The AI 'Chipwreck'

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[Music]

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

And I'm James Thomson, Senior Chanticleer Columnist at The Australian Financial Review.

And we are The Money Café. James, it's before 8 on Wednesday morning and no doubt, you've been bashing something out about what happened on Wall Street last night, tell us what you wrote?

Alan, yes, I've been watching this closely and just filing on it and I think that the story here is that it's all started with a Korean barbecue. I don't know if you spend a lot of time watching the Korean market, but it had a bad night on...

I quite like a Korean barbecue though.

...had a bad day on Tuesday, the market fell 10 per cent. It's called the KOSPI Index and this here is being powered by two stocks basically, SK Hynix and Samsung Electronics, both of which make computer memory, which has become increasingly important in the AI infrastructure build out, you need lots of memory to help make those data centres. On Monday night, we saw a bit of skittishness amongst tech stocks on Wall Street, the big move there was SpaceX was down 16 per cent.

That carried over into the Korean session on Tuesday, but two things happened. One thing, is that SK Hynix said that they will adjust their production, they'll make less of their AI memory chips and more commodity memory chips they're called, that's the stuff that goes into your laptop and other devices. While this was portrayed as a move because the commodity memory profit margins are bigger than the AI profit margins, so SK Hynix is sort of making sure it maximised its profits...

That's a bit surprising.

Yeah, a little bit, but we have seen a bit of a push around - we've seen laptop memory prices shoot up, I don't know if you've noticed that.

It's been a while since I've bought a laptop.

Yeah, if you went and bought one now, you'd probably end up paying the same - let's say you wanted to spend, I don't know, I'm picking a number here, $1,500 bucks on a new laptop, you'd still be able to find a $1,500-buck laptop, it would just have less memory and less compute in it than it did a year ago, because of these soaring memory costs. There's a shortage of memory around the world. Anyway, SK Hynix made this announcement, people read it as, oh-oh, is AI demand shrinking? That weighed heavily on these stocks. But the other problem in Korea, Alan, is they've become very enamoured with these ETFs that allow you to bet on a single stock using leverage.

That's not just in Korea, is it?

No, it's not just in Korea, it's in America and Hong Kong, the most popular ones are in Hong Kong, actually, and the most popular of these levered ETFs in the world allows you to bet on the daily share price movement on SK Hynix, with two times leverage. So, let's say SK Hynix goes up or down 5 per cent in a day, then this ETF goes up or down 10% in the day. The Asian investors have fallen in love with these things and are juicing their bets on the AI trade with extra leverage. That's great when the stocks are going up, which they have been, but at moments of doubt, you get these moments of big volatility. Yesterday, we saw the Korean market briefly shut because it fell as much as the operators allow it to fall in any one session. That's the fourth time that's happened in the last year. We saw SK Hynix and Samsung close down more than 12 per cent.

That rolled over into Wall Street, so the Philadelphia Semiconductor Index, the SOX Index, which has been the hottest trade in the world this year, it was down 8 per cent last night, Nvidia was off 4 per cent, a company called Micron Technology, which is probably the hottest chip maker in the world, was down 13 per cent. So we've seen this real sell off in chip stocks and memory stocks, it's already got a little name, 'the chip wreck'.

The chip wreck, that's nice.

And I guess the question is - there's two questions for me. One, is these chip stocks have become the new leaders on Wall Street, the hyperscalers like Amazon and Microsoft and Alphabet, they've had a tougher run this year. I was just looking at Microsoft's share price, it's down 20 per cent since the start of the year, as a little example, and what we've seen is these chip stocks really take market leadership. The question is, if these chip stocks start to go, does the market as a whole roll over? And of course, this is not happening in a vacuum, we've got extraordinary amounts of debt being issued by the AI sector, we've got extraordinary amounts of Government debt being issued, we've got interest rates now pushing higher and bond yields pushing higher around the world.

It's a pretty fragile time, I think, Alan, but I can be a bit bearish, I acknowledge that and I always think there's a bit of fragility. We've ridden this chip story pretty hard this year and maybe it's due a breather.

Yes. SpaceX, I noticed, was up last night. Not much, 1-and-a-bit per cent, having fallen by 30 per cent from the peak. As I pointed out last night on the news, it's down about a trillion Australian dollars in just a few days, unbelievable.

Amazing.

I've also been reading about one of these levered ETFs about SpaceX. As with SK Hynix, there's a two times ETF in SpaceX that's available as well and people are piling into that, I think more people are buying that than the actual SpaceX shares, it's amazing.

It's pretty wild, isn't it? Maybe that's the big lesson here. The world is not positioned for much volatility. Global fund managers piled into this AI trade, all the indices around the world are highly exposed to this AI trade. We're just not positioned for much to go wrong and we're just starting to get a few little cracks in the story, I think.

I was reminded by the death of Alan Greenspan the other day at the age of 100, that he, when he was Chairman of the Fed, called out the US stock market as being irrationally exuberant in 1996 and famously said, "The market's gone too far..." it was "terrible" and it was "irrationally exuberant" and of course the thing didn't crack until another four years.

Yeah.

It more than doubled in the meantime, so anyone who sold out when he said it was irrationally exuberant definitely missed out.

That's the other danger here, that investors do become too bearish and being bearish in the last five years has been pretty costly, let's be honest.

That's right.

But the Greenspan example is a good one, these bubbles run longer than you think they will, but then they pop, they tend to be pretty disastrous. The Nasdaq was down 80 per cent the following three years after the dot-com bubble popped and I would just say that the world is even more levered... You keep thinking about different asset classes in the world, private credit, private equity, venture capital, infrastructure, they've all become to a greater or lesser extent, a bet on AI at the moment because so much money, debt, venture capital investment, is going to AI related stuff. We better hope this holds.

Just on that subject, your colleague on Chanticleer, Anthony Macdonald, had a nice piece the other day about what active fund managers in Australia are doing, so just sum it up for us, what are they doing?

Well, they're not doing what you'd think they'd do. Australia is - we call it a barbell market, at one end of the barbell is banks, the other end of the barbell is miners. Active fund managers are underweight those two barbells and they're looking for value in places like healthcare - CSL is still a really big holding - and looking for value in cyclicals. They're underweight the banks and they're underweight BHP.

CSL's getting better value every day.

[Laughs] Yes, indeed. It is a bit surprising, but this is the tough thing for stock pickers. So much money is now, because of index investing and the way the super industry invests in Australia, which is that they have no choice but to hug the index because of this performance test, which means that if you aren't close to the index, you're going to get named and shamed by the Government. So much of the capital in Australia is flowing to the 10 biggest stocks. If you're a traditional stock picker who looks at the banks and thinks, gosh, they're expensive, your training, your approach, your mandate, you need to be underweight those stocks because they're too expensive.

But the ETFs are driving them up.

Exactly, there's this sort of vicious cycle. Then what happens, is the active managers underperform and then the super funds that still do have some money with those active managers, they look at their performance and say, "Hang on, this isn't in my member's best interests." It's a sort of vicious cycle going on at the moment. They're trying to beat an index that is sort of unbeatable, in a way.

As you say, it just keeps getting worse for them because they underperform the ETFs, everyone looks at their performance versus the ETFs and takes their money out of the active managers, puts it into the ETFs and that extra money in the ETF means that they have to go and buy Commonwealth Bank and BHP Westpac and them and that drives those prices up even further and the ETFs further outperform the active managers. As you say, it's a vicious cycle.

Yeah, so look, it's a really interesting time in markets at the moment. At an index level, everything looks pretty good, we sort of keep grinding higher, but there's some really interesting stories under the hood.

Speaking of interesting stories, let's talk about KPMG, you were very tough on them this morning?

Was I?

Well, not too tough, I mean you said their rescue plan shows that they're still on another planet.

Look, this isn't just KPMG, this is the sort of weird world that we've allowed to build up. KPMG, for those who have come late to this story, they're engulfed in a scandal that's emanated from their audit business and what happened is that some audit partners in KPMG took a gander at some confidential documents, in the most celebrated case, the confidential documents of a company called Lendlease, a listed company. They had a look at Lendlease's confidential documents and then tried to use some of the information that they'd learnt from that to go and win other audit business at places like Dexus and Westpac. No confidential information was shared from client to client, so that's good but clearly it's a breach of ethical standards, you shouldn't be looking and sharing confidential client information.

This has all blown up, become a big issue, there was a big parliamentary inquiry going on into this. We've seen the CEO of KPMG depart and now the Chairman, Martin Sheppard, has resigned as well. KPMG's got a three-month freeze on Government work. It's another one of these messes in professional services not so long after the big scandal at PwC. What I was struck by, Alan, was KPMG announced this big sort of action plan to fix themselves up and the big sort of headline was that KPMG now plans to adopt best corporate governance practice from the corporate sector and that means that they're going to have an independent Chair and more independent Directors.

To me, that just shows that these firms have been, as I said, living on another planet. An independent Chair and independent Directors, that's standard, that's minimum expectations for any ASX company...

And then you say, "Sorry, that wasn't happening already?" What a joke.

Exactly. It's unbelievable...

Yeah, but James, it's inherent in the partnership structure. The difference between a company and a partnership, is in a company the ownership and the management is separated, there are separate owners and - in most companies, anyway. Obviously, in a lot of companies, some companies, managers are big owners, particularly with the proprietor that manages the business as CEO. But with partnerships, the owners are the managers and there's no doubt about it, in order to become a partner, you have to show that you're able to engage in good business development, as they call it, which is finding new clients.

The whole incentive structure in a partnership, is that the people who rise to the top are those who are able to sign up new clients. The main job of partners, in fact, is not to actually conduct the audit or to do the actual advising, but to basically get new business, new clients. I think there's an inherent problem with having these businesses as partnerships.

Absolutely.

I just think there needs to be a rethink of how this is organised and whether you actually ban them from being partnerships and say, "No, you've got to be a company at a certain level..." or whatever, I don't know. Maybe there's a way to regulate them as companies.

Well, there's been lots of suggestions, I mean we've had suggestions such as limiting the number of partners that can be in a partnership. At these big firms, you might have 400 or 500 partners. Should we be limiting it to 40 or 50 and then these large businesses that are advising our largest companies and that we should expect to not just be suddenly moving towards best corporate governance practice now, should they be forced to corporatise in some way?

Do you think that the audit functions will be separated from the professional services functions?

Possibly. Yes, I think that's been suggested and looked at. I think the Chinese walls can be kept in place. Well, perhaps I should say I thought that that could happen, but we keep seeing these ethical breaches. As the Greens Senator, Barbara Pocock, was saying last week, there was a parliamentary hearing on all this on Friday, she kept saying, "We've now got two of the big four, half of the big four have stuffed up, when does enough become enough?" So, this is a mess for KPMG and it's remarkable to me that KPMG and Deloitte and EY, all of which don't have independent Chairs as a starting point at the moment, they all watched PwC go through this trial by fire a few years ago and they sat there and didn't think, "Oh, I wonder if an independent Chair might be a prudent move?" People are dumb, organisations can be dumb.

[Laughs] Just before we move to questions, what do you reckon about the capital gains tax horse trading now? It's interesting, the Greens have obviously got balance of power in the Senate and they're using that now to try to prevent the cutbacks to the NDIS in return for passing the capital gains tax legislation. What they've succeeded in doing is getting the NDIS legislation put back for a while, I think it's two months or something, so everyone can talk about it some more, but they've clearly said that they want to stop it, which is interesting. I mean, they've managed to get up a ban on self-managed super funds borrowing money to buy residential property, which blindsided everyone. My SMSF has never borrowed to buy a residential property, but obviously some people's do.

Yeah, absolutely. I think the Government's sort of given ground on this based on the idea that, quite clearly Labor is committed to tilting the scales in the property sector away from property investors, so they've been willing to make this sacrifice around SMSFs. The NDIS one is interesting, I mean even Labor, the architects of this scheme, can see that it needs to be better managed so it delivers the best bang for the taxpayers' buck and for the participants in the scheme. The less wastage there is, the better results we should get for the participants in the scheme, who clearly need its support. I've listened to a bit of the Greens' positioning on that, they just seem to be sort of saying, "Well, no cuts are warranted because we worry that any money being taken away from anyone is bad." But it's a bit of a...

It does seem to me that the Greens just want to win.

Yeah, it's a very sort of oppositional position. It's a position you can take when you don't have to balance the budget, which the Greens will never have to do.

That's right.

And to your point, Alan, you do wonder if there's a bit of a sense here that the Greens can see One Nation having some wins, they'd like to get back to winning too, I guess.

Someone wrote this morning, I can't remember who it was, saying, "Just wait until One Nation gets the balance of power in the Senate, see what happens then."

Yeah, well I think it's interesting, there's obviously a lot more focus on the One Nation's policy platform, some of it's detailed, a lot of it's sort of ideas without costings or much real thought to how the ideas might work, but we're all going to have to come to grips with it more.

Before we get to the questions, just a quick general advice warning, this is general advice only, not personal advice, so please, if you want specific advice, please see an adviser or an accountant or someone. We've got a few questions about - well, they're more statements, aren't they? About First Home Super Saver Scheme, telling us that there is one. There is a Super Saver Scheme, we got it, everyone.

Yes and this goes back to that idea of there being a tax-free account, as we've seen in Canada and the UK. We had Luke, Joe from Brisbane and Hugh telling us that there is that house savings scheme inside super that does exist and...

But it's not tax-free, it's 15 per cent obviously, which is okay. Is there a limit on it, I can't remember. I think there is - yeah, up to $50K.

Yeah, there are some limitations, but yes, it is there and it does seem to be something that people should have a look at, if nothing else, Alan.

You can take the childcare ones, I mean, summarise them.

We've got three childcare questions from Natalie, Daddy C and Tom - and I think, Alan, the point here is that, I don't know how else to say this, the childcare system, complex, is basically broken. What we're seeing from our listeners is that the costs are so expensive that they are having to make pretty big choices around how much they work, when they trip over thresholds, how they get the balance right between income and the costs of childcare and their career. Is that the best way to summarise it?

Yeah, sure, I totally agree that the childcare system in Australia is broken. My suggestion a couple of times now and the more I think about it, the more I'm convinced of this, is that it ought to be nationalised. I think the Government's got to take it over and make it free, essentially. I mean, it ought to be expensive, but I think it's a good thing. I'm actually today recording a piece for Sunday for the ABC News on working from home and just as a part of that, I've found that the biggest increase - which doesn't surprise me - the biggest increase in working from home is among women with children under four, so that they can basically deal with childcare at the same time.

Obviously, trying to work with a three-year-old in the house is impossible, but I think the idea is and what's going on is that people are able to pick the kids up or deal with them when they're sick or something if they're working from home or able to work from home, that they wouldn't otherwise be able to do. I do think that the whole system is a mess, really.

Just to go through some of the suggestions from the listeners, Natalie is heavily in favour of making childcare tax deductible. Since 2021, her and her partner have spent $135K after tax on childcare for two kids.

That's after tax...

After tax, amazing. Daddy C, says, "Would like us to take a leaf out of the playbook of Germany, where they get unlimited childcare for 50 euros a week."

I don't know this, but I wonder who owns it in Germany, whether it's private or Government?

Yeah, good question, not sure. Tom actually makes the good point that, "Should we be income splitting?" Tom's the main financial provider for his family, excellent wages, puts him in the top 7 per cent of income, "However, my wife only works two days a week part-time. Her small wage drops our household income to the 75^th percentile, which is still great, but we get smashed with a diminishing childcare rebate as it's calculated on household income rather than the individual, so is there some sort of income splitting...?" Which One Nation has pushed for in other areas.

Right, all good suggestions.

Alan, you've got to say, from what we've seen on the show in the last couple of weeks, this is fertile political ground, isn't it?

Oh yeah, absolutely. So many people are struggling with childcare that if the Government could come up with a decent solution, it would be very popular.

Let's jump into some property questions, your turn, I think.

Michael says, "Do you know why residential property appears to be one of the few asset classes where the seller has the right not to name a price? I'm currently attempting to buy an investment property in Queensland and a significant proportion of properties have no price listed, it creates a lot of time wasting for both parties and it seems inefficient." I agree.

I agree, but I think there's lots of asset classes where the seller doesn't have to name a price. If you're selling a business, for example, you don't have to say, "This business is worth $500 million dollars." You might have a lot of parties, if you're selling a pipeline, you would do the same.

And if you're selling a painting at the Sotheby's Auction, they just say, "Here it is, what do you bid?" And they kind of say, "Can we start at $1,000 dollars...?" or something.

I take Michael's point on inefficiency, but I don't think property is the only one here.

That's particularly the case since it's auctioned. It's true that the share market is basically a continuous auction and people do name their sell price, but the thing is that the sell and buy prices are all kind of continuously quoted. It is a different setup.

Totally, yeah, good point. This is one for you Alan, Ross says, "A little while ago you told an anecdote about Kevin-15 and Kevin-50..." which you might have to explain for us, "Who was right out of Kevin-15 and Kevin-50 or were they both right and we're stuck in a no man's land, the population between the two resulting in or exacerbating a productivity lag housing crises, etcetera, etcetera...?"

It was an anecdote told by Ken Henry who was the Treasury Secretary at the time and he had a meeting with Kevin Rudd who was Prime Minister and Kevin Rudd said, "What do you think the optimum level of population in Australia is, Ken?" Ken said, "I think it's 15 million." And Kevin said, "You're absolutely right, 50 million for sure, I reckon that's true, 50 million..." because he misheard him and he thought 50... Ken said, "No, no, no, 15, 1-5, Prime Minister, that's what I think." And at that point, at that time, the population of Australia was 22 million. It just kind of goes to show the difference between the political big Australia idea and the more conservative treasury, economic, economist idea of smaller population. I think Ken basically still thinks that it should be smaller than it currently is, but of course now it's 28 million, not 22m, and apparently still heading towards 50 million.

That horse has bolted.

So, yeah, he's stuck in a no man's land with population between the two, perhaps resulting in exacerbating a productivity lag, housing crisis. I'm not sure about productivity, but certainly housing is not... What's interesting at the moment is that immigration is becoming an obviously political hot potato with One Nation and the Coalition chasing One Nation with lower immigration targets. The Treasury forecast for immigration for next year is 225,000, this year it's going to be 300,000. Treasury is forecasting a pretty significant decline in immigration over the next 12 months.

They're always wrong, so that doesn't mean it's going to happen, but I've got a feeling, I reckon what'll happen is - and I don't know this - that the Government will actually turn that 225,000 into a target and say, "Not only are we predicting that, we're going to achieve it." I think if they do that and in fact, achieve it before the next election, then that could leave One Nation and the Coalition high and dry on this subject.

Okay, interesting prediction. Julie says, "I believe that the Australian Chamber of Commerce and Industry recently commented that housing is a passive investment, while shares are a risk investment. This comment has me wondering, in the past with the negative gearing and the Liberal Government attitude that house prices should not fall, that is, house prices are a sign of economic success, was this passive versus risk revelation ever revealed by the ACCI in the past? Now Labor seems to give equal treatment to housing and share investments, do you foresee Labor supporting house prices if they do fall? The Government removing the risk that house prices will fall is the moral hazard that caused the housing crisis in the first place. Will Labor give equal support to shares if they fall in value? If houses can't fall in value, they should not be treated as an investment."

This question's doing a lot of work, James, a lot in this. I don't think the ACCC has ever called...

No, it's the Chamber of Commerce and Industry and Andrew Irvine, the Chief Executive of NAB, has used that delineation too.

Yes and people in business, like the Chamber of Commerce, they've always said this, but I think the relevant question here, is do we foresee Labor supporting house prices if they do fall? And, no, I don't. What are they going to do? We're clearly heading for a fall in house prices, the question is whether it's more than usual. I had a graph on the news the other night showing there have been eight house price falls since 1980, the average is 5 per cent, the average time of them is 14 months, the biggest was 7.5 per cent in 1982, the early one was 7.5 per cent, that was the biggest. House prices have never fallen by more than 7.5 per cent, the other big ones were 7 per cent. I don't know, some people are saying, "Oh, it'll be 10 per cent for sure," which would make it the biggest fall, but there's nothing the Government's going to do about that if it happens.

This is a deliberate policy platform too, right?

Actually, it's interesting because the policy platform is to make housing more affordable, not to make house prices fall. In fact, the Government and Clare O'Neil, the Housing Minister, is explicitly saying, "Oh, no, no, we don't want house prices to fall, we just want them to rise sustainably." Yes, well that's because most voters own a house. The last thing they want is for the Government to be talking about house prices falling.

Fair enough, good point. I guess I mean they're clearly trying to reduce the investors' role in housing.

Yeah, that's right, they are.

And that's going to have the same impact.

It'll be interesting to see what that does to rents, I suppose.

Very true.

It probably will lead to a bit of a skewing of housing towards ownership and away from rental because rents probably will go up.

Well, if it doesn't, Labor's got a real problem.

We've got so many questions, do you think we should jump forward a bit?

Yeah, sure, I'm in your hands.

Jeff says, "This may sound naïve, but what happens when a company like SpaceX that floats to a trillion dollar valuation would potentially ever return to profit? Do investors slowly sell out? Do the more informed larger investors get out first, leaving mum and dad superannuation funds left holding the bag or are they too big to fail. The whole price to earnings is irrational, how long can shareholders hold?" I think that's interesting.

That is interesting, but they can hold for a very long time. The great example, Jeff, is Amazon. Amazon was unprofitable for the best part of a couple of decades, but they could show to investors why they were unprofitable. If they'd only had their books business or their retail business, they could have turned a profit, but they were using that profits generated from the book business to invest in their cloud business and it turned out to be exactly the right strategy, now Amazon's fabulously profitable. This can hold for a while, Tesla's a similar example, it was unprofitable for a very long time before it edged into profitability, but again, it's investing huge amounts of money.

This can go for a long time, the question is whether investors continue to believe the story and believe that that profit moment will come eventually. That's going to be the tough thing for Elon, but no one on the planet spins a better financial story than Elon, he's the master of it.

I saw a graph last night that divided the Russell 2000, which is the big index of the US stock market, obviously 2,000 stocks, divides it into companies that make a profit and companies that don't make a profit and the companies that don't make a profit outperform the ones that do make a profit, which I thought that was amazing.

Well, it gets back to Mr Greenspan and his exuberance question, is that irrational or is it rational? Given that the profits from AI are still to come, they're still before us, I don't know. Every day I go back and forth between AI's going to work and AI's not going to work. It's so hard to make a call right at the minute.

It is.

Sophie says, "I recently saw this article about Transgrid trying to recoup billions of dollars in losses from customers because a project ran over budget. This seems completely absurd to me and puts more strikes in the column of all this privatisation being neo-liberal bupkis. It's great in theory, but doesn't work in practice. If they made a profit, that profit certainly wouldn't have to be passed onto consumers, so why should the loss be?"

Always good to socialise your losses, isn't it? What's the question.

Well, "Should all these natural monopolies be renationalised as they clearly aren't being run more efficiently by the private sector and the taxpayer has to pay for the energy regulator anyway? What can we as humble citizens or journalists with a lot of influence do about this absurdity/scam?"

Renationalised, yep, well as you know I'm in favour of nationalising the childcare industry, but I don't know about nationalising anything else.

It's an interesting question, Sophie, and look, this is an isolated example, it's about a powerline that Transgrid went over budget, over time, but this is sort of what happens in the real world, I guess. Let's play Sophie's scenario through, if Transgrid was renationalised and owned by the state again, those losses would have to be copped by someone, wouldn't they? They'd be copped by taxpayer.

Yeah, that's right.

So, either way, Sophie, perhaps it's better that the customer's using that powerline pay rather than all of us, that's possibly one argument. That'd be my question. I take your point about profits don't get passed onto consumers, so why should losses be? And I guess you're right, if you renationalised it, you take the risk of profits and losses being borne by the taxpayer, so maybe that is a model people would prefer...

But it's not going to happen.

I think the horse has bolted there.

I like Sylvia's question, which I'll read out but I'm not quite sure there's much to it. Sylvia says, "My husband and I perform around South Australia as a music duo, sole traders with an ABN and we've always paid our own super. Because of the new payday super laws, we are now being pressured by our booking agency to form a two-person business partnership so they have no obligation to pay the extra 12 per cent super. We sometimes hire other musicians so we're obligated to pay their 12 per cent super while we get zero. We'll be left earning less than everyone else while absorbing all the extra accounting work and costs.

Enforcement from ombudsman, unions, etcetera, is non-existent for an independent pub acts. If we refuse and remain sole traders, our gigs will dry up and that's it for the career that we've spent our lifetime building. I'd love to know what you think of this and what's happening to everyday workers whose livelihoods are being squeezed by this new law?" I absolutely did not think of this.

No, this is one of those unintended consequences from what seems to be a good idea. The payday super laws are that instead of companies holding onto super payments for a quarter, I think you were able to do it, a month or a quarter, they now have to pay super on the same day that they pay their workers, which seems rational and logical and good, except when you see Sylvia's example where you think perhaps there needs to be some sort of carve out or wriggle room, I guess, Alan. It's really tough.

Yeah, I thought that was interesting. We've got time for a couple more, what do you think?

Yes, here's one from James, "If Trump does his ubiquitous TACO, did we just witness an Albo? Albanese limps back out of the tax changes we had to have, or will this be another change, because he never changes 'my word, is my bond'? Did he just trump Chalmers after an extensive two-day review? Please help me understand when Labor finally means what it says?"

Politics, particularly when you don't have control of the Senate, politics is a matter of negotiation. You can say what you like, you've still got to get it legislated, don't you?

Yeah, you've still got to get it legislated and I think to James's point, you've still got to face the electorate in a couple of years. I think there's a bit of calculation here, James, that Labor is hoping that everybody forgets by the time the next election rolls around and we've all got a million other things on our mind. He was pretty explicit about not making changes to CGT and super prior to the last election. I think that is a pretty cynical calculation to be honest. But it is a political calculation, nonetheless.

While we're on the subject of TACOs, we probably should just mention, we haven't talked about the Strait of Hormuz at all today, the Strait of Hormuz is sort of open, there's more ships going through but we're nowhere near back to - I think we're back to about 10 per cent of what they were before the war began. It's going to take a while for things to go back to normal in the oil business and also the fertiliser business and gas and everything else that has to come out of the Persian Gulf.

Yeah, totally and I think what's really interesting for me is that we're not seeing any let-up in predictions around inflation. Although crude prices have dived and I think we're back at $73 US a barrel or something like that, which is great, the physical price that people are paying is still quite high because, as you said, Alan, it's going to take a while for all this to work its way through the system. I think that's sort of really interesting that we're still expecting a wave of inflation to come in both Australia and the US, for example, and that will force rates higher in both places, according to most economists. It's not really clear whether there's a deal in Iran or a half-deal or a quarter-deal or I don't know what it is anymore. The actual price pressures aren't going away.

No, that's right. Also, we don't know quite what the long-term future of the Strait of Hormuz and the Persian Gulf is, Iran has created the Persian Gulf Strait Authority, which it's not going to uncreate and it's going to control traffic in the Strait of Hormuz. They've imposed extra insurance on ships now, which seems to be some sort of de facto toll and I think there's a fair chance that we're going to have tolls and that will be put onto the oil price in some way. I just think that that's going to add to inflation as well.

I think that the problem that Trump has got and that the world has got now, is that this time last year, the closure of the Strait of Hormuz was considered by most commodities experts as one of those, 'oh it'll never happen' things. Well, now it's happened, it's hard to imagine it doesn't happen again. You imagine the midterm elections in November. If you were the Iranians and you really wanted to mess with Trump's head, do you think you might announce a sudden closure of the Strait of Hormuz on October 28?

That's right. Then there's the other straits like the Strait of Malacca and the one that - I can't remember the name of it, the one that gets ships out of the Red Sea. There's a few straits around the world that are choke points, as well.

He's really opened the door to something that's going to be...

And in terms of the Strait of Hormuz, I think the key player is going to be Israel, as to whether they accept the deal that ever ends up being signed, whatever shape it takes. I mean, we'll end up with another one like the one that Obama signed in 2015, which Trump cancelled in 2018 and I just think that the key player in all of that and from now on is going to be Israel, whether they can accept the idea that Iran might end up with a nuclear weapon.

Yeah.

And that they'll continue to fund Hezbollah and the Houthis and all the rest of these proxy outfits that Israel continue to want to snuff all that out, in which case it probably doesn't, in the end, matter what America does, it will just be with them, they will decide what happens to the Strait of Hormuz and therefore, the oil market.

It's a messy situation. Alan, let's finish with one from David, as school holidays loom, David says, "Do European summer holidays have any impact on domestic inflation and if not, should we be encouraging cashed up Baby Boomers to vacation abroad?"

Couldn't agree more, let's do it. Baby Boomers going for European holidays should definitely get a subsidy from the Government.

[Laughs] We need it...

Definitely control inflation, I'd be off to Italy or France, I wouldn't be spending money here, I'd be driving up prices in Italy and France for sure.

That's a great idea, that's some lateral...

Lateral thinking, we love it.

We love it, that's right.

Thanks, everyone, for listening to today's episode of The Money Café with James Thomson, the Chanticleer. I'll be back next week with Stephen Mayne, send in your question and we'll try very hard to answer it, even though there's so many that we can't answer them all, to themoneycafe@intelligentinvestor.com.au. Until next week, I'll be Alan Kohler, Editor-at-Large of Intelligent Investor and the Finance Presenter, Columnist and Podcaster for the ABC.

And I'm James Thomson, Senior Chanticleer Columnist at The Australian Financial Review.

Talk to you soon.

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