Census and Sensibility

---

[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, shareholder activist.

And we are The Money Café.

We're the post-Census Money Café, Alan, we're meeting on the day after.

Did you do your Census?

I did it two nights ago, actually. I was net disappointed that they weren't more ambitious, I mean we're in the questions business - did you come out and say - I guess we can both agree, we're both straight, non-religious male journalists, we're all on board on that?

Correct.

But then they didn't get any more adventurous than 'Are you straight?', did they, really? Why are they asking for our income, but not asking for our net worth?

I thought it was hopeless, to be honest. They could ask for so much more than they did, which would be interesting and important, I think, to find out stuff. They didn't ask us whether we've got any pets.

I thought about that, but councils have got the dog and cat data, so there is an element of what we ask that we don't know. Pets, maybe they can get away with, but surely the split between EV and ICE vehicles, asking about cars...? If you're going to ask about the number of bedrooms, I'd have thrown in landline and number of televisions for cord cutting and stuff like that. It's not going to cause a blue in the household, because you've got to watch that. Work from home, yes, there's work from home in there, but what about, 'Do you get any paid help coming in? Gardeners, cleaners or nannies?' That's a trend in society which the Government wouldn't have any data on.

Also, 'Are you using AI and to what extent are you doing it?' That'd be worth knowing.

Also, the climate insurance thing, 'Are you insured?' Not only just private health, but catastrophe insurance, contents or total destruction insurance. Anyway, we shouldn't be too negative.

It took me about 20 minutes to do it. I would have been happy to take another 20 minutes, take twice as long.

Yeah, I agree. Even on the income one, they didn't even split labour and capital. I would have loved to have answered a question, 'What's your biggest side hustle?' You had to name your employer - did you name the ABC or InvestSMART? Your number one employer...

The reason I named ABC is because it's easier to type.

[Laughs] Well, I said InvestSMART, there you go... But I wanted to start explaining about other gigs and talk circuit, there was sort of no provision for that, so it didn't really accommodate that multiple employer situation very well either and I guess my other big beef is having spent $700 million and having 30,000 people out there knocking on people's doors last night, it's going to take us almost 12 months to get the data. Antony Green should already be analysing the swing in favour of Buddhism and the swing against Catholicism and the early booths show - but 10 months to get the data released to the public, how do you justify that? Is that just perfectionism?

The Australian statisticians take longer than anyone else in the world, I think, to come up with the national GDP, take two months. The Chinese take two weeks.

Unlike the Chinese who just guess, at least they get it right.

They do get it right and the Chinese do it in two weeks - but, China starts with the answer, don't they?

Well, that's right. Anyway, we're saying more questions, be bolder and do it faster. But apart from that, don't cancel it, it is a useful exercise, it's only every five years. Stick with it, just be bolder next time.

They could probably do it entirely online now, don't you think? They could probably forget about the paper one.

I agree, just mandatory online. I help my mum do it, for instance. Get those 30,000 people assisting people doing it online, not distributing it...

Then if they've got it online, they can come up with the answers in a couple of weeks.

Correct, put Antony Green in charge and away you go. Then you could do it every year because it would cost about 10 per cent of the figure.

That's right, exactly, do it every year. Okay, we've sorted it out for them.

We've sorted it, Alan, us straight, old, male, non-religious journalists, we've sorted it.

That's right. Now, have you been looking at the CBA - Commonwealth Bank result this morning?

We're talking at 7:50, so it's just dropped and cash profit up 7 per cent to $11 billion. Dividend up 4 per cent to $5.05, so it's getting close to the original $5.40 float price back in 1991.

Oh, the dividend is close to the price they floated at, yeah, wow.

They floated at $5.40 and now they're paying $5.05 a year. So, the Government got $10 billion for something now worth $291 billion. But I went back and looked at the figures from 20 years ago, last night, just to give a longer-term comparison and it is just amazing. The net interest income was $6.5 billion in 2006. Today, it's up 7 per cent to $25.6 billion, so it is a volume business. The net home loans after the offsets is up from $155 billion to $630 billion. If you add in the $95 billion of offsets, the $725 billion of offsets... Then the deposits, they're 79 per cent deposit funded. Home loan market share's grown from 18.9 to 25 per cent and they've gloated this morning that it's the first time in 15 years any bank has maintained market share or grown its market share in all of the five main banking categories. It is a market share volume story, they're doing one in three households, they are the main financial bank and a quarter of businesses. That home loan number and that net interest margin number - net interest income, I should say - because the net interest margin is down from 2.29, 20 years ago, to 2.05, so it's a skinnier margin, but on a hugely grown volume and that's made net interest income a staggering $25.6 billion, which flows through to $11 billion of cash profits and $8 billion for dividends for shareholders for the year and $5 billion for the Government, so don't complain about making too much, we've given the Government $5 billion in tax.

Analysts have been saying for a while now, possibly two years, that the stock is overpriced, too expensive, yet it hasn't really fallen, it's stayed where it is, basically, hasn't it?

Well, it dipped for a bit but it's gone back to a record high, so it's back up at $173.92 last night. It only peaked at $183 or thereabouts. So, it's very near its all-time record highs. Unless Matt Comyn today says, like ANZ, "I predict house prices are going to fall by 15 per cent and I can see our home loan book falling..." unless he comes out and says something very bearish on housing in the outlook, I think that the price will hold up and it's stronger for longer for CBA. That's our biggest stock. What about tech, AI...? It's just booming again, although it's off a bit overnight, I must admit, but it's still looking very, very toppy, isn't it?

Yeah, that's right. The market's at a record high in Australia, close to it, being held up by non-AI stocks in Australia like Commonwealth Bank and BHP and so on. Everyone's talking about a crash coming, but there's no sign of it yet. I think it could easily go for a while yet without too much of a correction.

The high watermark is surely going to be Nvidia's boss, Jensen, standing with six CEOs from Wall Street, KKR, BlackRock, Goldmans, Apollo, Brookfield and Blackstone coming up with a $500 billion investment fund to treat compute or chips as an investment class of its own. So you're going to have compute futures, Alan. You're going to have oil futures, commodity futures, compute futures and he's just trying to deal with the whole round-robin thing, is that people are criticising everyone, saying that Nvidia is funding its customers, Cisco style with routers in 1999. His solution to that is to deliver an all-time amazing CNBC interview with the Magnificent Seven, literally, the six financial CEOs and Jensen, saying, "$500 billion fund to fund this multi-trillion dollar AI infrastructure build-out for compute."

I don't know where the returns are going to come from. It's more than just what Cisco did, it's what Enron did as well. I think that they're clearly just kind of starting to prop each other up and also they're borrowing huge amounts, they're raising colossal amounts of money in debt now too. It clearly is going to be a problem and also what's obviously going to happen as well, is they're not going to make enough money from AI to justify the expenditure on capital.

You can do what you like about creating a compute fund or whatever, but the compute has to pay for itself, it has to provide a return and it seems to me that what's going on now, is that China has come in and whenever China comes into an industry, the profits walk out. These Chinese AI models are just as good as the American ones and they are much cheaper, so they're just kind of destroying the profit margins of the Americans.

I read a piece the other day saying, "The question is whether AI is like petroleum or is it like pencils?" Petroleum became an oligopoly, obviously a cartel and prices were held up and it needs to be regulated. Pencils started off at $20 per pencil when they were first invented and now they're 11 cents because anyone can do it and it's a commodity. I think it's quite obvious that AI is becoming a commodity and the price of it is going to fall.

Yes, but the market's still buying it. Intel has just completed a $20 billion secondary equity raise at $95 a share and it's literally 12 months after the US Government bought 9 per cent at $20.47 a share, or bought 10 per cent for $9 billion. If Trump exited his Intel stake today at this $95 price that they've just raised $20 billion at, he'd make a $32 billion profit in 12 months on his $9 billion US Government investment. The market is still believing it. OpenAI has just done a $7 billion buyback to take out their stock. They've got enough cash... Anthropic is still looking at the October IPO and they're talking close to a trillion dollars of valuation. Even SpaceX got up from a low of $104.83, it got up to $183, back above the float price, although it's off 4 per cent today, back to just under $134.

Microsoft has put on a trillion dollars in market cap since I was talking to James two weeks ago. Right now, the market is still believing the story, even though you're quite rightly talking about where's the return and China wipeout, but the market is absolutely believing, the capital being raised is extraordinary and Nvidia's sitting there today at a $5.26 trillion market cap, well ahead of next best Apple at $4.45 and it's conducting the orchestra, rounding up all the CEOs of Wall Street to say, "Come on boys, you've got to fund this because it's the biggest thing ever!"

It's interesting, isn't it? A lot of the profits being made and the market's enthusiasm for it is based on the capital expenditure they're making, in particular, OpenAI and Anthropic, which are spending hundreds of billions of dollars on compute, but they're losing colossal amounts of money. Both of those companies that are propping up the Magnificent Seven - I mean, the money that Microsoft and Google and them are making, is largely coming from OpenAI and Anthropic spending all this money on compute and they are losing money. I just can't see how it can go on. I think a lot of the enthusiasm in the market is based on a lack of understanding. I don't think anyone really understands what's going on or certainly, nobody knows how it's going to turn out. I reckon it's going to end badly, I think.

I agree and I guess I'm happier talking about an AI bubble than a crypto bubble. At least we're not talking about crypto anymore, are we? It's just disappeared. The whole world is obsessed with this AI trade and I do think for the theory to play out, we need to see Anthropic and OpenAI list, become more transparent and then we just see - because SpaceX is going to run out of cash. They've raised $85 billion in equity and they're spending it so far. They will need to raise more equity in a couple of years, that's how quickly they are burning through their cash. That's just not sustainable. But right now, the market's valuing them at $1.8 trillion again, back in the top ten.

Even TSMC, the Taiwanese chip giant which makes all the Nvidia chips, they're now worth $2.17 trillion, they're now the sixth-biggest company in the world, they've never been as big as that. It still is ultimately primarily a picks and shovels game with Nvidia and TSMC together worth $7.4 trillion and their customers, the people who are paying too much for chips and I think people argue Nvidia's big play with all these Wall Street guys is just about persuading them to move on from talking about Nvidia cutting prices and actually move on to talking about, "No, let's just fund the existing ridiculous 80 per cent profit margins that Nvidia's making."

It's interesting you mentioned crypto and you're right, nobody's talking about it anymore, but it's interesting. The price of Bitcoin is still $63,000 US. It fell obviously at the start of the year from about $100,000 to $63,000 in February and still there, hasn't fallen any further, it's basically stabilised for six months.

My little measure going forward, Alan, is going to be my one Commonwealth Bank share against my one SpaceX share. One is the biggest company in Australia making $11 billion a year and the other is burning double that in cash and at the moment, SpaceX is $185 Australian dollars and CBA is $174, so I'm going to follow that little SpaceX versus CBA measure. But even so, SpaceX is worth about six times CBA, it's just crazy valuations, but we'll see. Then I guess we've got the valuation of the oil price as well, it's $88 again and the Iranians - gee, their tolerance for pain is high, isn't it? Their ability to cause trouble, not bend to Trump's will, they're just boxing on, aren't they?

They are and in fact, there's this kind of amazing disconnect between what Trump is saying and what Iran is saying. Trump's saying, "Oh, yeah, we're talking and they're desperate to make a deal and we're close to having a deal," and Iran says, "We're not even talking and the only people we're talking to is Oman about how we're going to control the Strait of Hormuz." I think Iran is definitely suffering pain, but basically they're okay and they're betting that they can suffer more pain than Trump can and they're probably right, I suppose.

It's 160 days of war and it's 85 days until the Midterms and that's when Trump may well face his Waterloo in a sense of Republican control, because if the war is still going on at the Midterms, early November, it's hard to see it being a happy result. I think another interesting thing is that the US strategic petroleum reserve is now below 300 million barrels for the first time in, I think, more than 30 years. It's interesting as well that diesel prices are high - did you know that 70 per cent of Russian diesel production has been taken out?

This is why diesel prices are so bad, is that yes, the Strait being closed, but also the Russian impact, 70 per cent of their diesel, not exporting at all. Crude is nowhere near as high as diesel prices and that's really turbo-charging the move to EVs as well, as you saw on the news last night with your graph, that was interesting, wasn't it? The EV charge based on high petrol prices and diesel prices.

That's right, EV sales this year so far are up 157 per cent, obviously from a low base. Plug-in hybrid sales are up 119 per cent and sales of diesel and petrol cars both down this year. I suppose you'd say it's not surprising. I suppose the amount of increase is surprising and I keep looking when I'm driving on the road, I keep looking for exhaust pipes in the back of cars and increasingly not seeing them.

I was driving along the other day and I said to my friend, "The four cars in front of us are all BYDs." It's just amazing.

It's hard to tell sometimes, obviously you can pick a BYD or a Tesla, but often you can't pick them except when they haven't got an exhaust pipe. There's a lot of cars now without exhaust pipes.

They're not at all worried that there used to be 20 million barrels a day going through the Strait of Hormuz and last week it was down to 2.2 million barrels a day and it got up to 8 million with the so-called peace agreement a month ago. 20 down to nothing, up to 8, down to 2.2 and there's a massive imbalance at 2.2 - China have slashed daily imports from 12 million barrels down to 4, it's back up to 9 now, so they've run down their reserves quite a bit as well. The Americans have cranked up production, they've been a big driver of the extra capacity. The world has responded reasonably nimbly, but it's not sustainable at 2 million a day. It can't hold with the chokepoint being choked long-term and the fact that those US reserves are down to 30-year lows is a sign of that. Something's got to give.

We better do the Reserve Bank Governor, I guess, before we do questions. I watched your son ask a question yesterday, I was quite impressed overall with the 50 minutes of questions from the journos, it was certainly better than listening to two hours of shareholder questions at the recent Macquarie AGM, that's for sure. What did you think of the RBA Gov's performance yesterday?

I wasn't able to watch it but I spoke to Chris about it last night and he was pretty happy with it, I guess. I think that the RBA - there was the hold of rates and then the data in the statement on monetary policy was pretty much as you'd expect and then she was pretty hawkish when she spoke. I think the expectation now is that there will be a rate hike in November on Melbourne Cup Day, which obviously will depend on what the CPI is like for the September quarter, which is coming out on October the 8^th. That'll be a few days before the November meeting and it'll all depend on what the inflation rate is.

But she has forecast they're going to get inflation down to 2.5 per cent within 18 months and I think she's still sort of suffering from the fact that they failed to meet their 2 to 3 per cent target for five years, it's literally been a five-year fail post-COVID, whereas the Americans are around about 2.5. Ours is worse performance and so she's just basically warning everyone, "Look, we're predicting it, but by jingo, if you don't deliver this low inflation, I'm going to go you again!"

That's right, but the fact is, although they haven't got the inflation rate below their target or whatever for five years, we haven't had a recession either and in order to achieve 2.5 per cent inflation, they would have had to slow the economy much more quickly. 18 months is a long time. If they're saying we're going to take 18 months to achieve it, that's good. I think they should take a long time and not say, "We'll do it by the end of the year," or something, because that would require a really tough hit to the economy.

I think a bit like Kevin Warsh, she's wanting the markets to do her work for her. Yesterday's jawboning was all about putting up the market interest rates and so she doesn't have to actually do it. I think the last thing she wants to do is to go again, same with Kevin Warsh because Trump will blow him up, but if the markets can do that more contractionary pricing of market interest rates to help stamp out inflation, central bank governors always prefer the jawbone to work than the actual coming down with the sword of the higher rates, so I think she's playing that game as well.

Let's go to questions, but before we do that, let's have a quick word from our sponsor.

[Recording]

Markets love a good story, but value investors prefer a good price.

Join portfolio manager Nathan Bell and Intelligent Investor founder John Addis for a live webinar: Against the crowd: Is this only the beginning of the value rotation? On Thursday 13 August at 1pm AEST.

They'll unpack what drove the Intelligent Investor Australian Equity Income Fund's recent outperformance, where they're finding value now, and the risks they're watching.

Register now at: offer.intelligentinvestor.com.au/inif to watch live or receive the replay. 

Past performance is not a reliable indicator of future performance.

[End recording]

And just a reminder before we go to questions, this is general advice only, if you need any personal advice, please go and see an adviser. First question is from Catherine, who's a regular listener, first time to write in, "I'm interested in your thoughts regarding forecasts of destabilised financial markets and Armageddon as a result of anticipated changes to labour markets driven by AI and how or if it's possible to insulate ourselves and the world from such a shock.

In late June, there was an opinion article in The Economist magazine by guest writer, Carson Block, forecasting an imminent financial crisis following the anticipated displacement of many senior, well-paid knowledge workers from the employment market over a short period. The writer suggested this would precipitate a sudden shift of wealth out of stock markets across the globe, particularly as employees seek to access their retirement savings, en masse, to service their debt." I don't know, what do you think?

I'm not in the catastrophe camp. I think there will be a net shift from white-collar to blue-collar work. I was interested in - I heard a US logistics CEO being interviewed overnight and he was saying that, "Look, don't worry about robots, they're going to do the jobs that us humans hate. They're currently slower than humans, we're a couple of years away from the robots being as efficient as us, but they'll be the ones doing the work in the freezers, because who wants to work in a freezer, picking meats or whatever it is? They'll just augment the human work, they won't take over." I'm probably more in that camp. The political economy just won't allow - they'll regulate away any mass nuclear winter of jobs caused by AI. I'm confident that the politics will sort it.

But as for Australia, because Catherine asks how are we positioned? Well, we're not all in on the AI bet and we're actually - being a commodities country, providing a lot of the metals, the copper, the rare earths, the lithium, uranium, the power metals, the coal, iron ore... We're actually a huge beneficiary of this sort of massive build-out of the infrastructure stage side of it.

Anyway, once all these data centres are actually built and we're over the construction boom, a bit like getting over the mining construction boom, then when it settles down, we may suffer if there's less demand for commodities and that's the time when the jobs will be fading if you've literally got all this compute doing all this AI and disintermediating all these white-collar jobs across multiple industries. We've had this chat before, Alan, you're more bearish than I am. Are you as bearish as Catherine and this Carson Block bloke she's quoting from The Economist?

I don't know. To be honest, I've absolutely got no idea and I don't think anyone really does have any idea. I keep seeing these videos of humanoid robots doing stuff, including building houses and kneading dough to make bread.

Wouldn't that be great, if we had someone to build the houses, Alan? Construction labour shortage crisis...

I know, but a lot of people make a living from doing that now, there's a lot of bakers in the world who get up in the morning and knead dough and make bread that we end up buying. I do think that companies are pretty motivated to use robots and AI to the extent possible because on the whole, employing people, human beings, is a pain in the arse. They have to go home at night instead of working all night, they have to get holidays, sick leave, you've got to pay them a minimum wage, all this. I just think companies will tend to use robots and AI to the extent they can.

But that's always been the case. Bank tellers are being replaced by ATMs and trains don't have drivers anymore in Sydney Metro or Rio's Pilbara mines, this is a long-term trend.

That's true.

It's just going to continue going, but is it going to accelerate? That's the debate. I think it is going to accelerate, but not to the point of a nuclear winter on jobs.

Well maybe, I hope so.

So do I, fingers crossed...

Governments are good at dealing with what's happened in the past, but they're not very good at predicting. Governments have got no idea what's going to happen and fair enough, they don't know.

Maybe the next Census in five years will have an AI question, that'd be useful, wouldn't it? Because we're certainly not going to be helped in any way working out what's going to happen based on the questions we filled in last night, that's for sure. Julie says, "Regarding last week's podcast..." she thought your comment was very relevant, Alan, saying that you believe that the cynicism and the disaffection in the community, the biggest factors being that house prices have risen for 25 years and this has made it very difficult for young people to get a house and that's why you think there's a lot of support for other parties and loss of political respect, etcetera...

Julie goes on to say, what surprised her was, "...The sheer prevalence of conspiratorial thinking, particularly around the recent AusAlert emergency test. Is this polarisation due to inequality, as James has argued? And what changes could we have brought in to improve the level of trust and to deal with this disillusionment?"

You touched on it last week, Alan, I'm going to double down on it, I think the silver bullet for democracies is a random selection third chamber sitting above the Senate and above the upper houses in the State Parliament, giving advice on difficult issues, randomly selected because it's beautifully corruption-proof and it is a genuine cross-section of the community, it has legitimacy, people trust it because it's genuinely the community giving their advice to Governments. It gets rid of the donors, the lobbyists, all that rubbish that people are so sick of in the democratic system. So I would go all in on Greek-style sortition to build community trust in political institutions.

I agree with you, really, I think you're right, some sort of citizens' jury to get involved in the political process would be great. The problem with that idea, is that it tends to be a distraction because it's not going to happen and what that means is, if you end up talking about a possibility of that and why don't we do this and we end up focusing on that, you end up being distracted from the real game, which is to try to fix up politics as it is, which is how do we make it more transparent now? I think there are a lot of things you can do, particularly about donations and transparency of political operations and money and the way it works now.

I think that that is probably the way it needs to go. Victoria's got this huge problem now with this Suburban Rail Loop, they've signed all these billions of dollars of contracts and it's clearly a terrible idea and we need to find a way to ensure that that sort of thing doesn't happen again. I don't know what the answer to that is, I don't know how you can prevent that.

I think there's a quite simple answer to that. When I was a spin doctor for the Liberals in the early 1990s, you had to get Loans Council approval from Canberra to borrow any money, so there was an emergency meeting of the Loans Council in late 1991 to retrospectively approve all these secret loan breaches by the Kirner Government in the dying days of that Labor Government. Now you can borrow as much as you like and everyone just assumes that the Feds will bail you out because no English-speaking country has ever defaulted. Basically, it's an endless credit card for reckless State Governments, non-sovereigns, borrowing on the federal system.

I would fix that Victorian problem by giving Federal Government spending control and controlling the debts of their subsidiary State Governments. Because it's just no regulation, borrow as much as you like, in an era of printing... That's how you can be re-elected, borrowing - literally, Victoria's borrowing $400 million cash a week, their negative cash flow each week is $400 million, no one cares and people keep lending just like they keep lending to AI, because they just assume that Microsoft and all those guys are good for the credit and they think that all Victorian and all Australian Governments are good for the credit because ultimately we're a good sovereign country and the Feds won't let a state default. That's the little fix I'd do to stop State Governments going bananas, is federal regulations and control over the amount of money they can borrow.

Keelan says, "I work at a company with a strong focus on data protection, so we only allow Microsoft Copilot because it has improved data protection rights for AI use, despite knowing Claude is better and Chinese AI tools would be far cheaper. I would love to get your thoughts on how companies should approach data privacy with AI?" I think this is a really important and interesting problem and there's clearly a sort of an arms race going on with AI between hackers and defenders against hackers trying to keep up with each other because hackers now have access to AI hacking, which is getting better and better. I think this is a serious problem, I don't really have an answer to it, Keelan, sorry. As to how a company should approach data privacy, I'm not really sure. I think it's a serious problem.

Hacks is a massive and growing problem, hence cybersecurity, spending and focus has never been higher. But I think Keelan's question also touches on this sort of open data trust situation. If you go all the way back to Myspace versus Facebook. Rupert Murdoch, when he bought Myspace, continued with this closed model, where it's our data, it's our system... Whereas, Facebook - I remember Mike Cannon-Brookes giving a speech 20 years ago and I remember hearing him say this, Facebook opened up their whole system and let people develop apps that fitted around Facebook and Myspace died because it did this walled garden, "We're not going to tell you anything, we're not going to share anything..."

And Facebook absolutely flourished. This is where the whole system with Anthropic and OpenAI with their closed proprietary models versus the open-source Chinese models, which is, let it rip, everyone have a look, this is how we do it. That's great at one level, but if you tie that with people having their data hacked and stolen - because data is often the most important asset that big corporates have. The Commonwealth Bank's data... What physical assets does the Commonwealth Bank have? They have the trusted data of one-third of Australian households, that is top secret and they've got to absolutely protect it.

If they had a reputation for having their data hacked, bang, they're out of business. It's hugely important for corporates and so people like the Commonwealth Bank are not going to let people just march in and see the data and they're investing heaps in cyber. So I agree with Keelan, it's a really important issue as to your philosophy as to how much you lock up your data and how important that is for your business.

Part of the problem, it seems to me, is the core kind of race is going on between the United States and China, where each of them is trying to get advantage, trying to get supremacy in AI, but it means that both of those two countries have allowed data safety regulations to take a back seat to the competition for dominance. It's really just left to individual companies and other countries to basically deal with it and I think companies really need to focus on this and so do countries like Australia, need to do far more than they're doing.

The US have had a 'let it rip' approach from the get-go and I think many would argue that's why they dominate big tech, because they haven't got in the way from a regulatory point of view, but it's now causing all sorts of problems as well. Heath says, "Enjoy the podcast. EV and hybrid sales have reached record highs. I've wondered for years, that as EV cars displace fuel-powered cars, what a transition away from fuels would look like and whether the cost of producing, distributing and retailing fuel when demand drops would lead to higher prices for those who require the liquid fuels? Do you think Australian businesses are preparing sufficiently for something like this to happen?" It's a bit like solar panels, isn't it? The people with the legacy old system, as in, big coal-fired power stations and big refineries, are they left holding the bag and are we ready for a precipitous drop in fuel sales in Australia with the move to EVs? I guess it's only going to happen when the Government actually mandates a shutdown of fuel, isn't it?

I think it's a scale issue to some extent. The profit margins, the way that the fuel companies are organised, both refining and petrol and diesel retailing, the way it's all organised in terms of the number of petrol stations they've got and so on, is based around a certain level of demand. As demand falls because people are buying electric cars, their scale declines and the margins get focused on fewer and fewer petrol stations. I think that is going to be a real problem and I don't quite know what the answer is. I'd say at some point, the Government's going to have to get involved because petrol companies will have to start increasing their prices for those who are still driving petrol cars and diesel cars in order to maintain their margins.

But don't you think that petrol stations have already morphed to being more convenience stores competing with Coles, Woolies, Metcash and Aldi? On The Run and Ampol, 7-Eleven, they've all gone upmarket. I think the progressive switching off of the profit share and revenue share from petrol sales at existing convenience stores, that will just continue and manage down and over time they'll put in charging stations and they'll get some revenue from that and we've already gone from eight refineries to two in the last 30 years. The rest of it will just be turning off the import terminals when the demand has fallen. I don't think there's a crisis and there's going to be a sudden drop. I think that's been a long-term steady thing and humans are very creative. We'll adapt and it won't be a disaster.

I love your confidence on this, really.

I'm a total bull. I'm going to ask this one because Stuart's asking, "Alan, you were reminiscing about your father who ran into trouble as a builder in 1962 when you were a kid and you lost your home and it made me think how interesting it would be to read your life story. Will you or when will you write your autobiography, please?" Well?

I think my life story is not quite as interesting as you might think and anyway, it's not something I'm going to be able to do until I retire, which I probably will not do.

Never retire?

Well, I might have to retire for health reasons at some point, but I'm not interested in just not working anymore.

74 and still going strong.

I'm enjoying it...

Well, maybe we'll get one when you turn 90. 'Alan Kohler, my first 70 years in journalism'.

I'll come into the ABC studio to do my finance reports with a walking frame, what do you reckon?

Or you just do it from home like COVID, get the home studio! Now, you've caused three questions, Alan, on your cost-plus building idea. I'll let you pick which one you want to go with, but it's a revolutionary idea and a lot of readers have responded to it, some of them saying it's not going to work.

No and I think they're right, it's not going to work. There's no need to read all the questions, they're basically saying, "Look, that's fine, except the problem is that builders aren't always trustworthy and so the whole thing requires fixed cost." I accept that, fair enough. I really think you couldn't just switch the whole industry to cost-plus because things would get out of control, I understand that and also one of the listeners raised the question of lending. A lot of loans are based on the price of a renovation known at the beginning so the bank can lend you the amount of money, you've got a contract with the builder and then you take that to the bank to borrow the money for it. That's true as well.

I think it'd be more difficult to get a loan from the bank without a fixed contract. I accept that there are a lot of problems with what I said, which probably means that it won't happen, I do think that the fixed contracts, however, are a problem and the main reason they're a problem is because builders are getting out, they're finding it too hard, particularly when inflation is high.

And dealing with the CFMEU. Moving to cost-plus was one of the biggest problems with the Big Build in Victoria, no one would offer a fixed price contract because everything was blowing out, you're dealing with the CFMEU and so they all just said, "We're only going to do these things if it's cost-plus." And then no one gave a stuff as all of the billions were being looted by bikies and everything else because the Government was just picking up the tab.

That's right, that was a salutary tale, cautionary tale.

Don't invite the CFMEU to run cost-plus contracts because it'll be goodnight Irene. You can pick the next one, boss.

Miriam says, "Love the pod. I was having a sandwich with my dad this afternoon and got a cold call from one of the big four banks which I bank with. I have a term deposit with them which is money from my late grandfather. The caller asked me what I intended to do with the money, which I thought was quite strange. I've had a few calls like this from my bank over the past few months, asking what my intentions are with the funds. I wanted to ask whether you're aware or why banks would do this?" Why are they doing that, Stephen? Do you know? I don't know.

I think it's a bit unusual. In an era of scamming, it's a bit unusual to be getting phone calls from people you don't know.

I'd say it's a scam, wouldn't you?

I think it's probably a fair chance it's a scam, yeah, because most banks are not doing that these days, unless the AI model is telling the bank that she's a flight risk, let's lock her in and she picks up our calls, so there's a file note saying, "Miriam's very chatty, she'll have a call..." But generally, banks should not be pestering people given that they're spending a lot of time and money fending off scammers with people who are constantly being pestered on the phone. So, watch out, Miriam and don't do a deal with a bank on the phone! That's the first thing I'd say.

Last one I think we'll do is Rob, he says, "My partner and I are both in our mid-20s, we've just signed a rental lease for a small one-bedroom apartment and we were shocked to discover the building is covered by an embedded network for electricity and hot water..." In this case it was Origin Energy. Rob goes on to explain that he thinks they're paying overs for water and electricity, but they've got nowhere to go because the developer has done these deals with the big providers and he's just a price taker. Some customers in units, in apartment towers, are locked out of the ability to shop around, it seems, Alan. Rob is saying, "Where's the ACCC, protecting me from being gouged because I'm paying more for my electricity than my parents down the road with a four-bedroom home and a swimming pool who can go and shop around for the best deal?"

I think it's an absolute disgrace, I can't understand it. These things should be banned. I had no idea this was going on, did you?

No, but there's a certain logic in doing a scaled deal, but I presume the body corporate, every few years, would be able to renegotiate for the overall... It's a bit like having an overall insurance deal for your whole apartment tower rather than everyone having to... I think certainly the pricing that Rob's copping sounds ordinary and if the developer's getting a skim or something, it doesn't sound great. But there is a logic in scaled negotiation in communal living in apartment towers, but in this particular case, it sounds like he's getting done over and it's not fair and he's not going to take it anymore and he's writing to The Money Café about it.

[Laughs] He is too. Okay, well we're on your case...

When in doubt, write to The Money Café, that's what we like.

That's right. Thanks, everyone, for listening to today's episode of The Money Café, next week it'll be with James Thomson, so send in your question and we'll answer it together by emailing themoneycafe@intelligentinvestor.com.au. Until then, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and Finance Presenter, Columnist and Podcaster for the ABC - and I've just done a podcast with Chris you can find on YouTube if you want to.

And I watched it and it was excellent and you're showing us up with this newfangled video thing, Alan.

I know...

You and Chris... You had to do your hair for that one, didn't you?

I did my hair... It was good, he was great, he's so fantastic.

It was fantastic, it was a great watch and listen.

There you go.

All right, we'll talk to you in a couple of weeks. Over and out.

[Music]

---

---

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