Power Struggles

[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...?

We are The Money Café, aren't we?

We are.

I've been up since 5 o'clock watching the French get smashed by the Spanish in the World Cup Semi, two-nil.

Two-nil.

Total upset, the French were hot favourites, had smashed all before them, had the best attacking four the world has ever seen and they were up against the world's best defence the world has ever seen and the defence prevailed, the Spanish are through, two-nil, and they've conceded one goal in seven games. So, best ever defence against best ever attack and it's the Spaniards. Trump won't be happy...

Why not?

And the English are down to the last three and if English can get over Argentina, it's an England-Spain final. Very excited about England-Argentina tomorrow morning, a replay of the most famous soccer game in history, the Maradona 'Hand of God'.

Ah yes, that's right. Is Spain going to win the tournament, do you think?

Hot favourites now, after taking out the French, absolute hot favourites. But anything can happen in a game of soccer, the French were the hot favourites today... So, two teams and it's a game of chances, soccer. Soccer just produces more upsets because it's such a fine line between a goal and no goal.

Not many goals are kicked, right? So if you kick a goal, you're in a good chance to win.

That's right, then when you're a goal down, you start attacking too much and then you're exposed to another goal, which is sort of what happened to the French to a degree. Look, best ever World Cup, it's been absolutely spectacular, I'll be very sad in a week when it's over. Back to dreary winter in Australia. We should move on from soccer, this is not a soccer podcast. Where do we start? Overnight markets, you reckon?

It all happened on Wall Street last night. Firstly, IBM shares down 25 per cent, that was the biggest fall ever, it was bigger than the fall that IBM shares suffered in the 1987 Black Monday crash and it was all because they had a profit warning because of AI and the CEO, whose name escapes me, basically said they mucked up the transition, they're mucking it up. What's his name? Arvind Krishna, "We did not adapt and move quickly enough and numerous large deals failed to close on their timelines we expected, driving the majority of our shortfall."

And that's because a lot of the clients are reallocating their spend to the AI boom. So a bit of an old mainframe type company like IBM is getting crowded out by the need to spend money elsewhere. Your IT budget can only go so far. But this is not the SaaS-pocalypse necessarily, because on the same day we've seen all these cyber companies hitting record highs - because it's basically cyber and chips are sort of the big part of the boom. The SK Hynix extraordinary debut on Wall Street, the Korean chip maker. So it's winners and losers, but certainly IBM, the most storied US or global IT company, 25 per cent in one day, it's just breathtaking.

That's right. On the other hand, the Wall Street banks, JP Morgan, Goldman Sachs, Citigroup and Bank of America all reported their quarterlies and they reported combined equities trading revenue of $19.3 billion, a lot more than analysts had expected and 72 per cent up on a year ago. Amazing. Their shares didn't all go up, I think Citigroup shares fell, but Goldman Sachs was up 8 or 9 per cent or something.

Yes, it's almost tripled in 18 months now. Goldman Sachs up 9 per cent, market cap - still, the market cap's only $340 billion US dollars, even at 9 per cent...

Oh, is that all?

It's nowhere near that Nvidia $5 trillion. The big banks are nothing like big tech, but they certainly have had a big quarter, clipping the ticket on the AI boom. I thought David Solomon, it was an interesting comment, the boss of Goldman Sachs, said that they just can't handle the demand. There are so many capital formation requests going on that they're struggling to keep up with all the different companies seeking to raise capital, $85 billion in the secondaries via Alphabet, all the sort of the AI start-ups... The ticket-clippers are struggling to keep up with the AI tech arms race, but equally, they're all making a fortune on the equity trading side of things and that goes down to whether it's a bubble or not, because the ticket clippers make a lot of money in a bubble and that's what David Solomon said, "It's not a bubble, it's a trend."

So, AI is a trend, a massive productivity-inducing, world-changing trend and there'll be winners and losers like in every massive change, but it's not a bubble, it's a trend and you've got to back the winners.

JP Morgan's Chief Executive, Jamie Dimon, said, "It's getting close to as good as it gets..." And it's worth noting, when we talk about the combined equities trading, that these companies are making nearly $20 billion in equity trading, that's not exactly trading and it's not brokerage. It's basically they're virtually like bookies. They kind of run the books for other traders. Basically, what's going on is these banks are bookmakers in the great casino or the great racecourse trading of the AI boom.

It is just amazing, isn't it? I do like the Americans, they're quite regular with their numbers, aren't they? We obviously don't have quarterly reporting here, but with the US deficit, they even got monthly reporting and I did like the number this morning that came out, that the US deficit was $120 billion for the month because they did $49 billion of tariff refunds in one month. They collected $166 billion in tariffs and the Supreme Court said, "No you don't..." - the whole issue of are they going to pay it back and they've actually repaid $49 billion in one month to deliver one of the biggest ever monthly deficits for the month. Whereas, in June last year they had a $27 billion surplus, a monthly budget surplus, because they were hoofing it with the tariff revenue. The money comes in, temporary surplus, the money goes out, record deficit. So they've still got this massive structural deficit without any tariff revenue because they're having to give it all back.

Speaking of American revenue, Donald Trump has given up the idea of putting a 20 per cent toll or fee on ships going through the Strait of Hormuz, which he announced yesterday and this morning, has said, "No, no, we're not going to do that now. We're going to replace that with - in negotiations with all of the Gulf states and they will invest in America."

One of his top 50 worst thought bubbles, you reckon, that one? 20 per cent ticket clip on a strait that you have no rights to at all...

I know, that's right, in order to charge a 20 per cent fee on ships, they'd have to actually be there to - they'd have to have a permanent presence in the Strait of Hormuz to do it.

I think it's a user pays argument, that we're offering the security, we're spending the militaries to stop the Iranians, therefore you all must pay for us. But I don't think people are going to cop paying it direct, 20 per cent on $150 million worth of oil going through in a cargo and you're paying $30 million to the Americans on a $150-160 million cargo, it's just ridiculous.

It's just a different type of extortion now, if they're going to invest in Americans, they're going to hand over cash in some other form to the United States and not pay a fee per ship.

The madness of the toll, it's just the precedent problem. Then the Strait of Taiwan, the Strait of Malacca. Once you say one piece of water's got a toll, then in goes China and others elsewhere. But look, there was a 10 per cent increase in oil yesterday. They're still bombing, third night...

And the oil price didn't come down last night, the Brent price is still $85 a barrel, the West Texas crude is $79 still, so basically the same as it was yesterday.

Interesting, the Albanese Government, if oil keeps spiking, if they hold the line with the extra 16 cents excise tax going back on on August 3, so they've got two-and-a-half weeks to whack the motorists with that final 16 cents of the 32 cut. It'll be interesting to see if they hold the line with that if the conflict continues and oil prices continue to rise. Speaking of energy, Alan, we've got some breaking news today with the big energy price report.

We'll see what happens, its CSIRO's what they call the GenCost Report on Renewable Energy. It's complicated, I had a briefing on it yesterday from the CSIRO and basically, it says that in order to meet net zero by 2050, electricity prices have to go up by 50 per cent in 2030, so in four years' time. I'm not sure that will be the headlines when the report comes when it's reported on today, but it probably ought to be. It's a bit more complicated than that. Electricity, 50 per cent increase is the generation cost, but that's only a third of the total price of electricity.

The rest is transmission and profit margins and I think that it'll probably turn into a 10 or 20 per cent increase in price by 2030 and I think they'll fudge it and won't actually talk about it. I'll probably talk about it in this week's weekend briefing a bit. I was going to do a column in the ABC about it, but I think there's too much else going on to do that.

I read the press release and I thought it was interesting, the average price is down to $104 a megawatt-hour and it peaked at $189 with the Ukraine invasion. There is a message of falling prices, particularly driven by batteries, solar and wind. I sort of read it as a good story on renewables and batteries together reducing the price, but global cost pressures on gas because of AI. The demand for gas turbines globally is enormous and so it's actually driving up the cost of delivering gas, which I guess from a cost competition point of view makes that renewables push even stronger.

They're still saying, they reckon we're going to get to 93 per cent renewables, basically solar, wind and backed by batteries, by 2050. I thought that reading just the press release anyway, that overall it was like we're doing pretty well and the renewable business case is strong and we're executing it quite well in Australia.

Yeah, that's up until now. The real story, I think, is what's going to happen in future and how we're going to get to net zero by 2050 and it's definitely going to cost a fair bit more in terms of electricity in future. It isn't at the moment, that's true, but it will in future. The other thing is, we probably should deal with the Telstra outage last week, that's since we last had a Money Café.

Yes.

What did you think of that?

I kept having phone calls that dropped out after 15 minutes, that was the way I was hit. But look, I was just amazed at how one company can have a software timing glitch and it can affect the whole country. It just shows the vulnerability of the nation, a connected nation to the number one infrastructure player. It's very embarrassing for Telstra, they're going to be dragged into the Senate star chamber with Sarah Hanson-Young grilling them and Vicki Brady being berated for being on holidays and all that sort of stuff... But yeah, they'll get a fine and it's a brand damage issue, 000 is always a catastrophe with any threats to 000 and people saying, "The Government should be running 000, don't trust a private company!" Not great... I think they've handled it sort of okay.

I was amazed that the trains went out. The V/Line trains in Victoria went out, they just couldn't operate, unbelievable. Everyone was stuck at the station for hours. I suppose what it means to some extent, if Elon Musk can actually get a global satellite phone service up and running as he's been talking about, people basically use it. I mean, I think that these cell-based companies with mobile phone towers for their phone network might end up being in trouble if it can get replaced by satellites.

You just need a backup, don't you, you just need that switcheroo. It's like the generator on site when the lights go out, sort of thing... I'm sure there's a regulatory response to this because you just can't have something like this happening, it's actually a bit embarrassing to the nation that you can just have such a huge impact from one company having a software glitch. I guess they deserve a solid inquisition. I was just a bit surprised to see the, "You can't trust a private company, it should be nationalised!" I'm not sure that's the solution, but yeah, it was a very bad week for Telstra, that's for sure.

I think there is a case for some sort of Government intervention in 000, that is a service that should be provided by the Government, you would think. I don't know how they do it, they haven't got mobile phone towers themselves?

How do you carve that out of the rest of the Telstra telecoms market?

I don't know.

I don't see how you can actually do that. A heavy regulatory approach is the solution because it's just too hard to ringfence the infrastructure to have Government-owned - I mean, I guess the NBN is Government-owned, so pop it into the NBN and then - but I don't think necessarily who owns it is actually going to directly deliver the result, because I don't think there's a case here that Telstra's been slashing and burning brutally to maximise profits and dividends and CEO bonuses and all because they're driven by that, they've underinvested and this has led to that. It seems to be a bit more complex and nuanced than that simple narrative.

By the way, we've got a big speech by the Prime Minister, Anthony Albanese, today about AI, which I'm going to be interested to see. This may be an over-simplistic interpretation of Government policy on AI. The question is whether they're going to have a regime that's like pharmaceuticals, where you can't release it until it's been checked and tested. That seems to me, the issue. Either you do that or you don't do that.

At the moment, the regime in Australia is voluntary and they test it after things - they're testing it, they've got this thing called the AI Safety Institute and they're testing AI, but they're already in the market and apparently - I haven't read the speech yet and I don't think you can read it, The Financial Review got an early copy of it and they've quoted him saying, "Pharmaceutical companies don't get to release stuff out to the market until it's been checked," and it doesn't quite say that they're going to do that for AI, but I think that's the issue.

I think it's a bit like forcing the big four audit firms to structurally separate their audit function. It's very hard for Australia, 10^th, 11^th, 12^th biggest economy in the world, to be a regulatory trend-setter. It's a battle between Europe and the US and the Europeans are obviously going harder as a collective economy of a billion people, they've got strength, they matter... At the end of the day, we're just going to - it'll be like being a price taker - we're just going to be a regulatory taker and however far Europe pushes it with the pharmaceutical model, is probably only as far as we'll be able to push it. Who are we in Australia to come up with a different or a unique view about whether a product can be rolled out?

I know - look, we do it with pharmaceuticals. The Therapeutic Goods Administration makes its own mind up, it doesn't take what the Europeans or the Americans' regulators do with pharmaceuticals, you have to get through the TGA in Australia before you release your drug here. I think that it's not impossible for Australia to make its own mind up.

Do you think that drugs, medicine, it's more science based? It's just a harder measure - because this goes to security, IT products... It's just a whole different realm to drugs that you take that affect your body. I just think it's easier to do that regime, the testing regime, with drugs than with global IT products. The analogy is good and I think the Americans are so laissez-faire, so corporately driven, the techs have been far too under-regulated, I agree with all that, but putting the genie back in the bottle and Australia's ability to move the needle in a global debate on AI regulations... I mean, we need to be seen to be doing things, whether we actually can do anything above and beyond what's say the Europeans do. I think it's going to be a stretch.

Fair enough. Okay, let's go to questions...

We got 14 questions from a bloke this week, boss, so we better hear a message from our sponsor before we get into them.

Let's do that.

[Recording]

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[End Recording]

And before we do the questions, please be aware this is general advice only, if you need personal advice, please go and see an adviser. You can go first, Stephen.

Peter has said he's a long-term listener and fan and, "...he's been meaning to ask this question for years." Finally... He's had enough of James in particular for blaming workers for poor productivity. "Alan points out facts that it's largely due to lack of investment by business, not workers, and under the last decade of Coalition Governments with a deliberate policy of wage suppression, wage growth flatlined and went negative and then Peter's blaming the Coalition for letting house prices go through the roof and basically saying it's time that the PAYG citizens take a well-earned break from the demands of business owners and, "We're not going to take it anymore!" he's basically saying and, "Stop blaming the workers for Australia's relatively low productivity."

It's not a question though, is it?

No, it's more of a statement, I'd say. It sounds a bit more like 1970s workers versus capital perspective and Peter, I'd just say, we've got the world's highest minimum wage in Australia and unionisation rates have fallen so far that your enterprise might be able to stick it to the bosses, but every enterprise is different and it's quite difficult to take that collectivist approach to workers of Australia are not going to take it anymore and we're going to take a well-earned break. I don't think it works that way.

Brian says, "Long-time listener, but I feel the need to request that you introduce a positive segment into your podcast. Continual negative commentary on the state of the Australian economy and our Government's inability to manage it has become unbearable..." Sorry, Brian. He wants us to come up with a good Australian business story that you could highlight and give a bit of kudos to. Go on, Stephen, you must have some good stories.

My daughter works for Yo-Chi, the yoghurt place that Janine Allis started, the Founder of Boost Juice. They are just booming. Every time I visit my daughter, there's people everywhere and they're taking it overseas now. For me, the Boost Yo-Chi Janine Allis is a great entrepreneurial story from a girl who grew up in Knoxfield in the eastern suburbs of Melbourne.

I think Yo-Chi is great, I love the way they do it, it's fantastic. Speaking of food chains, Grill'd is a great story too.

I go to Grill'd quite a bit. I agree, it's a great story. I'm flying to Sydney next week for the Macquarie AGM, I think it'll be round 13 or 14 with Macquarie, going up to visit them on my birthday. Like Goldman Sachs, their shares are at $253 today, the millionaires factory, they're worth $97 billion. They are a great Australian success story and I'm going to be really struggling to hit 'em between the eyes next week when they're doing so well. Then one other company I love, Monadelphous, out there in WA, the shares have more than doubled, they're now worth $2.85 billion and they are an Australian publicly listed company that delivers a whole bunch of the engineering solutions to huge projects to the big mining giants.

They work for Rio and BHP and Twiggy and Gina and all those massive constructions out there in the desert. Monadelphous, a great Australian listed company is a major supplier. Often companies go broke, dealing with those big miners and Monadelphous has survived for a long time and the shares are at $28 and it's just a great Australian success story. So, there you go, Brian, there's a bit of happiness. What about you, Alan?

Pro Medicus, for sure. What a great Australian success story that is, selling radiology to the Americans absolutely hand over fist. It's a magnificent product and they're going beautifully.

Yeah, but I do agree, we need some more success stories. Anyway, we're being too negative, so let's try and keep it positive. Matt says, "Love the pod. Stephen, I agree that as a retail shareholder we get ignored and forgotten, however the friction lies with the share registries and their lack of innovation. I was talking about Computershare being a great Australian success story, which they are. But how can they be when their technology is archaic? Trying to log in as a shareholder is like crawling across barbed wire, let alone trying to vote or doing anything useful. Solution - use your influence to get an integration with the broking platforms, where every retail shareholder has an app with notifications. If you have 'x' holdings with a HIN or a CommSec or a stake, you can push a button to vote with the broker, they could send a text message, everyone could log into an investing app, not navigating through three or four different share registries."

Ironically, Matt, I actually spent a couple of hours a couple of weeks ago with the CEO of Computershare, Stuart Irving, who was in town - he's based in London but he was visiting and he made an interesting comment that, "All over the world, the question is, who pays for share registry services?" In Australia, it is the companies, the BHPs, the Commbanks, they pay for the share registry services. In many countries it's the brokers, the brokers actually pay for the registry services. He says, "Reform comes faster in markets where it is the brokers who pay rather than the companies."

My personal comment is, the ASX itself, the monopoly ASX, is a part of the problem and they're difficult to deal with, but I agree that we need big legislative changes to make a clunky system easier and if I was fixing it, I would give the Australian Electoral Commission a mandate to get the voting rate up from the current rate of 2 per cent, to do system reform that gets voting rates up and I think the solution that Matt came up with, one app, all shares consolidated, can vote easily, is actually a very good suggestion. He says, "Make it your next two years' life goal!" And I think that's a good suggestion, I've actually been thinking about that myself. We need system reform, because the level of voting at the moment at 2.2 per cent is a crisis and we have 93 per cent voting rates in elections, we wouldn't take a 2 per cent turnout rate in public elections, Alan, would we?

We certainly would not, no. But it's a bit easier to vote - well, it's a law, for a start, you have to, you get fined if you don't.

I always say, "You only get your dividend if you vote." That'd fix things quickly, wouldn't it? They'd be borrowing from the 'avoid the fine' philosophy in political elections.

Exactly, that's right. You're right, it needs to be made easier and I think the suggestion from Matt is a good one, I agree.

Absolutely.

Kai says, "In the US, communities are increasingly pushing back against AI data centres because their immense power demands are driving up local electricity prices. However, when built in regions with massive electricity generation surpluses, these facilities present a powerful win-win. Consider two prime examples in the Nordic Region, hyper-scalers like Microsoft are capitalising on the region's massive cheap hydro power surplus. In South Australia, this region regularly generates far more rooftop and utility solar than its entire local population can consume during peak daylight hours, establishing liquid-cooled AI data centres here allows companies to absorb the vast low-cost midday energy surplus stabilising the local power grid. By matching high-density AI clusters with localised energy gluts, tech companies/operational costs while actively supporting community energy infrastructure."

I think that's true and it's one of the threshold things I think that should be a part of the regulation of AI, which is that you only get approval to build a data centre if you're going to either build your own power generation or have a letter from a local power generator, that's not you, saying that they have a surplus to a greater extent than your demand is going to be. I reckon that's what should happen.

I agree with that. Kai's right, but it's quite difficult to just say, "Put the data centres where there are surpluses." Because you also need to have the data centres near the big cities where the compute requests are coming from. Otherwise, you've got the classic huge transmission lines dilemma. But, what, a cluster of data centres in the Hunter Valley and the Latrobe Valley, which is our traditional centres - but the problem with that, you're hooking it to fossil fuels, which we're all trying to get away from.

They just should be required to build their own transmission, like whatever it might be, solar or whatever, put some wind towers... I mean, honestly...

Yeah, but transmission is one of those ones where it is a natural sort of Government monopoly. I know some of them around the country have been privatised, but it is a natural monopoly. Once you get private operators building their own transmission lines, they do have to integrate with the Government-owned... It's like putting toll roads into the public road system, it's not great, is it? You've got Transurban distorting decisions because they've got a private monopoly. I think the solution will end up in space. I think a lot of people say that and I think the logic of just hanging a data centre above the city and beaming it down, using the sun, I mean there's a logic in that, isn't there?

There is.

Clancy says, "Enjoy your pod..." He says, "It seems inconsistent to champion retail investor access to IPOs and capital raises generally, but call it a problem when Elon Musk pushes for more retail participation specifically." Well, Clancy, I didn't really say it was a problem that Musk - well, I did say that I was worried that Musk was just being a spruiker, trying to attract dumb retail money or unsophisticated retail money, because he came out and said, "I want to get 30 per cent..." I think that he's been the number one spruiker in the world, selling a dream to unsophisticated punters and I was surprised that ASIC gave him approval for his prospectus.

In terms of retail treatment, my issue is more in secondary raises by existing listed companies, where they do a big end of town placement and don't give retail a chance to participate. It's slightly different, my big thing. I did say with Musk that in light of the fact that the shares were booming or likely to boom, it was a bit rough of him to say, "We're going to give 30 per cent to retail..." and then in the end, he only gave 20 per cent to retail and people like Gina Rinehart jumped to the front of the queue and got a billion dollar allotment when all the 30,000 CommSec customers including myself who applied got scaled by 60 per cent.

So we got scaled and the insiders jumped to the front of the queues, I thought that was a bit rough as well. SpaceX shares are back down to near the float price, Alan, so we might yet prove to be correct in saying it was an over-hyped meme stock.

I think we can confidently assert that you were correct.

I've said it will be below $100 by Christmas, so I think when it's 25 per cent underwater, that's when I think the inquisitions on ASIC, CommSec and others will be fair enough. But you've always got to be flexible with these things. The scoreboard, if it stays high, then you can't complain, but I'll be surprised because the thing's burning cash like nothing else.

I know that SpaceX's Grok, which used to just be xAI, has just released a new model that is claimed to be as good as Claude's Fable or something. They're obviously in there competing or trying to. The other thing is, SpaceX owns the Starlink satellite internet business, which is a good business and we just recently were talking about how they're going to move to phones eventually as well as internet supply, so maybe eventually they'll make a lot of money from having a global satellite phone business, maybe.

Well, they've already got a great global business in Starlink and if it was only that, it would be fine, but this whole sort of decision to compete in AI, I think that he's going to be one of the losers. There's going to be winners and losers... Did you see the Twitter spat over the weekend where Musk was ripping into Sam Altman? After Apple sued OpenAI for stealing the software or their IP, Musk has gone in, "You're always stealing, you stole AI and now you're stealing off Apple, you're a crook..." Altman's firing back... Boys, settle down! But the stakes are high and the personalities are big, it's fair to say, in the AI space.

Alex says, "Greetings from Dubai." G'day, Alex. "With the newest national debt now approximately $39.2 trillion and continuing to rise rapidly, what are the most likely long-term outcomes? What are the best case, worst case and most probable scenarios over the coming decades?" Well, go ahead, Stephen!

Well, I think it'll never be paid back and that one day - because there's all this debt in the world that will never be paid back but it's all owed to each other, it's not owed to people on Mars, so it doesn't have to be paid back, it's just an accounting treatment. I think that one day there will be a coordinated debt write-down by the Governments of the world and in conjunction with the world's biggest money printing exercise, to effectively pay back the money with the stroke of a pen. The debts are just too large and since the GFC and COVID, the solution whenever there's been a crisis, has just been endless money printing. Endless money printing means that at some stage - it's never going to be paid back and at some stage, there will need to be endless money cancelling because it just won't be paid back.

I think that's fair enough, except they're all different levels of - it's not as if it's the same amount.

Getting the agreement would be the hard part, the global settlement of the accounting treatment of the great big debt write-down, that's going to be the biggest negotiation in history, globally.

That's right...

Hence, it'll probably never get done because how can everyone agree?

That's it. I think the US have got the most, but China's got a lot, Japan's got a lot, other countries that have got a lot, a large number in terms of the size of their own economy and percentage of GDP terms, but it's not as large as the US in dollar terms. If they all write it off, different countries will get different benefits from it. I can't see that happening. But you're right, there's no way they're going to pay it back.

No, but it does highlight that the US hegemony, ultimately having the world's reserve currency, it's the ultimate power. As long as the world is running on US dollars, then they can have as much debt as they like, they can print as much as they like because they're just so in the plumbing of the global financial system that you can't hold them to account. That said, US 10-year bond yields have hit 4.6 per cent, Alan, so they're spiking. It's mainly driven by inflation fears, but that also goes to creditworthiness and supply.

Also the cost of paying the interest is becoming a very large part of the budget, including in Australia.

As I said, $120 billion deficit in one month with the tariff refunds... There are limits and other countries have discovered the limits, there's been so many - the Brits are scarred by the Liz Truss bond rout. Any country down from the US can have a bond vigilante moment and it was the bond markets that actually took Trump to task on the tariffs, wasn't it? When he was going crazy with the tariffs in Italy, it was the yips in the bond market that finally got him to retreat.

Peter says, "I've appreciated the balanced reporting by Alan on AI in the past couple of weeks..." Thank you, Peter. "In moral hazard, media companies are claiming they need revenue from gambling ads to stay solvent, while sports codes are bragging about the biggest TV rights deals in history. Why are our kids having to wear the cost of poor commercial decision making?" Yes...

Well, look, it is interesting that the NRL have done a seven-year deal worth $5 billion. Nine is paying $145 million a year and Foxtel, a bit over $500 million a year. When these contracts get inked, it's these sort of contracts that bake in the gambling, because whenever you then have a political debate about winding back gambling, you get told that the codes are going to go broke or the free-to-air or the media companies are going to go broke. I'm still connected with the anti-gambling movement and the whole argument that's being run in Canberra is Channel 10 and Channel 7 will go broke if we ban gambling ads.

Look, their business models are challenged, but I guess if you keep doing these sort of contracts, the contracts that need to be reduced are the player payments and the broadcast rights, because 20 to 30 per cent of it is propped up by gambling. You've actually got to go to the heart of the economics and say, "AFL players don't need half a million a year, they can get by on $400,000 a year; and same with the NRL players." These contracts are too rich, they're very gambling dependent, there's a lot of gambling tied up in that seven-year, $5 billion deal. It's an interesting question actually, who carries the risk if the Government does actually ban gambling ads, is it the media companies or is it the NRL?

Doesn't it mean that the Government cannot ban gambling ads?

I know, but if the Government was to ban it, who carries the risk? Are there clauses in the agreement to say, "Okay, Nine will only now pay $100 million a year because we've lost our $45 million in gambling ads." So, within the contract between the NRL and the media companies, if there's a change of law in gambling ads, who carries the risk? Over the years, that has switched between different sides, it's always a part of the negotiation, because it is one of the largest regulatory risks that these long-term contracts have, because gambling is so at the heart of the economics of professional sport and media in Australia, which is such a tragedy, because it means we're the world's biggest gamblers in the world.

Do we know whether there's a clause in the agreements to that effect about that?

I know that with the AFL, the last two deals, it has switched from one to the other, so it is a regular debate and it's an open - I haven't investigated this to where the risk lies this time. Normally, it would sit with the media companies, you're taking a risk, you're offering to buy our content and it's got to be an unconditional offer. But geez, you wouldn't want to be a media company going in and offering that sort of money, like Foxtel offering $500 million a year and then all of a sudden, you can't take gambling ads. The Murdochs sold Foxtel the business was so bad. DAZN, bought it, run by a Ukrainian billionaire. So the Ukrainian billionaire is on the hook, paying $500 million a year to the NRL for every game every week for seven years. He's certainly hoping that the gambling ads continue, that's for sure.

We're running out of time, so I think we should jump to someone called 'Anthropomorphic Capitalist', which is an unusual Christian name, Mr Capitalist...

Yes.

Anyway, "My contention is that China materially reduced the oil price shock by cutting crude imports by around 4.5 million barrels per day, by drawing on domestic inventories, rather than competing in a spot market. This 4 per cent global oil reduction would have offset at least a third of peak supply disruption. This is true and the question is - China was not the stabilising force I would have thought, but allowing oil prices to surge above $200 per barrel and the resulting political damage to Trump would have aligned neatly with the CCP's broader strategic ambition. I don't get it, what am I missing?"

I think what you're missing is that China would also be damaged by $200 oil, let's face it. It isn't true that everyone understands how they did it, because their domestic inventories don't seem to have been run down that much. It's a bit of a mystery how they did reduce their imports by 4.5 million barrels a day, but it is true.

What, shadow Russian cargoes there, sort of not recorded...? But I agree, it is a puzzle. They've massively reduced their demand and they did have massive strategic reserves, which did help, it was a great buffer to have because they're highly dependent on oil. But it's not the Chinese way to go around gloating, they don't do Trump-style Truth Social, saying, "Hey, we saved the world because we could have bought this much and we didn't..." They're much more understated...

But also, it means that the question of what happens to oil from here doesn't just depend on whether the Strait of Hormuz is open or closed, it also depends on what China does from here and do they go back to importing 10 million barrels a day of oil or do they stick to 6 or 7 million barrels a day? If they do go back, that'll actually have more of an impact on global oil prices than the opening or closure of the Strait of Hormuz.

What should actually be interesting, with this latest it's closed again thing, a lot of cargoes got through in the period that it was open. There's a stack of Iranian cargoes on the water at the moment, so you can afford to have the Strait of Hormuz have these brief weekly shutdowns, what you can't do is cop a six-month shutdown with just a total chokepoint. Opening and closing is not the end of the world, because when it does open, boom, out they all go - although, not many go back in because you get the uncertainty of whether you can get out again. It is interesting.

I think there's also a point here about the reducing energy intensity of the global economy and the ability of people to pivot, more pipelines...

Well, in fact, I saw a map this morning of the Middle East showing all of the new pipelines either under construction or proposed so that the Middle East oil producers could avoid the Strait of Hormuz and they're all over the place, there's this spaghetti of new pipelines that are proposed going to either the Red Sea or the Mediterranean or the Gulf of Oman which is on the other side of the Strait of Hormuz. They're all busily trying to make sure they don't have to take their oil through the Strait of Hormuz in future.

Yeah, it's like, can mankind fix the climate change battle? Never underestimate human ingenuity in a crisis. I mean, look at the response by the Ukrainians. The Strait of Hormuz has closed, this is a disaster for the world, the world innovates, it pivots, it's driven by dollars and the best brains in the world and all the commercial incentives in the world look for solutions and the world pivoted quite well and all that pipeline construction is a good example of that. People are flexible.

Let's finish with Robert, because I think he has an interesting point. Robert's basically given an example of how he was with Buddy Telco for his broadband and then he went over to Tangerine and he tells a story of, "Basically, I changed brands, then I got an offer to come back..." His basic point, is that it's an absolute waste of everybody's time to change your service provider and then get an offer to come back and the point that I think needs to be made is that the people who suffer the most, are the inert customers who do nothing and you have to shop around, certainly in some markets. I subscribe to many newspaper services, even the West Australian, New Zealand...

From time to time, I go, "Oh, this is costing me too much," and I threaten to cancel and I get a three-month discount. I could do that three hours a day, Alan, and I'd be saving a couple of thousand dollars a year, I'd be constantly cancelling... But why can't I just get a good deal all the time? Why can't I just get rewarded? Why don't any of these companies ever say, "You've been a customer for 10 years, we're going to cut your price by 10 per cent because your loyalty's so fantastic. All the benefit goes to the new customers and it causes this massive amount of churn and unless you shop around, you lose out.

Well, it's because these companies rely on the inertia tax or the loyalty tax.

Absolutely right, the inertia tax, it is a huge thing. If you've been sitting there with a Commonwealth Bank customer or a Foxtel customer for 20 years and you've never actually rung up and asked for anything, you are a highly profitable inert customer.

I'm a big payer of inertia taxes.

So am I.

I sit there doing nothing all the time because I'm too busy, I'm inert...

It's a waste of your time, who wants to haggle? It's unpleasant. You're lying too, you ring up and you're lying, "I'm going on holidays, I'm cancelling." You're not really, you're forced to lie to get a good deal and I don't like doing that either.

I love haggling but I'm too busy, I can't do it, so I'm paying all this inertia tax. Anyway...

This is what the Finance Department should be doing for us, but when you work for yourself, Alan, you're your own Finance Department, you can't get HR or anyone to help out, you've got to do it all yourself.

That's right. Thanks, everyone, for listening to today's episode of The Money Café. Stephen and James will be steering the ship together the next two weeks while I take a break, so send in your question and Stephen, what day next week is your birthday, will it be the Money Café day or is it Tuesday?

I haven't checked yet. Thursday, I think it is, the 23^rd - no, it's not Money Café day because I'll be flying to Sydney on the 6 o'clock, harassing Macquarie for the day - how do you attack a fantastic company? Not easy - then flying back for a nice family dinner that night. But I'm looking forward to talking to James, the greatest breaking news commentator in the land...

He is.

Always a pleasure talking to him. You have a nice break - have you been invited to the World Cup Final or something?

No, no, I'm just going to do nothing for two weeks.

Recharge those batteries.

Correct. Send in your question for Stephen and James to themoneycafe@intelligentinvestor.com.au and so I'll be back in three weeks' time, until then I'm Alan Kohler, Editor-at-Large of Intelligent Investor, Finance Presenter, Columnist and Podcaster for the ABC.

And I'm Stephen Mayne and we'll see you next week.

[Music]

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