Blast Off: The SpaceX Float

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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 Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder activist.

And what are we, Stephen?

If you ask me, Alan, we are The Money Café, taking a brief break from the World Cup to a recorded café.

You watching the World Cup, are you?

You watching the World Cup? I'm loving it, I am absolutely loving it. The French just had a good 3-1 win over Senegal, so they'll be now the warm favourites after the Spanish couldn't even get over Cape Verde yesterday and what about those Australians? I missed the 5 a.m. Block/Square AGM in the US this morning, I'd set the alarm, was all set to go to it and slept in, I just missed it. So I'm not going to sleep in and miss the 5 o'clock start for the Australia-US game in Seattle on Saturday.

It's 5 o'clock, is it?

Are you watching it, are you excited?

No, I'm afraid not enough happens at soccer for me. Look, I did watch the Australia game the other day, who was it against?

Turkey.

Turkey, yes, I did watch that.

Come on! Gallipoli revenge, Alan, it was huge. The mighty Turks, we took them out.

We did, that's right, 2-nil.

Yes, I think that was our greatest World Cup win, looking back. I mean, there's been some rippers, but just the way that's captivated the nation, it was just absolutely magnificent. Patrick Beach, incredible goalkeeping, it was just fantastic. So, yeah, going to be a massive productivity drain on the world economy for the next six weeks, it goes on forever. You can go back to watching the Bombers, mate, they're doing no good...

What do you make of the SpaceX float, Stephen?

SpaceX, look, my one share - I've got one left, I bought four, I applied for 10, got four, sold three on the first day and I'm left with one. It's closed at $206 this morning, so it's now popped 52 per cent from the $135 dollar float price. It went past Amazon today and briefly, in intraday trading, went past Microsoft to be the fourth biggest.

Did it? I didn't realise that.

So it's now capped at $2.66 trillion, it's just done a $60 billion dollar acquisition, paying in stock, they've bought a business called Cursor and when you're paying in inflated stock you can buy anything, Alan.

That's right.

I read your column on the ABC, you and I are on - the whole thing is just a hype meme stock, ridiculous, but every day it goes up and every day we look more silly, don't we?

I guess eventually we'll look not silly, but look, yeah, as I think our mate, James Thomson, said, "It's not really a company, it's an idea." The normal valuation methods don't apply here, it's just completely got nothing to do with it, multiples of either revenue or profit, it's completely all irrelevant, really. The valuation of $2.66 trillion dollars, it could be anything.

The 505-page prospectus talked about current revenues of $18 billion and then we get a tweet over the weekend from Elon saying that he's going to do a trillion dollars in revenue by 2030. He should be getting arrested for that. He's put out a prospectus and then he just does a tweet saying, "I reckon we're going to get a trillion dollars of revenue." It's a strange old world, Alan, I reckon in 2030 we'll be getting Prime Minister Pauline Hanson having just appointed Gina Rinehart to run the Australian DOGE Department, doing a text congratulations of her mate, Elon, saying, "Well done for getting a trillion dollars in revenue, Elon, in 2030. They said you'd never make it." I mean, how can you just make a forecast like that?

I don't think he's going to make a trillion dollars of revenue in 2030, I just don't see that happening somehow. So, look, you're right...

Gina's put a billion in and she's already half a billion in front, US, on paper. She jumped to the front of the queue. All us Commsec people getting scaled back, 10 down to four, and there's Gina leaping to the front of the queue with a billion US, thanks for coming.

You got scaled back from 10 to four?

Yeah. Elon was running a Chairman's list, have you heard of the concept of a Chairman's list? When you have a capital raising, the Chair gets to decide who gets the stock, so getting on the Chairman's list is always a way to queue jump and Gina was obviously near the top of the Chairman's list. And you see they've taken the extra $10 billion, so it's now not a $75 billion dollar US raise, it's an $85.7 billion dollar US raise.

Yeah, well of course they were always going to do that, that's called the 'greenshoe option' where investment banks get to sell another 10 per cent of the stock on top of the original IPO if they wanted to and of course they wanted to this time, that's for sure.

They don't get commission on the extra 10 per cent - extra 15 per cent, actually, so it's $10 billion at 15 per cent. They don't get commission. The fees are about $500 million US across the lot, only about 0.7 per cent which was quite low, I thought. But yeah, they don't get a fee...

It's 0.7 per cent of a big number. The fee is total $500 million US dollars.

Commsec was only taking 0.2 on us because it's a fee on a fee. Macquarie was running Australia's, so Macquarie gets their cut, then they manage Commsec, they get their cut, but the overall fees were 0.7.

They're all making tons of money on brokerage because there's so much trading going on. Wall Street and the Australian brokers, they're all having a lovely time.

Yes, but everything else is getting crowded out. Palantir stock's down 20 per cent in June, crypto... There is a crowding out factor, I reckon.

No, you're right. Then we've got two more big IPOs coming, OpenAI and Anthropic. So, they'll do some more crowding out.

They will and they'll certainly give those away, won't they? If Google can raise $85 billion in a secondary raise and then Elon can raise $85b... The previous three years, they barely did $80 billion over three years in IPOs in the US. They'll end up probably doing $300 billion this year. This is actual cash, it's not just paper, people have written $85 billion dollar cheques to Google and SpaceX in the last two weeks, that's never happened before in public market land. You'd be mad if you were Nvidia and OpenAI not to tap this, if the public markets are so leaning in, then put your hand out, take what you can get! Anyway, we've got a few questions on SpaceX later, but what do you think of the Iran peace deal, all one-and-a-half secret pages of it?

The Saudi Arabia official news agency, the state-owned news agency, Al Arabiya, has published what it says is a leaked copy of the agreement, which is 14 points. So, if you google that, you can find it, it's interesting. It's not confirmed, neither the US or Iran has confirmed that that is the agreement, but it looks like, I must say. The key points are that Iran gets $300 billion dollars of reconstruction money and it doesn't entirely come from the US, I think, but the US undertakes together with its regional partners to create a comprehensive plan to pay $300 billion.

Iran agrees never to have a nuclear weapon and there's no mention - they've agreed to reopen the Strait of Hormuz immediately and the United States agrees to withdraw its forces and end the blockade, but there's no mention of Iran not tolling the strait, so they haven't agreed to not control it, they haven't agreed to that or they haven't agreed not to toll it, according to this 14-point memorandum. Everyone's saying it's a comprehensive loss for America and a victory for Iran and that looks true to me, I must say. That's what it looks like has happened.

Trump has been saying that there needs to be an unconditional surrender by Iran, well that has not happened, there hasn't been a regime change and I think they were never going to insist on having nuclear weapons to begin with. They could have got that agreement without bombing them. So, all that's really happened is that they've assassinated an old man, the Supreme Leader Ali Khamenei, that's what's happened, they've killed him and done a small bombing and disrupted the global oil market and that'll be disrupted for a while and cost everyone lots of money and it was completely pointless.

It is interesting, there's 100 tankers stuck in there at the moment. They'll all get out because you've got this 60-day negotiating period, so the oil price is coming off quite a lot and those 100 tankers will get out, there's already a few of them passing, they're very large gas carriers. But the real test will be if any empty tankers are prepared to go in, that's the real test and that's where the 60 days - at least the strait will be unlocked, everyone that's blockaded in there gets out, oil will flow and the Qataris are saying they reckon they can get 50 per cent of their lost gas production back within four weeks, so you will get a bit of... But is the strait going to stay open? Will it be toll-free? Could this blow up again? Then you've got of course Israel and Hezbollah... The $300 billion, there's an element of good behaviour bond with the $300 billion, but last time the Iranians got a pile of cash for good behaviour, they kept on supporting their proxies like Hamas and Hezbollah, so their ability to walk away from their state-sponsored terrorism piece with the cash that's coming for reconstruction, I think that'll be the test because they can still cause an awful lot of trouble, while not building a nuke. Can the regime be trusted to behave itself?

Obviously a nuclear weapon would be designed to gain leverage and now that they've got control of the Strait of Hormuz, they've got leverage, that. So they don't need a nuclear weapon for leverage. Trump and Netanyahu claim that Iran would actually try to obliterate Israel if they had a nuclear weapon, I don't think that's true, I think that'd be ridiculous. So it was all about just getting some leverage and now they've got it. It's interesting, the other point in the agreement that's been published by the Saudi Arabian news agency is that all of Iran's frozen funds that have been sanctioned will be released and made fully available. They've just completely won, it's amazing.

And what will they do with all those funds? I think that's the interesting question.

Well, they've got a bit of rebuilding to do and they'll rebuild and they'll maintain and grow their drone capabilities.

Yeah, but how big will the defence budget be? How much of the $300 billion goes into missiles and drones versus actually just back to the people sort of stuff? I was amazed, actually, the Iranians - 70,000 in the stadium in Los Angeles playing the Kiwis and the majority of them were barracking for the Iranians. I mean, if you're at war with a country, you wouldn't think you'd go into that country and have the majority of 70,000 people backing you. It just goes to show you how unpopular the war is, you know? Then of course they got shipped straight back to Tijuana straight after the game, they weren't allowed to stay in... And locally, there's so many implications of all this.

Does the Labor Government here put the 32 cents a litre excise back on, on July the 1^st? When we next chat, Alan, in a fortnight on July the 1^st, oil should have gone up 32 cents that day, do you reckon they're going to do it? Are they going to blink? Because once you give something, it's so hard to take it away.

I'd say they will, for sure. It's in the budget, they absolutely need the money, of course they will, for sure.

You don't think they'll do any smoothing or a graduated approach? You reckon it's just going to go, bang, up they go 32 cents on July the 1^st?

Well, yeah, but the 60 days will still be in place, the petrol price will have come down a fair bit, so I think they'll be able to do it, for sure. It's not possible that the fact they were cheering for Iran shows the unpopularity of New Zealand over there, does it?

[Laughs] It'll be interesting to see where the noise sits with Australia in Seattle, whether enough Australians can get in there to blanket the place in yellow and drown out the yanks.

I doubt it.

I wonder if the World Cup - can we say - remember how the boss of FIFA gave Trump the FIFA Peace Prize. Did the World Cup help get the deal done? You don't want to be at war while you're hosting the World Cup. The World Cup was set up in the 1930s initially to stop countries from fighting, save your fighting for the soccer pitch and stop going to war! I reckon there's a bit in that, the world's loving it and we're all enjoying national competition on the field, not at war.

Good point, I think there's something in that, you're right.

The Russians will be sitting there going - and we're not even allowed to play because we're warmongers, we're missing out. So, peace in the Ukraine and come back to the next World Cup, Vlad! Now, we should do interest rates before we do questions, Alan. Nothing's moving but it's all still quite interesting, Australia and America.

That's right. We've got the American Fed having the first meeting under the new Chairman, Kevin Warsh, who I wrote in my Weekend Briefing on Saturday, will have to betray Trump because he's got to establish credibility, so therefore he'll have to put up interest rates at some point and then there'll be a big falling out, I guess. Maybe they won't put up interest rates because they don't have to for the moment, because petrol prices are coming down and so on. He's going to have to have a hawkish posture about him, I think, to sort of distance himself from Trump's statements about how he expects them to cut interest rates.

He needs to show that he's not politically controlled. As for Australian interest rates, I think that's it now, 4.35 per cent is where they'll be this time next year, but I've said that before and been wrong, but that's what I think is going to happen now. Look, there's a few kind of economists who are in that camp as well, now, Sally Auld at NAB is saying, "That's it, the next move's down..." and a few other major economists are saying the same thing. Luci Ellis is the remaining big bank economist still calling out rate hike, probably in August, she thinks. I don't think that's right, I can't see that happening.

They both feel about right, if you think about it. Inflation, it's still a few worries but it's not out of control. The interest rates are not ridiculously low, zero, overstimulating... We're not looking like recession but it's not looking like - the stock market's strong, the economy's good but it's not crazy and we've had our 75 basis points increases and they say the rates take a year to fully course through the economy. So, the reserve still is contracting monetary policy with the three hits at 75 basis points so far this year, they've taken a breather this month. Also, with the interest rates, I loved your graph on the news the other night, Alan, showing how the US stock market always falls when a new Governor comes in.

The data didn't lie. Why is that? What is the explanation? Is it the fact that the new guy or girl is a bit gung-ho on inflation or it just takes the markets a while to trust the new person and capture them to take a market-based perspective. Why does that happen every time?

I think to the extent that it's not a coincidence, which you'd have to say since the stock market has fallen every time the new Chairman has come in, you'd have to say it's not necessarily a coincidence, although Greenspan and Eugene Meyer, 30 per cent down, is due to a coincidence of the '87 crash and the Great Depression in 1930. But on the whole, I think it's because the new Chairman has to establish their credibility and that means they have to act tough, they have to talk tough even if they don't act tough.

So I think as a new Chairman they are more inclined to increase interest rates to establish credibility with the markets and if they can't justify increasing interest rates, they talk as if they're going to. So, I think therefore the whole stance of a new Fed Chairman is going to be depressing to share markets, I think that's pretty clear. That's what should happen this time with Kevin Warsh. I mean, we'll see what happens.

And he will betray Trump, he has to and he hasn't got the numbers not to because Jay Powell's still there, you've still got to get the whole board to agree.

Yeah, he's only one vote, that's right.

The Fed really embraced radical transparency after the GFC, with the dot-plot and he has said there's too much commentary and he wants to wind back the radical transparency. The Fed should talk less, less speeches, less releases, less dot-plots... We only finally caught the radical transparency bug in the last year when we've had minutes where you get unnamed vote numbers, so we've finally caught up a little bit.

And we get a press conference by Michele Bullock, which we never used to have.

Which I think is a good thing, but we still haven't gone as far as them and I do think they will wind it back and we'll never do a dot-plot. The dot-plot is a bit silly. You've got to give the market some guidance, but really, a dot-plot on how people think rates are going to go over the next few years? I wouldn't be surprised if that goes and no one will particularly miss the dot-plot being punted, but maybe saying less... I mean, you shouldn't cut it back too much, because you do need transparency when pricing money. I mean, they're the world's central bank effectively, so be as transparent as possible on what your thinking is, I would have thought?

I'm not sure there's much point to the press conference, to be honest? She never says anything at all that's different to what's in the statement.

I noticed your son flew up for it this time, was up in Sydney...

He always does.

Yeah, get a trip to Sydney, a good chance to chat to the Gov who says nothing.

I know. But also, he has to stand in the street - well, he did this time, anyway - stand in the street outside the RBA at 2:30 and so they all kind of - drumroll - "What happened? It's 2:30, there he is in the street standing outside - it's a hold!" It's very good. Channel Nine, they take it seriously, I've got to say.

Well, we've got the most leveraged households in the world and we don't have fixed mortgages, most people are floating, so it's an electric fence. We're all very, very clued in on where interest rates are going and after three in a row, great relief that they've stopped turning the screws, I would say, just for a month or two maybe, but we'll see.

All right, before we get to questions, here's a quick word from our sponsor.

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And as always, just the general advice warning, this is general advice only, not personal. Do you want to start off?

Yes, we have 33 questions this week, a lot of them generated from your discussion last week, including we had three questions on childcare from Julian, Jason and Ben. Julian's saying, "It gets better once your kids go to school. Yes, childcare is ridiculously expensive..." Because we had the correspondent from Eastern Sydney saying that she and her husband were spending $100,000 a year in after-tax dollars on childcare for their two kids and everyone agreed that was absolutely ridiculous. Jason's ripping into you saying, "Don't nationalise childcare, we should do other policies like family income splitting and scaled tax cuts, where you get more and more tax cuts for every child you have under 18," which is something that happens in places like France. Anyway, you've seen the questions, Alan, you're sticking with your nationalised policy? I noticed that Albo today is going to be announcing that he's further subsidising childcare workers and the subsidy's going to hit $7.2 billion over four years. Typical Labor, mainly focused on the workers.

As for the consumers and the private operators, the private operators like G8 education, their share price is in the toilet, shareholders are half a billion under water, so you can't argue that the private operators are making a fortune. Occupancy is only about 55 per cent nationally in childcare centres because they've been overbuilt to buggery, I'd argue, and there's been a bit of a birth drought since COVID, so a lot of moving parts. What's your take?

I'm doubling down on the call for nationalisation, I think that the whole thing is ridiculous, we've got this private industry that, as you point out, is not making any money, they're completely up against it. There are some that are making tons of money, but not that many. The Government has to subsidise this private industry, so therefore they're kind of in a sense subsidising the profits of the shareholders of these things, not just through the absolute subsidy, but also wages subsidy today that's going to be announced. As Julian points out, it's all about when the kids are under five, so as soon as the kid turns five, they go to school to free education. I just think the whole thing is a terrible mess.

The education and childcare up to five should be free in the same way as it is after five and the only way to achieve that is through nationalisation because you can't have these private companies earning profits and shareholder returns as well. So, of course that should happen. But look, I accept that it's never going to happen, nationalisation is finished, we don't do that anymore, so the next best option would be to make childcare costs tax deductible as an expense of earning money.

I agree with that, absolutely right. It's quite a contrast with the aged care sector. The shareholders of Regis have more than doubled the last couple of years and Bain, the US private equity firm, bought Estia, one of our 10 biggest aged care operators and they've had a five-bagger in three years. The Government has done a bi-partisan agreement, they've absolutely cranked up the funding, the industry got most of what they wanted and the private operators - and it is a hybrid model still, you've got private, you've got some publics, a lot of not for profit, making an absolute fortune.

So, if you're a shareholder in childcare, you're absolutely in the toilet, if you're a shareholder in aged care, you're making an absolute fortune under the same Government's policies. So they've been far too generous with aged care and they need to be a lot more generous with childcare. I saw that figure of $100,000 a year - I mean, we had a full-time nanny for eight years when we were running Crikey. If it's a $100,000 for two kids, hire a full-time person. That's not going to cost $100,000 a year, that's going to be $60,000 a year. I think there should be movement on the nannies policy as well, but so much building's gone on, the capacity in the private childcare centre...

Every second corner now, it's almost like more childcare centres than poker machine venues in Australia now there've been so many new ones built, because the barriers to entry to find people to sign the leases are so low. It's just very easy to be a couple, run a business, sign a lease to run a childcare centre, from Peter Dutton down, everyone's done it. So you can't unscramble that, but the Government should look after the consumers more and make the cost of it more attractive in after-tax dollars particularly. I agree with you, that allowing a big tax deduction on your childcare fees or your live-in nanny actually would be a very sensible way to go given that our tax earners are paying such a huge amount of money to Canberra relative to other tax options the Government's got.

Obviously, it is clearly the cost of earning income. It qualifies as a tax deduction, I would have thought, more so than negative gearing a tax deduction on your investment property, clearly.

The world's gone crazy when you've put it in those terms, tax deduct your investment property but don't tax deduct the cost of looking after your kids so you can go to work, fair dinkum, wake up Australia!

[Laughs] Katie says, "I live in a regional Australian town of 3,000 people and 900 households. If every household eventually electrified, switching from gas appliances to electric, adding batteries and replacing petrol cars with EVs, it seems reasonable that each household would conservatively save around $3,000 per year on energy costs. That equates to around $2.7 million for the town that stays in families' pockets, rather than in the case of fuel, disappears offshore. What do you think will be the long-term household and regional economic impacts of electrification and what might it mean for family budgets, local spending and economic resilience?" Well, she's absolutely right, of course, Stephen, don't you think?

I agree. It ignores the capital cost of the solar, wind and batteries...

Which is why they haven't all done it in said regional town.

That's right, particularly the transmission costs, it's massively expensive. It's like tokens, you can't just think that AI's going to be free, tokens - you can just use endless amounts of AI. It's a huge investment, Katie, to get your town to that position, tens and tens and tens of millions of dollars on all that build out to do it, but you're never going to be able to disconnect from the grid and there is the sunk cost of the grid. But look, the case is there, it's cheap. Isn't it nice how the energy cost argument has gone away? Power bills have been falling in Australia, renewables are working. We should keep rolling it out because Katie's right, that the economics work better, but you can't just kill the gas industry and shut down all the coal. It's a rollout, Australia's doing well, we should keep investing in renewables and the savings will keep flowing, it's working well.

Yes.

We've got two questions on SpaceX from James and Andrew about the index impact and it is true, that SpaceX will be in the Nasdaq 100 Index in 10 days' time and it's only S&P which is holding the line, saying you've got to deliver a quarterly profit. You know, will Elon ever deliver a profit, Alan? They might never get into the S&P because they might never deliver a quarterly profit, but they are going into some of the other ones, the Russell, and this is driving a lot of the buying, I would argue. But there's the whole free float argument that Elon owns 47-48 per cent of the shares and more than 80 per cent of the votes and his shares are not in any index, so it's only what's called the free float. But I was amazed, the first day's trading was about the same as the total number of shares issued, there were 555 million shares issued and the turnover on the first day was 530m or just under that amount.

So, a lot of the existing holders did sell and that's going to be the game over the next year, is Google can sell its 5 per cent stake, currently worth $150 billion US dollars, in June next year, Elon can start selling... There's 90 million shares, which I think become available to be sold in the second week of August after the earnings result. Will we get the insiders selling down to the index investors? Which has been the story of Chemist Warehouse and Sigma. Everyone said, "Sigma and Chemist Warehouse, not worth $35 billion." But the index investors have been buying off all the insiders and the insiders have gone out and bought $400 million worth of luxury property in the last 12 months as they've been selling out to the index investors, so it's a big thing. But I don't think it totally explains the mania that's driving the price up 50 per cent. I think that's more just a retail, Elon hype thing. What do you think, is it index investing or what's driving this price?

I think the index investing is a part of it, for sure. The Nasdaq passive funds will have to buy it, clearly, and everyone knows that and they're getting ready. But I do think that's going to be a part of it, for sure and it is going to support the price. But I think you're right, the main thing has been the hype, for sure.

What I find interesting, is people refuse to talk about SpaceX. Commsec will not give me an answer to anything. I've been emailing them, they will not answer anything, won't even confirm 30,000 people participated. Macquarie, no reply, AustralianSuper, no reply... It reminded me why it's easy just to go to AGMs, they can't ignore you at the AGM. Trying to get all these answers to all these - all these big institutions have not been answering. ASX and ASIC gave me some good answers about how they played the SpaceX game, but everyone should ring their super fund and say, "What did we do with SpaceX?" UniSuper, ART, AussieSuper, "Did we apply?" And I think most of them will probably say they didn't apply at all, that's my guess. It would have been, "This looks overpriced, avoid it." And now they've missed out, Gina's made 50 per cent.

Sure, in fact, the only one we know about is Gina Rinehart. Did she announce it or what?

She leaked it to the Wall Street Journal.

Oh I see.

But the SpaceX announcement after the float had been priced was three sentences. Why didn't they say, "We welcome 2 million new investors, we welcome $3.5 billion from Australian investors. We name Gina Rinehart, BlackRock, big supporters, new top 20 shareholders, thank you for your..." They said nothing, they're like the Kremlin, you can't get anything out of SpaceX, they just don't say anything. I find it disappointing. Commsec won't say anything. People are too scared to talk about Musk or feel whether they're allowed to, so Gina gave a statement and confirmed it to the Wall Street Journal and then did this eulogising of the great Elon Musk, "Isn't he wonderful?" Listen to Gina and then you watch Media Watch on Monday night, tipping a 15 minute bucket on Elon for all his sort of white supremacist, racist, anti-Jewish stuff he's been doing on Twitter. I can't believe they're talking about the same person.

I know, people got stuck into me for dissing Elon in my column on Monday.

I've been getting quite a few tweet responses calling me an idiot and saying Elon's a legend. He's got fanboys everywhere. He is the most famous businessperson in the world. You talk about Trump loves to have the attention, I think Elon - no one's ever had an ability to generate attention like Elon, it's just unprecedented. He's running two trillion dollar companies, there's 15 trillion dollar companies in the world and he's running two of them. I reckon there's a fair chance he'll merge them, issue SpaceX shares to Tesla shareholder, because he hates the fact that he only owns 15.7 per cent of the votes of Tesla. The SEC stopped him from being Chair, he got kicked out as Chair in 2018 of Tesla, so they put Robyn Denholm in, the Australian, ex-Telstra. He's not allowed to be the Chair of Tesla and he's a control freak and he doesn't control it, he's only got 15.7 per cent of the vote. So I think he'll offer SpaceX stock to Tesla and then he'll be the Executive Chair and controlling shareholder of the whole thing worth $3 trillion and he'll sit there and say, "On top of the world now..."

We've got a few questions on AI tokens and AI generally from last week's episode, there's a few of them. Damien comments on my statement that Perplexity is not charging me GST. I think that's right, I looked at my bank account, I can't see that there's GST in there. He says that Claude is charging him GST, so he wants to know what gives? I don't know, Damien, I have no idea what gives? Are they charging GST or not? I don't know.

I think if you've got an ABN, the big boys will be charging GST in Australia, but sometimes when you buy something direct online they haven't quite got into the whole Australian GST system, it's moving very fast. It might be that your Perplexity purchase was actually just direct outside of the GST system and you weren't doing it through your ABN perhaps, I don't know. But they will all have to pay GST and it's not going to save the Australian budget, it's just another expense and I don't think we should get too excited that they're ripping us off by avoiding GST or that they should be taxed more to save our budget. It's more when they're making huge profits. There is a real issue around Apple, Google, Facebook, they're paying sod-all corporate taxes in Australia because they route everything through Ireland and Singapore, that's the bigger issue from a tax justice point of view, than are they paying GST?

Dylan was pointing to the US Government going to war against Anthropic again and putting an export ban on them and saying, "What should Australia do to solidify AI sovereignty?" It certainly is interesting that Anthropic and the US Government are in a full on war and a lot of people are saying it's elevating the open source China alternatives, because why would you be captive of a closed system like OpenAI and Anthropic when you're exposed to government intervention and Trump can actually just slap an export ban on something you've been buying off Anthropic. It's a very interesting situation.

The Chinese ones are also a fraction of the cost. DeepSeek, I was just looking at the cost. Per million tokens, Claude's Opus 4.6 is now $25 dollars per million tokens. DeepSeek's price per million tokens is $2 dollars, so they're really undercutting the others. Grok is $15 dollars per million tokens. Gemini is $12 dollars per million tokens. ChatGPT is $10 dollars per million tokens. But the more expensive DeepSeek is $2 dollars and they've got one that's 50 cents per million tokens. Although Claude and Gemini and ChatGPT are better than DeepSeek, a lot of companies are finding that DeepSeek is good enough at the price.

Matt's got a question about, "Are we all just getting sucked in with cheap prices now and then the prices are going to soar down the track?" I do think the situation is that there's a global war for market share and because the market is paying for losses, the market is happy for companies to be massively loss-makers because they can see an enormous prize at the end of the day if they can be in the top three in five years' time in terms of AI rollout. I think the prices are totally uneconomic and will have to rise over time and there'll be mergers over time.

This week, they're getting into a price war.

Correct, that's what I'm saying, price wars until we see winners in five years' time. It's going to be massively subsidised and under-pricing as the world works out who can get control of the gold mine.

I don't think China will ever let an American oligopoly develop of two or three of them setting the price and jacking it up, I don't think that's ever going to happen.

DeepSeek and their open source models will keep the oligopolies honest, that's probably the play, yeah.

These big companies, OpenAI and Anthropic and that will never make any money, they'll always be unprofitable and their share prices will have to collapse.

Same with SpaceX, I reckon SpaceX will never make a profit. It was just like OneTel, OneTel collapsed and it never made a profit. It went from superstar to falling over because the capex just got too big for the founders. I think Paul, who works in tech, makes an interesting point about just getting to the question of the history of this token concept, he says, "Nvidia created it, it was popularised in Australia by Craig Scroggie from NextDC and it was conceived to visualise some abstract concepts. He thinks that the correct way to think of tokens is three ways. One, it's a description of how large language models work, i.e. sentences are broken up into tokens and the LLM predicts the most likely token in its response; b) it's a unit of work in AI, the complexity of tasks is measured in tokens; and c) it's a billing mechanism, subscriptions allow a certain number of tokens to be consumed in a given period."

He wants us to move away from this tokens as widgets concept and it's a bit more complicated, but they're the three ways that...

I say to that, good luck, Paul. I reckon we're going to keep thinking of tokens as things because we have to get our head around it somehow, it's hard.

It is tricky, isn't it? There's a lot of opaqueness in how do you price it? Are you getting a fair deal? There's going to be whole industries that develop to measure and bargain for token and price. At the moment, it's a real dark art, it's much more complicated than widgets in a factory, that's for sure. Jessica says, "Love the pod. My question is if the increasing amounts of money keep flowing into the big companies, i.e. the Magnificent Seven, would this end up taking away most the capital from workers, small business, small companies?" It's a general crowding out question and Jessica, you're right, tech is currently 40 per cent of US valuations.

The only bubble that was bigger was at the peak of the railway bubble in the US. The railway stocks got to 70 per cent of all stocks and 85 per cent of gains this year on the US market are from those small number of big tech. But I think we need to move away from the Magnificent Seven, Alan. I think we need to say it's trillion dollar tech, so there's now 11 trillion dollar tech companies. There's now more than seven and by the time we get OpenAI and Anthropic on there, there'll probably be 13 US trillion-dollar tech companies.

Yep.

Micron, memory chips, absolute bubble in memory chips at the moment, Micron's market cap today is $1.15 trillion and Jensen Huang was saying Marvell is the next trillion-dollar company, caused the thing to jump by 30 per cent in a couple of days. But look, the crowding out is a serious problem and what's the answer to that? You've got to just wait for the bubble to burst. All bubbles do burst, there's never been a perpetual bubble, has there, Alan?

No, that's right, there has not been a perpetual bubble and so this one won't be either. Perhaps go to Julian's question, "I've been wondering for a while now, why instead of increasing interest rates and putting pain on mortgage holders, why doesn't the Government use mandatory super contribution as a way of cutting down consumer spending. This would ultimately help people in retirement as well and still take money out of the economy in the short to medium-term." Yeah, I think he's right, but it's never going to happen. I think it's going to be a good idea, absolutely.

It's all about what lever can practically be pulled. I don't know that jumping around with super contributions, the plumbing of that would be massively complicated.

It would.

The one we've seen work the best is obviously the fuel excise, with both Scomo and Albo have played that card at different times. That can add and take billions of dollars from the general economy, so that's the one that we've used so far. I would argue that just general fiscal policy is the best policy to avoid over-reliance on monetary policy, so the Government should be running a surplus when the economy's running hot. Instead, every single Government in Australia is in massive structural deficit, even at the top of a boom, mining boom, AI boom and that's the recklessness of governments in a democracy. There's very few democracies these days that have the discipline to manage fiscal policy to be procyclical to work against the needs of monetary policy.

A lot of people also suggest moving the GST around. The trouble with that and the super idea, any idea, any policy that requires millions of companies to do something at the same time is going to be difficult to achieve, it just can't be done. The thing about interest rates is that the Reserve Bank can just go into the overnight cash market and buy and sell money and cause the overnight cash rate to move and achieve a target that it's got. That just automatically flows through to mortgage rates. It kind of is a very easy way to manipulate the economy.

It's very effective. Mark's got a lovely line, "Give with a warm hand, not a cold one." Mark's laid out his position, he and his wife are in their mid to late 50s, they've retired early, they're worth about $2.8 million, they've got a million dollar mortgage-free home and they've just given each of their sons $100,000 to help them into their first property purchase and they'll have to watch their dollars until they hit 60, when they can access their super having retired, you've got to wait until 65 if you haven't retired. But they're encouraging the concept of giving money away while you're still alive as a way of sorting out the generational wealth pass down. They've just done it and they're suggesting there should be policy incentives to make it easier, such as stamp duty exemptions on downsizing and better gifting limits.

At the moment, any gifting that you do if you want to get on the pension, they go back five years at your gifting to your kids and Mark's suggesting maybe they should only go back three years, because Mark's policy is to maybe get onto a part pension when they turn 67 if they need it, if they qualify, but they shouldn't be getting penalised for helping their kids into houses. Should there be a buy your kids a house, early access to super rule, Alan? What do you reckon, you can tuck into your super if you're putting the money directly into your kids getting their first home?

I do think there's a case for coming up with ways of encouraging people to provide early inheritance. I think that particularly while housing is where it is. Eventually I think we might get back to more affordable housing, but for the moment, house prices are very high and kids can't really save. The time it takes to save for a deposit has doubled in the last couple of decades and for a lot of kids, a lot of young people, it's impossible. We've given our kids some help to get their house and I think a lot of people are doing that.

Absolutely. The pension is already an incentive because 80 per cent of Australians over the age of 67 are on the pension already, so super has not ended the reliance on the pension, only 20 per cent are generally self-funded. I'm guessing that quite a few of those 80 per cent have gifted their kids quite a lot and in some cases, enough to then qualify for a pension because the gifting rule only does go back, I think, to five years. I think that already works as a bit of an incentive because we have such a large cohort that are on the pension.

We probably should talk about Peter's question which gives us a chance to talk about KPMG...

It's a good one, yeah.

"Why can't the Federal Government just indicate that any audit business with a professional services arm will not be permitted or considered for Federal Government tenders? I would think that this would result in a flurry of reorganisations and all of the tricky issues would suddenly evaporate. Keep up the good work!" Perhaps just to recap, KPMG's got into trouble because a whistleblower has pointed out that they've been using data and information from one audit to win other audits, in particular, Westpac, and that is highly unethical so KPMG's in all sorts of trouble, people have got the chop and there's a lot of questions about whether there ought to be some sort of split between audit and professional services. What do you think, Stephen?

It's not happened anywhere in the world. Australia, we love pioneering, we pioneered the under-16 social media ban and slugging big tech to fund journalism, but I'm not sure little old Australia can be the first in the world to, by Government mandate, legislate that these big global service providers that operate in every country in the world, in Australia uniquely have to ringfence their audit operations. This governance issue, it's more a within the KPMG, particularly Sydney, audit function. It's auditors talking to each other to win the bid of Macquarie. Lendlease just announced they've sacked KPMG this week. It is an interesting situation.

I think the reform - we need to focus on the current rule. After the HIH collapse in 2003, where a whole bunch of Arthur Andersen people were on the board of HIH, asleep at the wheel as it went broke and they'd never declared a loss in its entire history, unlike OneTel which had never made a profit. The rule that came in there was the five-year partner rotations, so every five years you must have a different partner. In the UK, the rule is you must have a tender every 10 years and you have to sack your auditor after 20. I think we should definitely go down the limited tenure path.

I love asking the question at AGMs, it's my favourite question in the last few months, "When did we last tender the audit and when are we next going to tender the audit?" And the answer is obviously a very embarrassed, "We've never tendered the audit and we've never had a different auditor." Mandatory audit rotation, I actually think is the better governance rule because the system works quite well because you have to disclose your non-audit fees and they tend to be quite low. Any other work you're getting from having your foot in the door, you have to disclose that in the annual report and shareholders vote against companies that have excessive non-audit fee payments.

I just think we should do more reform on the actual audit function, but I do agree that they're massive conglomerates, they've got enormous power, but I can't see how little old Australia can be first in the world to start telling effectively these massive multinational service firms how they should conduct their business, just because the Sydney office has been sharing a few things they shouldn't have.

I think they can think of two extra changes. One, would be a dedicated auditor regulator, because at the moment ASIC is in charge of regulating audit and they've just got too much to do, they're too busy, they can't really do it properly. They need to have somebody whose job it is to focus on audit and how it's being conducted and who's doing it and all this. The other thing is, these audit firms are all big partnerships, massive partnerships, they're not companies, which means that they're regulated by the states, not by the corporations law which was transferred by the states to the Commonwealth. And so, I do think that there should be a handover by the states of their partnership regulation and I know that that would then apply to all sorts of small partnerships as well, but still, I do think that there's a case for the Commonwealth regulating partnerships, not the states and that there needs to be a dedicated auditor regulator.

I'd agree with that, that's a good recommendation. Now, before we wrap, we should just take probably as comments from Stephen and Rodney who wrote in on the UK and Canadian saving schemes. The question last week was about whether Australia should have the UK ISAs and a couple of people have written in to say that both Canada and the UK have very good tax-free, pretty much, savings mechanisms. So, if you're saving for your first deposit on your house, in Canada you can put $7,000 a year in, in what's called your tax-free savings account, the TFSA, and you can keep putting $7,000 a year in and then you don't get any tax and you put that into your house.

In light of the proposed big increase in capital gains tax, the flat 30 per cent, a lot of young people are saying, "How are you helping us to save?" And in Canada and the UK, they have very good systems, they're different to super, the UK's pension system is different. But I think it's a really good point, that if the Government is going to smash capital gains tax on everyone at a flat 30 per cent, then what incentives are we giving to young savers in a tax preferred way where they don't have to lock it up until their 60 or 65? Because the only thing they're doing is super, super is massively tax preferred, but you can't do that if you're going to buy a house.

Look at the Canada system, I would say, look at the UK system and Australian politicians need to come up with a tax preferred short-term saving system for young people above and beyond the massively paternalistic lock it up forever super system in Australia, which is unique to Australia, but doesn't help young people saving for a house in any way.

Correct.

Here ends the lesson, Alan.

Beauty, Stephen, thank you. Thanks everyone for listening to today's episode of The Money Café. I'll be back next week with James Thomson, as always, send in your question to themoneycafe@intelligentinvestor.com.au and we will do our best to get to it. Until then, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and a guy at the ABC.

And I'm Stephen Mayne, contributor of Intelligent Investor, Founder of Crikey, shareholder advocate and I'll see you in the new financial year.

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