I think I averaged 4.3 per cent last year, that was back in the days when people didn't know how to vote against, they just donkey-voted down the page. That doesn't happen anymore. All right, we should do some questions, I reckon, boss.

Before we do that, let's have a quick word from our sponsor.

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Before we get onto questions, just bear in mind that this is general advice only, not personal advice, so please bear that in mind. The first question is from Mark, "Looking forward to wearing my Money Café hat..." Good for you, Mark - "Not a good situation, but I can't help but think this fossil fuel crisis could be the catalyst the world needs to accelerate the shift to renewables. Renewables look far more reliable when you see how fragile fossil fuel supply chains really are. At least with this crisis we have options like a full-blown climate catastrophe." Fair enough...

Or 'unlike a full-blown climate catastrophe', I think Mark's saying there.

Oh, 'unlike', I see, yes.

With the energy shock, we can pivot to renewables, but we can't pivot away from a full-blown climate catastrophe, which is a fair point. What about the gas tax, have you been following this massive gas tax debate that the greens and Senator Pocock - we should be taxing all our gas exports a flat 25 per cent? I don't know, I think they just want to shut the whole industry down, don't they? That's what Angus Taylor has accused them of.

They're just trying to find a way to close the gap. They've got a structural budget deficit of $35 billion dollars, which goes on kind of forever. The only way, according to the long-term forecasts of the budget, the only way that it gets resolved is through bracket creep, which is to increase income taxes on workers, so they're trying to find another way out of that. Everyone's saying, "Tax gas exports like Qatar does or Norway does." Richard Denniss from the Australia Institute, did a presentation yesterday to the parliamentary committee on the subject and said, "Resources companies are still going ahead with new projects in Norway even though they tax their gas much more." Even though they're all kind of saying that there will sovereign risk and there'll be a big drop off in new projects, he says that's rubbish. Interesting. It'll be interesting to see what they do.

I think the Government's pretty much ruled it out now because it wouldn't be a good look with fuel prices through the roof, to be suddenly jacking up taxes on the gas companies, so I think they've ruled it out for the budget, but it is an interesting long-term debate. I personally think it's actually the gold miners and the iron ore miners who are grossly under-taxed, because the state royalties in WA in particular are so low, 2.5 per cent for gold and 7 per cent roughly for iron ore and that's why you've got three families, the Forrests, the Rineharts and Clive Palmer worth $120 billion, all based on under-taxed iron ore in WA.

You look at the economics of the gas companies and it's not the same, there haven't been the same super profits. But I guess a lot of them are multinationals and so they're all panicking and running up to the Senate and talking about how much tax they've paid over the last few years. It is an interesting debate, they've run a good campaign, the Australia Institute and Adam Bandt was giving evidence yesterday. They run a very effective campaign, but think the Government seems to be saying they're not going to actually move on it this time.

Staying with the budget, Mark says, "There's currently a lot of noise regarding the current 50 per cent capital gains tax discount for assets sold after 12 months. Prior to this, the cost base was indexed to CPI. Now it looks like it might be reduced to 25-33 per cent. Has anyone given any thought to how that capital gains should be assessed?" And then Mark goes on to say whether it should be assessed over the life of your ownership of the asset, rather than all coming to a head when you realise the asset? And I think, frankly, Mark, that would be a very complex thing to try and measure, to smooth out gains over five or 10-year period. But we do have the very live issue of which way the Government's going to jump with their CGT changes, Alan, and I think the latest press seems to be suggesting it will be back to the original Keating model with index to CPI. What are you hearing?

There was an interesting commentary this morning in the Financial Review by a former Treasury Official saying that that's what should happen and he's saying that the 50 per cent discount is not that generous, really, in terms of comparing it, if you compare it with the CPI adjustment that was in place before 1999. 50 per cent discount actually favours people who hold assets and properties for a short period and the longer you hold it, then the worse it is. But you're right, it does look like the Government's going to reduce the discount, mainly because I suspect that they just want to raise some more money. That's what they're looking for.

That's right, it's too big a subsidy, they're in structural deficit and they think they can get away with the politics of it because it mainly affects the wealthier members of the community. We've also got Mark Butler at The Press Club today, he'll be outlining some changes to the NDIS. It looks like on the spending side, the NDIS will probably be one of the bigger moves in the budget and they'll be giving some detail today. Then on the revenue side, it'll probably be the CGT switcheroo which will be the bigger one. It's not going to be a revolutionary budget, they're shaping up as two of the major things that are going to come through.

Alison says, "Love the show as I'm always learning so much. Today, Thursday 16 April, the Industrial Relations Commission handed down its findings in relation to the wages for nurses and midwives in New South Wales. The finding was a real shit sandwich with the Commissioner initially talking about the nursing workforce being the DNA of healthcare and that we are undervalued. He also spoke about disparity due in large part to the large female workforce. However, I couldn't believe my ears when he then went on to say - and I paraphrase - that we couldn't get a bigger increase in our wages as it would act as a stimulus to the economy and therefore put upward pressure on interest rates. Am I just upset that I didn't get the pay rise that I think we deserve, or is this generally a factor when considering wage rises that I have just not taken notice of before?"

Yeah, to be honest, I'm not a huge follower of Industrial Relations Commission decisions, but I don't think they usually make a decision in relation to the economy as if they're the Reserve Bank, do they? They should just look at whether someone's getting paid enough.

Yes, the decision was 16 per cent over three years for registered nurses and midwives, 18 per cent for enrolled nurses and 28 per cent for assistance in nursing over three years. That's certainly higher than inflation is likely to run at but Alison's clearly - and the gender argument is true, if all these nurses were members of the CFMEU wearing hard hats, they'd all be earning double/triple than what the nurses are getting. I do remember John Howard standing up in question time saying that he believed that nurses in Australia were underpaid and that New South Wales Health was the largest sponsor of working visas in the country. It's the biggest health system and the health system needs international workers with skills and the New South Wales Government has long been bringing in thousands of skilled health workers. I guess it all comes down to the proportionality of it and 16 per cent over three years was the decision, Alison, and Alison's obviously thinking it should have been more. There is the wage spiral argument, isn't there? If you keep on giving big pay rises to tens of thousands of people that are above inflation, that's going to feed inflation and lead to higher prices and on the spiral goes, isn't that the argument?

Of course it is, that's right. Did the Commission Chairman actually say that? I suppose he might have, if Alison says he did, then he did. He didn't want to stimulate the economy, well fair enough, okay.

Mark says, "I'm in my mid-40s and my parents are in their 70s. As we all know, house prices used to be many less multiples of someone's yearly wage, so you would expect that everyone from my generation who's a bit older would have grown up with parents flush with disposable income, with housing a mere afterthought, cash would have been flying around, we would have all been living in luxury. However, this is not the case with anyone I know, just normal lives and nothing flash. I think people are disregarding the fact that the cost to furnish a house, buy a car, get a lawnmower, buy a TV, has all come down dramatically from our parent's generation. They probably had to pay double the house price to fill it..."

And then using the RBA inflation calculator, Mark has calculated that a TV in 1975 cost $700 dollars and that in today's terms would be $6,250. A fridge at $400 dollars would be $3,575. A queen bed and base, $400 back then, would be $3,575. I reckon that he's making a really good point here, Alan, that everything else associated with a house was massively more expensive back in the day and people should take that into account when discussing housing affordability today. What do you think?

I think there's absolutely something in that - Furniture as well. Everything's getting made in China now and it wasn't in the 1970s and 80s...

It was all made here and tariff protected, wasn't it? It was grossly overinflated and inefficient.

That's right, TVs, all those things and all sorts of furniture, couches, dining tables and so on, everything was much more expensive in those days, that's true.

Hayden's got the opposite perspective to Mark, he's saying, "Thanks for pushing back on the housing affordability question. It melts our brains when the older generations tell us about how high interest rates were back in their day. We would kill to have those interest rates if it came with those income to house price ratios. I do worry that the older generation don't quite understand the intergenerational fury that is building up across the western nations, somewhat in Millennials, but especially in Gen Z as they are seeing the hands they are being dealt." I guess both perspectives are correct, aren't they? Inequality is greater globally than it's ever been. Housing affordability at that ratio to wages is definitely worse than it's ever been, albeit it is cheaper to furnish the house. So these are the two sides of the argument and we're hearing both sides on today's Café, Alan.

I think it is true that the cost of the house and the way it's increased relative to wages does swamp the cheaper furniture and TVs and everything. All that stuff is interesting and worth noting, but I think the most important thing is the cost of the house, which has gone up so much.

That's right and we had other readers write in and say that the quality of the house is also up and that's a good point as well, but if people just want to buy a median average house where quality is on par with every other average house, then it's so much harder. I remember there was an old joke, what do you call an Italian in Perth with three houses? Lazy. That was the thing, Perth was the land of opportunity and if you didn't have three houses, if you were an Italian migrant who could build a few things and you went to Perth with all the mining riches, if you hadn't accumulated three houses, you were lazy and that is just absolutely not where an Italian migrant or someone arriving in Australia these days... I mean, Christ, just getting one house would be a great effort these days, not three. Your turn.

Evan, the working parent, definitely not a teacher, says, "Love the show, first time questioner. I would like to question why we need extra days of school holidays. These Easter holidays for public primary schools in New South Wales start at Good Friday and then go for 10 weekdays of school holidays, but that's not all. Teachers also have Monday and Tuesday, 20^th and 21^st, as pupil free school development days. Teachers are indeed underpaid, however they are furnished with three times more vacation than any other standard professional 9 to 5 role that I know of. I propose any development days are done within the vacation week block and teachers can then enjoy 11 weeks' vacation a year." He goes on about productivity...

Talks about the productivity increases, if the teachers had one week's less holidays, he's saying there'd be a 2.5 per cent productivity increase in terms of the teachers working, there'd be 2.5 per cent more learning for students and the parents would be able to work 2 per cent more in terms of working. He's saying that that would be quite a productivity lift. I guess with two-income households - I mean, our kids have all finished school, but it used to be a massive battle, school holidays over summer and you would be cursing for the - I know the private school sector, they always joked that the more you pay, the less they go.

But I don't know, it is getting bigger in terms of the amount of overall non-contact days in the school system. It's gradually increased over time with the extra public holiday here and there. Dan Andrews and his Grand Final Eve Holiday, that was another one he threw in with the AFL Grand Final. How do you go about industrially negotiating that? Because teachers aren't paid well, that's part of the deal, is you get excellent leave, best leave and if you're suddenly taking away leave you'll have to pay them more and can state budgets afford that?

One of the ways of dealing with this without having to cut the teachers' holidays back industrially would be to follow my suggestion of making childcare free, because the big problem for working parents is getting the children looked after during this time and at the moment, in particular for school aged kids, the solution is outside school hours care, which is all private sector companies. Some of them, in fact the two biggest ones, owned by private equity, so that's the problem and it's becoming more and more of a problem as female workforce participation increases.

Obviously, that's not going down, it's just going to continue to increase, so it'll continue to be more and more of a problem. It's a real cost. This outside school hours care, not just during school holidays, but before 8:30 in the morning and after 3 o'clock in the afternoon, I think it's becoming a real problem for a lot of families doing this and so I do think the Government needs to - at the moment, the kids are effectively looked after as well as being educated, between 8:30 and 3 for free and then but outside those hours it's really expensive.

Some sectors are just not moving. I've retired from Manningham Council these days, but we owned 25 kinders, Alan, only one of them was co-located on a school site, which is where all kinders should be and we were running all of them with just sessional kinder, so there was no long-day childcare. Then all these brand new childcare centres get built all over the municipality offering childcare and a kindergarten program, so the numbers attending our service of the 25 kinders was falling, because they were also single room kinders, they were tucked away in side streets... I almost reckon the councils should just get out of kindergartens all together and sell the lot to the private sector and tell them to fill the rooms. You can't offer three hours a day in 2026, because parents need that long-day care and that's why they're going to all the brand new childcare centres. One guy explained to me, who was in the sector, how it was working. Your typical childcare manager is on a salary of $125,000 dollars a year, but your typical childcare centre earns a profit of $250,000 dollars. So, all these landlords, Charter Hall, all these people, they just go out and there and they just keep building childcare centres and they can always find people to sign a 20-year lease with a 4 per cent escalator, because you've got all these childcare centre managers who sit there and say, "Well, I'm earning $125k working for the man..." working for G8 or someone, "I'll sign this lease and I'll make $250,000 a year." So there's very low barriers to entry to get into the childcare management space.

Peter Dutton made his first few millions owning/managing childcare centres. That's partly why there's been an explosion of childcare centres being built, because there's an endless line of people prepared to sign leases and manage them because they typically do make $250,000 a year, combination of parents paying up and rising Government funding.

That's the other problem with after school hours care, these things are all mini-monopolies. Businesses like Camp Australia or Team Kids, what they do is they get an agreement with the school and once they've signed that agreement with the school and they basically sling the school 10 to 15 per cent of their revenue, so they're not paying the school a fixed rental, it's a percentage of revenue, once they've got that deal with the school, they have a monopoly of that school. The parents who are working, where both parents are working, they not only have no choice but to use that service, there's no competition, they have to use that company. It's a sort of little monopoly within the school that and the parents are forced to use it. The more I look at this issue of childcare, both after school hours care and under-fives childcare and kindergarten, it really should be nationalised. This idea that it's all three-quarters for-profit businesses is crazy, I just think it's terrible.

I actually know the Camp Australia origin story. There were a couple of brothers who were good tennis players and I think Andrew Philips who also played footy for Carlton, they sort of grew up in our area and they used to run clinics at tennis clubs and they got so swamped on school holidays with parents dropping their kids in supposedly for tennis lessons but it was actually childcare was effectively what they were offering. They said, "This is not a bad business..." And that's how Camp Australia got born, then they sold it for $300 million to private equity firm Bain just before COVID and then Bain went broke because all the schools were shut during COVID. But yeah, a couple of tennis coaches, discovered there was a massive demand for childcare with tennis clinics during the holidays and then turned that into a national business that was sold for $300 million.

Now they're giving tennis lessons in the Bahamas, no doubt.

They've actually got a really good Philips Foundation, they actually do really great work. It was interesting how it started.

Good for them.

Now, Clarke says, "Great podcast. I bought a coffee while transiting through Sydney Airport last weekend and got stung, not a fan. How have these surcharges crept into normality and are they justified at a random flat rate? Imagine the outrage if Coles, Woolies or Bunnings implemented weekend surcharges? If I were them, I would certainly be considering it, as it now seems to be standard practice."

Are they putting a surcharge on airport coffee now?

Well, you do get lots of weekend surcharges in hospitality. I think it's fair to say that in hospitality where you have an option of opening or not on a Sunday, they do seem to be coming more common. But with Coles and Woolies and Bunnings, it's universal pricing and they've just got to ride the bumps of Sundays being less profitable than Mondays because they've got to pay double time. You can't ban it, can you? Businesses are allowed to put a surcharge on for coffee because you're paying your baristas double time.

I suppose, yeah, is that what's going on? I got the impression that he's talking about it being a fuel surcharge, is that right? No. It's a weekend surcharge, is it?

People are calling things all sorts of surcharges, credit card surcharge, fuel surcharge, weekend surcharge, penalty surcharge... You can come up with anything.

It was interesting, I saw a story yesterday that Wendy's in the US was trying to do real time pricing of its hamburgers digitally so that it could change them as the day went on, depending on how popular they were, how much demand there was.

Well, this is dynamic pricing, isn't it?

Dynamic pricing, that's right, they wanted to do their hamburgers.

I think dynamic pricing is evil. Big blockbuster AFL games now, you've got to pay far more for a standard seat because they're dynamically pushing the pricing up when demand is strong. I think dynamic pricing is far worse than weekend surcharges or fuel surcharges. It just got me thinking with this, with libraries, I used to be on council, I was on the library board, we had eight councils, joint venture with Whitehorse, we never used to open on a Sunday, Alan. Most of our libraries were not open on a Sunday because the union has never ever agreed to anything but double time on a Sunday, so council owned libraries respond by not opening on a Sunday because it's too expensive.

Maybe we should charge a surcharge and have an entry fee into the library so people who want to use the library on a Sunday can help pay for the double time. I think it's a joke. Why have double time when that just leads to the service not being offered? People want to go to the library on a Sunday, but you look all over the country, you'll see that libraries are rarely open on Sundays, or not for very long, that's not because people are at church, it's because the industrial agreements all lock in double time on a Sunday and the councils just say, "Bugger it, we'll shut, we won't open." Then the community loses a service.

Obviously, the best way to do it is to spread the cost of Sunday, double time, across the week, so that everyone pays.

I forced us to open for longer, I said, "We've got $80 million cash in the bank, we're not like all these UK libraries, we're not going broke. Sod the cost, open the damn libraries." And okay, it cost us a few hundred thousand more over the term of the council, but the libraries were full and I think it was the right thing to do, offer the service, particularly if you can afford it. Anyway, your turn.

We've got time for one or two more. Harry says, "I think it's quite inevitable considering it's already common place in San Francisco, that self-driving cars become the predominant transport in our cities, especially when it comes to food delivery and ride share. I'm pretty excited about it. I think an often overlooked benefit will be the potential productive time in the vehicles where people can do a couple of hours of their existing workday. Maybe they can start workday from self-driving office space, have a few hours at work getting the important interactive collaboration time with colleagues, before jumping in the moving office back to their home." Yeah, I think that's true, that we are definitely heading into self-driving car territory, that's for sure, and I think the main reason for that is because there will be fewer accidents. I think the experience in San Francisco is that basically they don't crash into each other, these cars, because the self-driving cars are always paying attention, unlike humans.

But it's going to only be a city thing, isn't it? You're not going to get big B-doubles going from Melbourne to Sydney on the Hume with no driver.

Well, I don't know...

You won't get an elected Government or regulator allowing that, surely.

I'm sure you're right, but human B-double drivers also don't pay attention sometimes and sometimes, so I understand, take drugs. I don't think it's that stupid an idea.

You get driverless trains in the Pilbara, obviously, and Sydney's not got with their metro, they've got driverless trains with their new metro, I think. It's certainly moving there across the board. 7 per cent of workers are in driving jobs, transport jobs, so that could be a massive disrupter, just like people used to say that 3 per cent of all workers were in call centres and that's certainly falling with agents replacing the call centre worker. But I agree, I think self-driving cars is bigger than robots and probably one of the biggest productivity changes because imagine if all those people don't have to drive, Harry's right, you can work in the self-driving car.

Final question from Nathan, "Love your analysis, Money Café team, especially the consistent presentation of views and points. The polite frictionless debate is impressive, rare, a necessary good role model and often yields new and interesting opinions..." Thank you, Nathan, we'll give you a free cap for that! He's loving Alan's new podcast on the ABC as well, "Listening to his recent episode with Danielle Wood, the Head of the Productivity Commission..." Nathan would like you to clarify, Alan, "If AI promises productivity improvements, but potentially only 4 per cent gains over the decade, as per the Productivity Commission, then we're only really achieving a partial reversion to the historical mean. Is the PC way off in their estimates or did I miss a jobs-pocolypse last century, or is the fear overstated?"

That's an interesting point, Alan. Did Danielle Wood persuade you to be less pessimistic about the jobs-pocolypse coming when you had your lengthy chat with her the other week?

Not really. I don't think anyone's really got any idea what's going to happen with all this and including the Productivity Commission, they're guessing and fair enough, they've got to come up with something. I'm one of the many people who doesn't know what's going to happen, but I do think that what's happening is the large language model companies like Anthropic and OpenAI are starting to sell colossal amounts of their intelligence tokens. We saw Anthropic which has got Claude, they've revealed their first quarter, they're not listed but they've revealed their first quarter and they've gone from $7 billion US per quarter, to $21 billion per quarter for the first quarter of this year. That's basically what they're doing, is selling intelligence.

That's an incredible increase. It's really starting to take off and what's happening is, what's called agentic AI, which is companies either building or buying agents to do jobs, do particular tasks within the company to increase their productivity. The agents basically tap into the large language models like Claude and ChatGPT to get the tokens that carry out the intelligence tasks that the agent is required to do. What's happening, is a colossal boom in the sale of tokens and the tokens are created by data centres. What you're seeing is this massive boom in data centres to basically create the tokens that will power the agents. Then it comes to a question, okay, well is this just going to lead to existing human beings being more productive, or will it replace them? I think it's both. I think it's not an either/or situation. These agents are going to both increase the productivity of staff, but also replace a lot of staff. The agents are starting to do lots of jobs that are normally done by human beings and they don't need the humans. I do think that there's going to be a big increase in productivity and a big reduction in staffing at the same time. Does that mean I'm pessimistic? I did this thing on the ABC news a few weeks ago, the only reason to be pessimistic about this, is if you think the Governments won't be able to handle the redistribution of money.

Because a lot of people will be fine with not having to work, as long as they can live okay. I quite like working, a lot of people like working and so if I got sacked as a result of AI, I'd be sad about it because I like it, but a lot of people don't like it and they wouldn't be sad about getting sacked because of AI either and they'd be fine with not having to work, as long as the Government gave them some money. I think it's going to come down to, will Governments be able to handle the redistribution of the money, that's what I'm pessimistic about. I think that the Governments don't have a good record with that and they have no idea what they're doing, they're not really focused on dealing with this problem and this issue, they're not prepared for it and it's happening fast.

My only comment will be, as we round this out, is Tim Cook has announced that he's stepping down as the Apple CEO on September 1, he's still going to continue on as Chair, but this is quite a moment after a 15-year run and I think history will look back and say that he was smart in not getting into the AI capital spending wars. He's sitting back, letting the big five slog it out and a big two or three will emerge at the end of the day, so not all of the people spending all of these fortunes will survive and he'll then do his deals, like his Google deal, he'll just do a deal with Anthropic or OpenAI, whoever emerges as the big one and then they'll be embedded on the Apple products. It was the right call for Apple not to try and join this race and spend crazy money of getting into all this AI investment.

It's uneconomic to have this much being spent by this many players and a lot of losses will be suffered, but within that, just like with the internet, there'll be massive productivity gains at the end of it, but quite a bit of money lost along the way due to the war, the capital spending wars as to who will win this new frontier of tech investment.

I'm finding AI pretty useful at the moment.

So am I.

I started off, I subscribed to Claude, then I dropped that and subscribed to Gemini and now recently, last week, I subscribed to Perplexity, which I think is better...

Gee, you're quite promiscuous, Alan, aren't you? You're sharing the love around.

This is the thing about these AI things, you can switch around until you find the one that suits you best. I must say, all of these things that I'm using are being done on my Apple devices, my Apple computer and my Apple phone.

Much less easy to ditch Apple than it is to ditch ChatGPT, that's for sure.

That's right, easy.

You're entangled in Apple, you'll be entangled in Apple for the rest of your life, there'll be no escaping it. Very good, boss, I reckon we're done.

Thanks, Stephen, that was great and thanks, everyone, for listening to today's episode of The Money Café, I'll be back next week with James Thomson. Send in a question to themoneycafe@intelligentinvestor.com.au and we'll answer it if we can. We always answer as many questions as we can get in. Until then, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and Finance Presenter and Columnist for the ABC.

And I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder activist and we'll see you in a fortnight.

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