Iran war impact hits home

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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 and shareholder activist.

And we are...

We are The Money Café, Alan. I was having a bit of a chuckle this week, Alan, I watched the news on Monday night and you were in a lineup of four reporters as if you were going to be done with a live cross and then there was no live cross. I was watching it - how'd that work?

It was very much unlive.

Oil markets are going crazy... How did they do that? The four of you looked like you were all standing by, were you actually standing somewhere or that was just part of the setup?

They asked me to stare at the camera for 15 seconds after I recorded my piece, which I duly did and then they used that to sort of, as you say, introduce me. It was just to show their lineup, I guess. Fair enough.

No, it was good and you were top of the bulletin. I guess we had the craziest oil market of all time, wasn't it really?

As I told them, you always know it's bad if I'm at the top of the bulletin.

[Laughs] That's true.

Otherwise, I'm at the backend before the sport, which is fair enough, that's where I belong. Speaking of which, the opening song at the Linkin Park concert last night at Rod Laver Arena in Melbourne was, "Somewhere I Belong."

Top of the bulletin...

Yes, it was a fantastic concert, crikey, there was hundreds of people there...

So you're still getting out at the tender age of 70-something, you're still getting out to concerts at Rod Laver, good on you!

Well, it was so loud...

That's your last one, is it?

I was possibly the oldest person in the room, it's quite possible.

Speaking of old people, did you know it's Rupert Murdoch's 95^th birthday today, March the 11^th, 1931, born in Melbourne and 95 years later, still having an impact. They had the big dinner in New York on Saturday night. All the kids that are on his side of the split were pictured, there was a video from Trump that was introduced by a guy from Fox News, Brett Baier, and they all said that, "Rupert's a legend, he's still got it..." He's still got it at 95, he still is in charge, Chairman Emeritus...

Is he still running the show?

Well, he's not running the show, but he's Chairman Emeritus. They're having tribute dinners and all the great and the good are turning out. He's clearly signalling it's not over yet, like the old fella is still very influential, even though he's only Chairman Emeritus. Speaking of dynastic handover, Lachlan obviously is in charge, but in Iran they've also done a dynastic handover, which is sent the message to everyone that there's no deals and no offramps. Cripes, day 11 of the war... How are you feeling about it overall? Last week, I called you Zen, you were looking quite relaxed, I was sounding a bit panicked. Seven days later, how are you feeling, boss?

Much less Zen, if that's the correct word. The main problem, it seems to me, is People in the Trump Administration, including Trump himself, are all over the place, they don't know what they're doing and they certainly don't seem to have a clear aim in mind. Pete Hegseth, the Secretary of War, is incredibly bellicose and saying, "We're going to keep going until they're completely pulverised," or whatever. Trump's kind of saying that it's going to be over quickly and then he's not saying that and he is or isn't... The latest, was a flurry of posts on Truth Social this morning about how they're going to - firstly, he said, "The Iranians are not mining the Straits of Hormuz yet and isn't that good?" Then 10 minutes later he posted, "They've just blown up 10 mine laying ships..." and they were mining the Straits of Hormuz and now they're not. I think the main concern is that really, the US doesn't seem to know why it's doing it.

Unlike liberation day and tariffs - people always say that TACO, Trump always chickens out, and he's very market sensitive. But with tariffs, he was negotiating with himself. With Iran, he can't control it. Clearly, the fact that they've done a dynastic handover and there doesn't seem to be any communication at all with the regime, they're not in the position to do a deal, so they can't vouch for the safety of the Strait of Hormuz and it's been blocked for 10 days and with each day, more and more panic and panic buying and oil price shocks and logistics interruptions, inflation fears... There just doesn't seem to be a way that the Americans have to actually deal with the Iranians and secure their offramp, so it's very unclear how this ends, what is the deal that sees this end?

It is quite ironic, isn't it, that Iran seems to have gone back to being a hereditary monarchy, as it was before the revolution in 1979, so that's very weird. The other thing, I was just reflecting that they've gone for the Ayatollah Khamenei's second son, Mojtaba, rather than his first son, Mostafa, and it's the other way around to what happened in the English revolution in 1658, when Oliver Cromwell died and he nominated his first son, Richard, rather than his second son, Henry, and Richard was hopeless and he lasted less than 12 months running England.

That's why they ended up going back to the monarchy and they had the restoration in 1660 which brought Charles the Second to the throne. Charles the Second's father, Charles the First, had his head chopped off in the revolution. It's interesting, a lot of historians reckon that Cromwell had gone with Henry instead of Richard, England will still be a republic and we'd be republic.

It's a bit like if Rupert had gone with James rather than Lachlan, we might not have Trump and Fox News. You're right, which son you choose can have a massive impact. But overall, I would say hereditary monarchies are not doing too well and should be avoided at all costs.

Look at the English Monarchy now, bloody hell! Anyway, obviously America really mucked it up in 1979. Their ambassador, William Sullivan, warned them that something was going on in '78 in his famous telegram or cable, thinking the unthinkable and that was ignored. They ended up being taken over by the fanatics and here we are.

I think surely China has to be influential. Japan is the tip of the spear, Korea, in terms of countries that have no oil supplies at all, so their stock markets are being wiped out, but the Chinese get a lot of the oil that comes through the Straits of Hormuz, you would think that they would be influential. Trump is visiting China soon, so when President Xi and Trump catch up in a couple of weeks in China, surely top of the discussion has to be Iran, if it's still going on. The other thing is the Iranians themselves are starving themselves to death because they need to get their hard currency from sending the oil through the strait as well. It can't go on forever, but the pain inflicted on the west is ratcheting up the pressure on the Americans and Trump is under a lot of pressure to sort this.

I think one of the things it does, is it tells the world, if you're going to have nuclear weapons, get on with it, do it fast! Because if Iran already had nuclear weapons, this would not be happening. America does not attack North Korea in the same way.

Gaddafi finished up dead in the ditch and no one ever touched the North Koreans, so that's the message of - it's the ultimate deterrent.

That's right and it's really happening because Iran doesn't yet have nuclear weapons, because if they did, it wouldn't be happening. Obviously, Israel is determined now to basically destroy its enemies. What it's doing in Lebanon is horrendous now, I mean, it's just an absolutely terrible humanitarian crisis going on. They seem to be trying to turn Lebanon and Iran into Gaza.

Failed states.

Yeah.

I think it's fair - just a personal opinion, but I think over the weekend, the Israeli's went too far, blowing up all those oil depots around Tehran. I think the images of fireballs and black sludge over a city of 10 million and the tit for tat cracks at desalination plants - they've got no fresh water in the Middle East so desalination plants are considered sacred. As soon as the world sees people taking cracks at desal plants and oil blowing up, that's what I think triggered the great fear and the 24-hour oil wipeout. It's amazing, it went from $73 dollars a barrel before this war broke out, to a peak of $119. Has it ever risen more than 30 per cent in a single day? Now, it's come back down into the 80s. I've never seen gyrations in a commodity market ever. Have you ever seen anything like that, oil just spiking up 30 per cent in a day and then coming back 20 per cent?

Only back in 1979 itself when the oil price doubled, I think it was up 50 per cent in 1973 after the Yom Kippur War. This has only happened previously in the 1970s. I think you're right that if they all start blowing up each other's desalination plants, then no one will be able to live in the Middle East at all, they'll all have to move out and there'll be an absolutely massive refugee crisis of refugees pouring into Turkey and trying to get to Europe. They won't be able to live there.

The only winners so far is the actual oil producers. I was interested to see that the market cap of Chevron hit a record last night of $378 billion and the market cap of Exxon hit a record high of $626 billion. Combined, that's just over $1 trillion dollars for the first time for the two biggest US oil giants. Interesting, Exxon overnight has just announced that they're leaving New Jersey after many, many decades and they're relocating to Texas because they're pro oil and Chevron has previously in the last year announced they were relocating from California to Texas. This sort of balkanisation of America, where people literally are relocating to Texas and Florida as a statement, we're a business, we can't stay in California, it's a democratic state, we can't stay in New Jersey...

Anyway, just thought I'd throw that in. In Australia, Santos and Woodside are the only stocks that are doing well and you had a graph on the news, I think it was last night, suggesting the royalties paid by the LNG companies was too low at 2 per cent, versus iron ore at 6.5 per cent and coal at 13 per cent?

Yes, that was right.

And you left out gold, Alan. Gold's the one that's the most outrageous. In WA, it's only 2.5 per cent. Anyway, I'd argue that poor old Santos and Woodside, they haven't performed well, it's very expensive to build gas plants, it's the most capital expensive thing you can do. They've spent tens of billions of dollars turning Australia into one of the world's top three LNG producers and the shareholders have not made anything out of it.

Is that right?

Well, Santos and Woodside, have a look at them! They've underperformed in the last five years because they've massively gold-plated, massively invested in these new plants and then the oil price and gas price has been quite low and the returns haven't been that high, then everyone comes out and says, "Tax them more!"

So you're on their side?

I'm just simply saying that from a shareholder point of view and at the end of the day, the share market will tell you whether someone's making a fortune or not. At the moment, iron ore companies have always been under-taxed, they're making a fortune; the gold companies are making a fortune and Santos and Woodside have not been making a fortune. The shareholders have put in billions, they've invested tens of billions and the returns have been sub-optimal in the last few years. But, let's tax them more!

Yes.

What about EV sales? There seems to be shortages in diesel and there seems to be a lot of panic buying. What's your take on - obviously, we should have more than 30 days of supply, the global standard is 90, so I think you could say it's been a bipartisan error on both sides to not have larger onshore reserves of fuel and the fact that you've got some apparent shortages in regional areas and for some businesses that haven't got contractual certainty. People in the regions, buying on the spot market, they're the first to get cut and it seems to be a problem.

I think that's an interesting point, isn't it? I reckon having your ability to get to work or drop the kids off at school depending on peace in the Middle East, is probably not the best way to go, you might as well buy an EV and then you don't have to worry about it anymore. I think people are going to wake up to that, I think.

The bottom line is, quite a lot of our oil that is refined in Asia does come through the Straits of Hormuz? So, if the Straits of Hormuz are closed for an extended period, we have a problem. We'll have to pivot to America or go somewhere else.

That's right, we get the oil from there but also it just sends up the price of everything, even oil we don't get from there, we get from Malaysia or somewhere.

It does seem a bit like toilet paper in COVID, doesn't it? Everyone is panic buying and it's quite difficult to say, "Don't panic buy!" when you've literally got some petrol stations running dry and the media's all over it. I don't know what you do. Once you start rationing, then it just gets scary after that. I don't know, we shouldn't be worried. The bigger issue is obviously the war, humanitarian issues... But it's the key pressure point that the Iranians have got and I think it will bring Trump to the table, it has to bring Trump to the table. They have to get the Straits of Hormuz open in the next three to four weeks, the global impacts are enormous.

That's going to be easier said than done because it's not just mines, it's about insurance as well. Whether the shipping companies can get insurance, let alone what it costs.

I think all of that stuff is not irrelevant, but the issue is they have to get the Iranians to undertake safe passage. It has to be an agreement, they have to reach an agreement with the Iranian regime. That's difficult when you've blown up most of the entire family of the new Supreme Leader.

It's also difficult to get a regime change, get the people to rise up and come to your side if you're also bombing them and blowing up their school children in schools and stuff. It doesn't seem to me the right way to go about getting the Iranian people on your side.

There's very little sign of any internal revolution at the moment. I think people are just in total shock in Iran, but it seems to have galvanised support around the regime.

We've got a lot of questions today, Stephen, what you reckon, we just move onto them?

Yeah, we've got tons to get through, let's do that.

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Now, Alan, the usual caveat that this is not financial advice, this is just general observations and if you want financial advice, you should speak to someone who has a licence. Bushy from Central Victoria opens up, "In Alan's ABC article, he referenced the three main countries in the Middle East conflict, the USA, Israel and Iran, engaging in a war of biblical Armageddon, that will usher in the second coming of some such thing. I can't believe I'm even typing this really," says Bushy, "So, if it is the case that these three basket case delusional parties are effectively engaged in some supernatural Rambo meets Harry Potter quidditch match for the Hogwarts Cup of Eternal Salvation or whatever, where does that leave a reality based world order? I can accept that the post World War Two rules based order has ended, I just struggle to see how anything can function if the motivations of these three armed lunatic asylums are based on who's sky-daddy can beat up the other sky-daddy. Make this make sense, if you can!" Now, I might leave that to you, you didn't frame it in anywhere near terms like that, but you did talk about some of the religious history and motivations in that ABC column, so tell us more!

Well, I just observed that it seems to be a war between religious extremists in each of the main religions, Islam, Judaism and Christianity, because obviously the rulers of Iran are Islamic extremists, they have been since 1979, and gradually over time the right wing orthodox extremists in Israel have become more and more powerful in Israel. Now, Netanyahu relies on those parties to stay in power. I also watched this video last week of Trump sitting at his desk in the oval office, surrounded by a crowd of evangelical Christians laying their hands on him and praying about Iran. A lot of the rhetoric from various people in the US about the war in Iran has been very Armageddon like.

Obviously, I think that Trump himself is not religious, but he's certainly using the evangelical Christians to be in power and they're certainly a big part of it. The rise of evangelical Christians in the US seems to have begun with the Roe v Wade Supreme Court ruling making abortion legal and the Christians basically began a project then to become more powerful and to get it overturned, which actually took place in 2022 thanks to Trump sacking the Supreme Court. I do think there's a fair bit of religious kind of elements to this. As to whether that will result in there being an Armageddon, I doubt it. I think at the end of the day, it'll come down to more pragmatic issues, but I just thought it was worth pointing that out, that's all.

And it does make it very different to Venezuela. Blowing up a national religious leader's entire family is in a whole new league from Venezuela and then doing it in the world's most important hub and oil hub, just ratchets up the stakes. I think there is an element of this extremism drive in the conflict, but ultimately markets and money will be the guardrail that certainly brings the Americans to heal, but I don't know, it's very hard to read the Iranians. It was an interesting column, Alan, not the sort of column you would normally write, but I think it would have got a lot of clicks, that one.

Got a lot of abuse, to be honest, on Twitter.

"Stick to business, mate!"

That's what a lot of people said.

That's what we love about you, Alan, you're a left-field master. You like doing things that others don't do and they're often very interesting takes. There's never a dull moment on the Alan Kohler rollercoaster of opinion, it's fantastic.

There you go, the way I think of it, is it's just a column, you can read it or not read it or agree with it or not agree with it, I don't care. I just think I'm trying to say something interesting.

Always interesting.

Elliot says, "I work at a very wealthy private school as the economics teacher and often get badgered about the question of tax rates being so high and that it's unfair on hard workers who have to pay more. Even when I raise the idea of a lot of wealth being inherited or the result of nepotism rather than hard work, students will argue back and say, "Why should the rich have to support the poor?" So I'm wondering how you might answer this question, why should the wealthy pay more?" Stephen, come on!

If I was you, Elliott, I would say to the students, Australia is famously egalitarian, offering a fair go, that's part of the Australian way. If you don't like it, you can go somewhere else. For instance, your school fees are lower than many other countries because we're one of the only countries in the world where the Government taxes the people and gives money to every single private school in the land, regardless of their religion. It's part of that whole, highly redistributive economy. We're a high-tax, high-spend, egalitarian place. That said, I agree that the top tax rate kicking in at 47.5 per cent effectively at $190,000 is ridiculous, it's too high. We've heard this discussed before, it's all just a question of balance, but yeah, people will talk their book, won't they? If you go to an elite private school, of course there's going to be a sentiment about we're over-taxed, that's just people following their self-interest.

We've got a structural deficit of, I don't know, $40 or $50 billion dollars, which according to the Government's own forecast, is not going away. So something needs to be done, right? What they can't probably do is tax income more, because as you point out, the income tax is pretty high. They're going to have to find a way to tax wealth. I think the wealth people whose children go to Elliott's school need to brace themselves, because there's probably going to be some way of taxing their wealth some more than it is already, I would say.

Or you could get some DOGE-like government that gets in and does a Kennett-style slash and burn, ripping into the NDIS... You could have a government that has a serious crack at welfare and the spending line, but the solution so far by successive Governments has been more on the revenue line, to keep growing and have bipartisan support for things like the NDIS. It was rolled in bipartisan and it's now running at $50 billion a year, it's still growing exponentially and there's no one suggesting it's ever going to reduce. If you want to do programs like that, unlike any other place in the world has a program as generous as the NDIS, you have to have high taxes, there's no other option because you've got to pay for it.

That's right.

Daniel says, "I was under the impression that Canada restricted non-resident buyers from their market a few years back. Toronto also imposed additional charges in the market. It seems political correctness has avoided the elephant in the room, which is foreign buyers under the mantle of residents accumulating property and significantly inflating prices over the last decade. Canada blocked it and it worked." This follows on, Alan, from last week's discussion about why had Canadian house prices fallen by 18 per cent, yet ours continue to go up and up and up? There is an interesting difference, is that we still allow foreigners to buy off the plan, so buy new builds.

Whereas, the Canadians banned foreigners from buying existing homes and new builds, so the Canadians are now grappling with the lowest level of housing starts in 30 years because they haven't got all those foreign buyers underpinning off the plan sales to take it to the bank to get the new build going, whereas we still do allow that. Many Canadian developers are saying, "Let's go with the Australian model and let the foreigners back in for new builds." But it is interesting - and we had another question asking whether Australia could experience a Canadian style crunch in house prices, what do we think the odds of that are happening? It can happen there, why not here?

Isn't the main reason Canadian house prices have come down, is because they clamped down on immigration?

Well, that's it, yeah.

It wasn't just foreign buyers buying off the plan...

It was both, it was anti-foreign people and anti-foreign capital and they clamped down on the international students a lot more aggressively and that squeezed the market and many of them came here. We haven't clamped down on the students as much, we haven't clamped down on the capital as much and I think they had a bigger issue with money laundering and I think that drove their market higher, there was a lot of hot money coming in and being parked in Canadian property. Their spike was probably higher and then they burst the bubble with a more aggressive crack down and now they're suffering and people are hurting with 20 per cent cuts in house prices and developers saying, "We're not doing any new builds because there's no buyers. Bring back the foreign buyers so we can justify this new apartment block."

I'd say the last thing the Australian Government wants is for Australian house prices to fall 18 per cent, as they have in Canada, that's certainly not what the Australian Government wants.

Particularly when we've got the most leveraged households in the world, as I mentioned last week, partly because we've got so much super, we all think we're rich and we can borrow more. I agree, if there was a 20 per cent cut in Australian house prices, there would be hell to pay, politically. Your turn, boss!

Luke says, "We keep hearing that AI is about to wipeout whole categories of jobs, but AI doesn't work in isolation, it has to be integrated into messy legacy systems governed, secured and trusted. Isn't the narrative missing the reality, that integration, not intelligence, is the real bottleneck?" Well, yeah, integration certainly is, but I don't think that's as hard as you're making it out to be, Luke. I don't know whether you're working in AI in a company or not, but I don't think it's that difficult to integrate AI into the processes at all, companies seem to be doing it pretty simply and easily.

The companies that are doing it best are the ones that are currently winning. It's a question of how quickly you lean in on AI to survive the Armageddon that's coming from Anthropic and ChatGPT and the likes. We're all talking about Iran, but by jingo, the AI trade, the software getting wiped remains live and the private equity thing is also still a big issue. The big four American listed private equity firms like the KKRs and the Apollos, they're down on average now 40 per cent from the peak and the biggest single risk in that is their exposure to software companies, which people are worried, some of whom will go to zero.

That whole trade remains absolutely live and it actually ties in with Johnathan's question, which is, "With the number of jobs likely to decline with AI, doesn't it make sense now to implement the four-day work week? This would share the remaining jobs more equally and perhaps lead to more productivity as workers will have more time to think about how new technology and AI can contribute to their output. It might take the burden slightly off the caring sector as well." What do you think, Alan, four-day week? The only way you could justify a four-day week, if you made the standard work week not 38 hours, but 30 hours, then you'd have to reduce wages by 20 per cent as well and that would hurt a lot of people, they wouldn't be able to pay the mortgage, so there'd just be more and more people doing overtime.

Yeah, but what's Johnathan talking about, that the Government passes a law that imposes a four-day working week? People can go to a four-day week now if they want to.

Well, in Victoria we've just imposed a law which is you have to be offered two days work from home out of the five. All the tweak would be, the law now says that the standard working week is 30 hours, not 38 hours, but of course they would have to adjust the salaries. They couldn't say you work four days and you get the same money.

The Governments are never going to do that, state or federal, they're never going to do that, crikey! The problem is not so much people not having enough work, people having no work. A whole bunch of people are going to end up not with a job.

Well, this is Johnathan's point, if there's less work overall, how do you spread the work more equally around? That's where people come up with the universal basic income or the discussion we had last week where I was saying, "Start paying people for volunteer type jobs." That's effectively a government work scheme, effectively, what that is, as opposed just to giving someone a universal basic income where they don't have to work for it. But these are all wrestling with that same issue, which is a jobs desert caused by AI. You're still on the record saying it's going to go over 10 per cent, so the question is for you, how should the Government respond when the unemployment rate hits more than 10 per cent, Alan? You're Prime Minister for the day, what would you do? Obviously, not the four-day week.

I don't think you've got any choice, you've got to re-do things. They're going to have to start paying unemployed people better than they are. The Job Seeker allowance won't cut it to keep people going. It seems to me, obvious, that at some point the whole idea of unemployment benefits will have to stop being seen as something that tied you over for a few weeks while you're looking for another job, to being something that keeps you going because you can't get another job. That obviously implies some sort of basic income, but should it be universal? This idea that people who are working should also get the same amount of money as people who are not working, that's crazy, that can't work.

We do have a universal basic income for people, over 67 in Australia, which is called the aged pension and 87 per cent of people over the age of 67 are still on it in some form or another, despite our incredible $4 trillion dollars of super. All you're doing is spreading the concept of the aged pension to the wider community, how do you fund it, Alan?

That's right, the aged pension isn't enough either and that's why we've got super, because it needs to be supplemented by people being forced to save during their working lives because the Government isn't able or prepared to pay enough pension as Scandinavian companies and so on do. But I suppose you're right, then it's going to be a question of, how do you prove that you need this payment, whatever you call it, because you can't get another job because you're a software coder and software coding is finished and you can't train to be something else and you're 45 years' old or 50 years' old and that's it for you.

Then you've got to say to the Government, "Listen, you've got to give me more than the Job Seeker because I'm not going to get another job. Please don't make me drive Ubers." I'm interviewing the Treasurer Jim Chalmers for my new ABC podcast shortly in a couple of weeks and I'm going to be talking to him about this, asking him, "What are you going to do?" What's his plan?

What do you mean, your new ABC podcast? Are you sharing the love around, boss? When's that starting?

It'll be an interview podcast, it won't be like Money Café.

Okay, and you've got Chalmers first up, have you?

Yes.

He was so impressed with the Money Café outing during the election, he's come back for more?

I think that's right, because we didn't do 'gotcha' questions, we weren't like political interviewers trying to catch him out, we were interested in finding stuff out from him and he was kind of interested in that.

Did you see he's just done a deal with the Greens to get the unrealised gains tax changes through, so it's now if you've got super of more than $10 million, you're paying 40 per cent on the earnings. I thought it was interesting, Nick McKim, who negotiated that, the Greens Senator, said basically yesterday on TV, this is a downpayment to the Government and we are expecting historic and progressive changes to the tax system to be announced in the budget. We have the numbers, Labor and the Greens have the numbers, this is a downpayment, we are expecting a whole lot more. I heard that and I thought, hold onto your hats, here comes the big capital gains tax changes, plus, plus, plus, potentially...

Yes. Who's turn is it?

Luke says, "My question is, could we use a nation-wide maximum LVR, loan to valuation ratio, policy to reduce the growth in and even reverse house prices in a controlled way? As far as I'm aware, no one is discussing the root cause, we are all, in the most literal sense, spending too much money on housing because we can. This is a capital allocation issue. We're incentivised to take out huge loans for housing and it makes financial sense to do so because the leverage returns make it a better investment than the other options available to the average person." Well, that's true, Luke, residential property has been a fantastic investment over the last 25 years, but I don't know if a nation-wide maximum LVR, Alan, would work. We already have APRA hitting the banks with various capital adequacy tweaks to try and contain and restrain their level of residential or investment loan lending. Do you think it would work or it would just reduce access to loans for people who can least afford it?

Correct me if I'm wrong, but I think that the only time house prices have fallen in Australia, outside of a recession, was when APRA did cap LVRs for investors. If not formally, then certainly informally and that did result in a big decline in investment in housing and fallen house prices. I think that was 2017 and look, I think it would definitely work if they did it, but it would be a pretty draconian kind of step to take.

But isn't the power of that also a bit limited with private credit. Yes, you can go after the bank regulated home lenders and I guess they are the dominant players, but there's also a lot of non-bank lenders out there who would step into the gap, I would have thought.

It's perhaps worth noting that APRA has introduced a debt to income ratio of no more than 20 per cent of new mortgage loans can have a debt to income ratio of six times or higher, so they're limiting the number of risky loans to 20 per cent of loans, which is not the same as an LVR cap, but it's something similar.

And you don't think there'd be a little bit of gaming of the system when people fill in the forms?

Surely not.

That seems to have happened over the years. I guess a related property question, number nine from Pete, who's suggesting that, "Stephen recently commented that Australia's unlikely to experience a 10 per cent or more fall in real estate prices." In nominal terms this is true, however it's also the case that from 2010 to 2019, Perth saw a real 20 per cent decrease in prices, Darwin saw a 29 per cent decrease and Adelaide had flat prices across that time. We also had another question or comment from someone pointing out that one of the reasons house prices are going up so much, is that the quality of housing is rising, people are getting better houses with better fittings and this is never mentioned in the discussion about house prices. We just talk about nominal house prices and we don't talk about it in real terms and we don't talk about it in terms of quality of product terms. So we have had a premiumisation of housing to a degree. Would you agree with that, that partly explains rising house prices, is better houses?

Yeah, I think that's true, houses these days, whether they're existing or new, have to have a butler's pantry and more and more bedrooms have got ensuites, that's true. Also, you've got to have a second living room, all this... Sure, that, I think is true. What used to be called Logic, house prices that we report on each month, are called hedonic and they're supposed to iron out those differences, they're supposed to kind of take account of the improvements that have taken place in housing, in particular, renovations. They're supposed to kind of remove the impact of renovations. But I'm not sure that they do fully do that, because I think that you're right, that's one of the reasons house prices have gone up and another reason that's also been raised in one of our questions, is the rise of dual income households increasing the ability to increase repayments.

I always thought that, really, that occurred after the increase in house prices because both partners had to work in order to meet the higher mortgage, but in fact I think the data shows that it actually pre-dated the rise in house prices and that the rise in dual income households was a function of the rise of feminism and equality and women choosing to work more and both partners choosing to work.

It's also the birth rate, Alan. The Australian birth rate peaked at 3.6, I think it was, in the mid-1960s and it's now hit a record low of 1.48, so is that because people can't afford to have kids, every kid costs you a million bucks, they say; or, is that because everyone's working so hard to pay off their mortgages that they haven't got time to raise the kids? All these things intersect.

Or because they're working so hard because they want to, because they enjoy it and because they want to get ahead and people have got careers.

Absolutely right. You go, Alan.

Julian from Elsternwick, "Love the show. On Monday, Magellan Financial Group announced a merger with Barrenjoey, alongside a $150 million capital raising comprising a $130 million placement and a $20 million share purchase plan, the SPP. The SPP was capped at $30,000 dollars per investor, regardless of shareholding. Why was the SPP such a small component of the raising? The structure appears to favour institutional investors via the placement over existing shareholders, many of whom, particularly those who invested between 2015 and early 2022, are likely sitting on losses." This is up your alley, Stephen.

Alan, this has got it all, I'm all over it. When Julian says that $130 million went to institutional investors, there's one particular institutional investor, the Lowy Family of Westfield fame, worth $10 billion dollars. They were allocated $79 million dollars of the $130 million dollar placement. They got a majority of the placement at $8.45 and the shares were yesterday, $10.63. The Lowy Family have been given a cheap entry to 5.1 per cent of the stock, they're already more than $20 million in front of this and the 43,173 retail shareholders are being told that they are only going to get $20 million between them at $8.45 and if all of them apply, that will be $1.3 billion dollars of applications chasing a miserable $20 million.

This is a classic example of who you know, big end of town, selective capital raisings, going to the favoured few and squeezing out the ordinary retail punter. I will be writing to my friends at Magellan and advising that they uncap the SPP and accept all applications from retail shareholders, even if it's $300 million, because there's such a long history of retail being sharp, that at least we've been offered an SPP. But really, $20 million against $130 million for the big end of town and one privileged rich-lister getting $79m of that when they weren't a shareholder before and they've suddenly got 5 per cent, they're already $20 million in front in a week! Anyway, is that a rant?

Well, yeah, and you might even show up at their annual meeting more in anger than sorrow, perhaps?

Well, I did look at nominating for the board at their upcoming EGM in Sydney, but their nominations had already closed, so I will be writing to them saying, there may well be a board nomination later in the year, unless they treat retail shareholders fairly by lifting the cap and that normally works. Watch this space to see how much people apply for and how much they accept, because it's well in the money, which normally leads to a deluge of applications. But at least the stock has gone up. They've announced this merger, Barrenjoey and Magellan, the market loves it, the stock's gone up 20 per cent. So, at some levels, we're complaining about who gets the benefits of value creation.

So, well done on a good deal to get the stock up, but you're not sharing the spoils equally and particularly that selective placement to the Lowy Family looks like a special connected deal when existing shareholders of Magellan should have been given that $130 million dollar placement on a pro rata basis, not some non-shareholder getting in at the ground floor at $8.45 when the stock's at $10.63.

Well said, Stephen.

Thanks, boss.

I think we've got time for one more question which you can hunt through and we should probably mention, a number of people have written in saying that they know how much their EV is costing them versus petrol, because we talked about that last week, and just to say that we got all those, thank you very much. I still don't know, but that's okay.

But you've got a lot of listeners who have assured you you're saving plenty, Alan, particularly if you're charging on the solar during the day. Also, just last time, we should deal with Matthew, there was a question about jobs that improve equality last week - "If someone wants a job that generally improves equality, I nominate teaching in the Northern Territory. It's well paid professional work, my partner's a senior Northern Territory teacher of five years' experience, earning more than me as a senior engineer with 10 years' experience. Not only is the pay better, but it directly changes life outcomes for children." Well said, Matthew, teaching is one of the most noble professions, lifting people up, helping people get an education and get through life.

Absolutely, it is one of the great noble professions and James also wrote in on this question of a good ethical job, pointing out that, "All the volunteer work done by the CFAs and the Emergency Services people, where would we be without them?" Absolutely right, there is massive benefit from the volunteering that is done by particularly people in the rural areas, but all those volunteer firefighters and emergency responders, they do incredible work. Part of their motivation, I mean people feel good about helping their community, that is one of the things that governments tap into, the feel good factor of being a rescuer, of being a helper, and people will step up and do it in their own time. It's a really great, noble thing that people do.

Another well said, Stephen... Thanks everyone for listening to today's episode of Money Café, I'll be back next week with James Thomson. Send in your question to themoneycafe@intelligentinvestor.com.au, keep them short and sweet, we'll try to get to them - we can't get to all the questions, but we'll do our best. 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 and we'll see you in a fortnight, after which I understand listeners may have heard about an upcoming merch offer, Alan. So, merchandise, here it comes, exciting times at The Money Café.

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