Property Hub - Investment Insights & Inspiration - Get Invested: Prof. Mark Crosby on where are we heading?

Starting point is 00:00:00 I think the disagreement among economists always comes from the assessment of, okay, this is where the economy is, but where is it going? And that's one thing where right now I think economists would agree we're in a sort of tricky situation to evaluate because of COVID. Never had to sort of figure out where the economy is going in an environment like we're in currently. Then the second thing is what do you do about where we're going? So if the economy is heading south, then what should the government, what are the policy levers the government should pull to bring the economy back? And if the economy is heading into inflation, which is something people have been worried about very recently, what should the government do and the Reserve Bank do to bring inflation back under control? So in terms of thinking about where the economy is going, there's a whole lot of issues there. Welcome to the Get Invested Podcast, where we share great conversations with experts

Starting point is 00:00:58 from all walks of life to uncover their secret know-how and where they invest their time, their skills, and their money, and the benefits that this has created. You see, the truth is that everyone invests. Every minute of every day, we're investing our time, our skills, our energy, and our money in something. Some of us are investing consciously, some unconsciously, sometimes for good, sometimes for bad and sometimes for no impact. Get Invested will help you to start living by design, not by default. I'm going to help you to make it happen, not let it happen. You'll hear the top

Starting point is 00:01:34 tips on how you can live with conscious intent so that you can live more, work less and leave a living legacy by investing now. Listen to the show to discover the top tips on how to get started, make the most of your investment journey and ultimately to be living your dream, not someone else's. More episodes can be found on iTunes or at bussymartin.com.au forward slash get invested. Thanks for listening and now let's get invested. Greetings and welcome to today's business and finance news. According to the latest econometric data released today. Australian GDP growth is up 2.2% to US$1,370 billion. Unemployment has dropped to 5.5%. The inflation rate has increased to 1.73%,

Starting point is 00:02:25 with the CPI consumer price index rising 0.6% this quarter, and the Aussie dollar is down 1 cent to 70 cents against the US dollar. boring welcome freedom fighters did your eyes just close over did your brain automatically switch off because of the mind-numbing jargon and meaningless stats that all sound a bit like goobly gook feel a bit like astrology or reading tea leaves in a foreign language and don't appear to have any bearing or impact on your day-to-day life if so you're not alone But what if these stats, that are often quoted in the news by politicians and economists, can unlock the key to where we're heading as a country and an economy,

Starting point is 00:03:14 and their interpretation can help you make better choices and better decisions in your day-to-day life and your long-term future? Well, today's episode is going to help you remove the scales from your eyes and the misunderstanding and lack of interest from your ears to help you appreciate the importance of understanding economics as signposts for your future wealth and well-being. To help you embrace economics so you can see and read the world differently, to better understand where we're at and where we're heading, and to make better informed decisions as a result.

Starting point is 00:03:49 So, what is economics? Well, amongst most of the literature, economics is described as a social discipline that examines how people choose among the alternatives that are available to them. It's social because it involves people and our behaviour. According to the Library of Economics and Liberty, economics is about making choices. We all make all kinds of choices every day.

Starting point is 00:04:18 How much should I spend on petrol? What's the best route to work? Where should we go for dinner? Which job or career should I go for? What are the pros and cons of finishing uni versus taking a job or inventing the next best internet startup? Should I get married, have children, and if so, when? Which politician should I vote for when they all claim they can improve the economy or make my life better? So at the base level, economics is a study of choice.

Starting point is 00:04:50 And because choices range over every imaginable aspect of human experience, so does economics. Economists investigate the nature of family life, the arts, education, crime, sports, law. The list is virtually endless because so much of our lives involves making choices. Again, consider some of the choices that you face. Would you like more income or more time to relax? More time watching movies? Getting more income generally requires more working and perhaps less relaxation and entertainment.

Starting point is 00:05:24 And not only must we make choices as individuals, we make collective choices as a society. Do we want a cleaner environment or faster economic growth? Both may be desirable, but efforts to clean up the environment may conflict with faster economic growth. So society, via our elected governments, must make choices about the allocation of money and limited resources. On a slightly different bent, Investopedia describes economics as being concerned with how an economy and its participants function and behave. Economics studies how good and services are produced, distributed through the economy and consumed by us as individuals and businesses.

Starting point is 00:06:12 Economics is also concerned with how resources are allocated by governments and businesses to satisfy the wants and needs of you and I, the consumers. Most people hear the word economics and think that it's all about money. But economics is not just about money. It's about weighing different choices or alternatives. Some of those important choices do involve money, but most don't. Most of your daily, monthly or life choices have nothing to do with money. Yet they're still the subject of economics.

Starting point is 00:06:45 For example, your decisions about whether you should spend an hour a week volunteering for a worthy charity or sending them some money via your cell phone, or whether you should take a job so you can support your siblings or parents or save for your future, are all economic decisions. In many cases, money is merely a helpful tool to evaluate some of the goals that you really care about and how you make choices about those goals. You might also think economics is about economising or being efficient Not making foolish or wasteful choices about how you spend or budget your time and money

Starting point is 00:07:22 That's part of what economics is about but it's just the tip of the iceberg We all know that we can save money or time by being more efficient in our planning A trip to the supermarket can be coordinated with a trip to take your children to school or to deposit money at the bank across the street to save on petrol. But sometimes we don't choose the most efficient options. Why not? Economics is about plumbing the depths of why we sometimes do and sometimes don't make what seem like the most economising or economical choices.

Starting point is 00:07:59 What we do know about what we can't or don't know for now is a real paradox. Can economic problems be solved by better government, more experts, better computers, more engineering, better education, less government, more dispersed knowledge, more markets? Can we make more informed decisions? Well, according to BC Campus,

Starting point is 00:08:26 economics is better thought of as a collection of questions to be answered or puzzles to be worked out. And most importantly, economists provide the tools to work out those puzzles. And in this way, virtually every major problem facing the world today, from global warming to world poverty to the conflicts in the Middle East and the global pandemic, has an economic dimension. If you're going to be part of solving those problems, you need to be able to understand them.

Starting point is 00:08:55 So in this sense, an understanding and appreciation of economics is crucial. and to contribute to society as a whole you also need to be able to vote intelligently on regulations and laws when the country came close to a standstill at the beginning of the pandemic what were the issues involved did you know and how did you respond to them many hit the panic button knee-jerked and sold assets prematurely only to see them rebound and recover quickly but for those that could read the economic tea leaves the pandemic provided a rare window of opportunity for investment. And a basic understanding of economics makes you a well-rounded thinker. When you read articles about economic issues or hear workmates or political candidates

Starting point is 00:09:42 talking about economics, you'll be able to distinguish between common sense and pure BS. You'll find new ways of thinking about current events and about personal and business decisions, as well as current events and politics. The understanding of economics doesn't dictate the answers but it can illuminate the different choices and options that are available. And economics provides us with a methodology for understanding and making sense of our complex environment. So it's obvious that economics can be defined in a number of ways.

Starting point is 00:10:18 It's the study of scarcity, the study of how people use resources and respond to incentives or the study of decision making. It often involves topics like wealth and finance, but it's not all about money. Economics is a broad discipline that helps us understand historical trends, interpret today's headlines and make predictions about the future so we can make the best decisions based on the information available at the time. And in a world of radical uncertainty and continually rapid change, there's never been a greater need for an appreciation of economics to assist us

Starting point is 00:10:55 in navigating the interesting road ahead. So if the goal of understanding economics is to become a better decision maker, and part of that is learning how the whole economy works, let's briefly touch again on the whole economy as described by Crash Course. There's a flow-on from the description of how the economy works by Ray Dalio that I delved into in the intro to episode 136 of Get Invested, so feel free to listen to this again to brush up your knowledge. So when you're listening to the news and you hear about unemployment benefits and unemployment rates

Starting point is 00:11:31 and inflation and economic growth and economic development, you're delving into the wonderful world of macroeconomics. And what is macroeconomics? Macroeconomics is a study of the entire aggregated economy of a country and its relation to other countries and regions. Macroeconomics studies the big stuff like economic output, unemployment, inflation, interest rates, and government policies. In simple terms, macro is about understanding the cycles of booms and busts, and how individuals, businesses, and the government need to respond.

Starting point is 00:12:07 To make sense of this, economists fully appreciate the need for a systematic way to measure the overall economy, and develop theories to guide policies and fix potential problems. today economic data is plentiful but that doesn't mean that economists agree about where the economy is where it's going or what should be done to help in this way macroeconomists make predictions based on data theoretical models and historical trends but in the end they're still just predictions that can't possibly cover all of the multitude of dynamics and complexities that influence future behaviour. In this way, if you ask three economists the same question, you're likely to get three or more different answers. But how, you ask, can the so-called

Starting point is 00:12:56 dismal science, as it's so often referred to as, be so subjective? Well, economics is not a traditional science because it's nearly impossible to control all the different variables. Like all the social sciences, economics revolves around studying people and, as we all know, we often act unpredictably and irrationally. Storming the supermarket shelves for toilet paper every time there's a lockdown is an absolute classic example. And this variability needs to be applied against a backdrop where governments, central banks and policy makers have three main economic goals. They want to keep the economy growing over time. They want to limit unemployment. And they want to keep prices stable.

Starting point is 00:13:45 Now, for the most part, when these three things happen, you and I and the population at large are happy, politicians get re-elected, and economists get pay rises. So against these three goals, there are three specific measurements that most economists currently use to analyse if the country is achieving each of these goals. These are the gross domestic product, the unemployment rate,

Starting point is 00:14:13 and the inflation rate. The most important measure on an economy is gross domestic product, or GDP. Now GDP is the value of all final goods and services produced within a country's border over a specific period of time, usually a year. Now, there are some details worth mentioning here though. GDP doesn't include every transaction that's in the economy. For example, if you buy a used domestic car, it doesn't count towards GDP because nothing new was produced.

Starting point is 00:14:45 Now that same logic applies to buying financial assets like stocks, or when one company buys another company, for example when Google bought YouTube. Those don't count towards GDP because no new good or service was produced. also GDP often doesn't include illegal activity since surprisingly drug dealers don't usually report their sales to the government and GDP doesn't cover non-traditional economic activity like household production for example if a plumber charges someone 100 bucks to fix your hot water system then that counts towards GDP but when you fix your own hot water system that doesn't count And to get a more accurate idea of the health of the economy, particularly when comparing

Starting point is 00:15:34 it with the economies of other countries and nations, economists look at real GDP, which is GDP adjusted for inflation. So GDP was invented to account for national income, and it may not necessarily provide a complete picture of a country's economy, but for the moment it's the best representation that we've got. So GDP is a key measure of economic growth, or at least one way to look at economic growth. But what do changes in GDP indicate? Well, GDP is a measure of economic wellbeing.

Starting point is 00:16:11 It serves as a gauge of our economy's overall size and health. GDP measures the total market value of all of our goods and services produced in a given year. When compared with prior periods, GDP tells us whether the economy is expanding by producing more goods and services or contracting due to less output. It also tells us how a country is performing relative to other economies around the world.

Starting point is 00:16:37 Economic growth rates are monitored closely, which is why GDP is often reported as a percentage. So GDP data provides an important and informative snapshot into the behaviour and performance of our overall economy. And some of the key applications of GDP stats include measuring and comparing growth, prosperity, distribution and the composition of output. Measuring or comparing growth, for example,

Starting point is 00:17:05 revolves around the rate of expansion of real GDP which is usually interpreted as the most important measure of economic growth. A recession occurs when real GDP shrinks, usually for at least two quarters in a row. while a recovery is said to begin when real GDP starts growing again. Similarly, when measuring or comparing prosperity, the level of GDP per capita or per head of population is often interpreted as an indicator of our overall average prosperity.

Starting point is 00:17:36 And when it comes to distribution, changes in the relative shares of different groups in total income in an economy over time can provide a useful indicator of changes in their relative political and economic power. And lastly, GDP informs the composition of output. An economy that spends more on investment and less on consumption would generally be interpreted as engaging in a more dynamic, aggressive form of economic development. An economy with a larger government sector is usually one in which citizens enjoy a greater degree of social security and equality.

Starting point is 00:18:09 Many countries also produce GDP data disaggregated into industrial or sector categories, which can also provide valuable insights into the changing composition of our economy. For example, the changing balances between agriculture, manufacturing and services. So it's obvious that policy makers, government officials, businesses, economists and the public like you and I alike rely on GDP and related statistics to help assess the economy's wellbeing and to make better informed decisions about our future. Policymakers look to GDP when contemplating decisions on interest rates, tax and trade policies The pace at which our economy is growing affects business conditions and investment decisions

Starting point is 00:18:55 as well as whether workers can find jobs and state and local governments rely on GDP and similar stats to help shape policy or decide how much public spending is actually affordable now the next big issue for politicians and macroeconomists is unemployment the major goal of unemployment policy is to limit unemployment and that's measured by you guessed it the unemployment rate in Australia the unemployment rate is currently 5.5 percent the unemployment rate is calculated by taking the number of people that are unemployed and dividing by the number of people in the labour force and then timesing that by a hundred. Now this

Starting point is 00:19:37 percentage represents the number of people that are actively looking for a job but just can't find one. Now the labour force only includes people that are of legal working age and working or actively looking for work. So our kids don't count and neither do people who aren't able to work or who just choose not to work. So what about someone who's been looking for a job but just gives up, well, they're no longer part of the labour force and they're no longer considered unemployed. These are often referred to as discouraged workers. The unemployment rate also doesn't generally take into account people that are underemployed. A worker with a five-hour-a-week part-time job is considered fully employed,

Starting point is 00:20:21 even if they're looking for a better job. In both of these cases, the official unemployment rate can underestimate the problems in the labour market. A common misconception is that the goal is to have 0% unemployment, but it turns out there's types of employment that will exist even when the economy is going really strong. Economists point out that there's three types of unemployment, or three reasons why people would be unemployed. First is what's called frictional employment. This is when people are temporarily unemployed or between jobs. So if you quit your job and you look for a new one, or you're just entering the labour force, then you're frictionally unemployed. The second is called structural unemployment.

Starting point is 00:21:06 Workers are out of work because there's no demand for that specific type of labour. This would be like a video repair person, but it also includes technological unemployment, where workers are replaced by machines. Now, both frictional and structural unemployment will always exist. The goal is not to have zero percent unemployment. I mean zero percent's not even possible. We're always going to have people between jobs or people fired because machines do it better. So the goal is to have no cyclical unemployment. This is unemployment due to a recession. It's when people stop buying stuff so businesses lay off their workers and since workers have lower incomes, they stop buying stuff, which means more people lose their

Starting point is 00:21:51 jobs. An economy is considered to be at full employment when there's only frictional and structural unemployment. This is called the natural state of unemployment. This natural rate differs slightly between countries, and in Australia it's usually somewhere between 4-6% unemployment. A falling unemployment rate generally occurs alongside rising gross domestic product, high wages and higher industrial production. The government can generally achieve a lower unemployment rate using expansionary fiscal or monetary policy, so it might be assumed that policy makers would consistently target a lower unemployment rate using these policies. Part of the reason they don't revolves around the relationship between the unemployment

Starting point is 00:22:43 rate and the inflation rate. In general, economists have found that when the unemployment rate drops below the natural rate, the inflation rate would tend to increase and continue to rise until the unemployment rate returns to its natural state. Alternatively, when the unemployment rate rises above the natural rate, the inflation rate will tend to decelerate. The natural rate of unemployment is the level of unemployment consistent with sustainable economic growth. An unemployment rate below the natural rate suggests that the economy is growing faster than its maximum sustainable rate, which places upward pressure on wages and prices in general, leading to increased inflation.

Starting point is 00:23:30 The opposite is true if the unemployment rate rises above the natural rate. Downward pressure is placed on wages and prices in general leading to decreased inflation. Wages make up a significant portion of the cost of goods and services therefore upward or downward pressure on wages pushes average prices in the same direction. Hence, increases in unemployment adversely affects the disposable income of families, erodes purchasing power, diminishes employee morale and reduces our economy's overall output.

Starting point is 00:24:05 And the unemployment rate is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. The unemployment rate is therefore a key labour market indicator, enabling us to assess our economy's ability to generate enough jobs for the labour force. It provides an indication of labour market performance and it's an insightful measure of the mismatches between labour supply and demand, reflecting to some extent the business cycle and the socio-economic situation of us as individuals. So what happens when unemployment rates increases? Well, the effects of unemployment on the economy can be severe

Starting point is 00:24:55 and a 1% increase in unemployment generally reduces the GDP by 2%. And the criminal consequences of unemployment are also mixed and in some circumstances property crime rates increased significantly. Now as you've heard, the GDP growth rate and the unemployment rate are inversely related. This means that when GDP is rising, the unemployment rate is generally falling. When GDP is falling, the unemployment rate is generally rising.

Starting point is 00:25:29 And this is exactly what happened during the Great Depression. In the 1930s, droughts, bank failures and counterproductive policies caused GDP to fall and unemployment peaked at 25%. Now, let's move on to the third economic goal, stable prices. The goal is to keep prices stable, mainly to avoid rapid inflation or rising prices. But we also want to avoid excessive deflation, which is falling prices. Inflation is measured by tracking the prices of a set amount of commonly purchased items, or what economists call a market basket.

Starting point is 00:26:07 The inflation rate is the percentage change in the price of that basket over time. Too much inflation is bad because it decreases the purchasing power of money, and it means that you can buy less stuff for the same amount of money, which has all sorts of negative effects on the economy. Business costs increase as workers demand high wages, and interest rates increase so it's harder to get loans so people buy less cars and houses. Deflation on the other hand seems like it might be a good thing in this context but quite rightly most economists see falling prices as a bad thing.

Starting point is 00:26:43 Falling prices actually discourage people from spending since they might expect prices to fall more in the future. Less spending in the economy means GDP is going to decrease and unemployment it's going to increase and this just becomes a vicious cycle. So severe recessions are often accompanied by deflation because the demand for goods and services falls but when the economy starts to improve again we often see an increase in prices and throughout history economies expand and contract. This is called the business cycle. So if you imagine the economy as a car then GDP, employment and inflation are the key economic gauges. Now a car can cruise along at 100km an hour without overheating.

Starting point is 00:27:32 Safe cruising speed is like full employment. Unemployment is low, prices are stable and people are happy. But if we drive that car too fast for too long it will overheat and in the economy significant spending increases GDP causing an expansion. Unemployment falls and factories start producing at full capacity to keep up with demand. Since the amount of products that can be produced is limited, people start to outbid each other, resulting in inflation.

Starting point is 00:28:04 Eventually, production costs increase as workers demand higher wages, and the economy starts to slow down. Businesses lay off a few workers. Those unemployed workers spend less, causing the businesses that produce the good that they would otherwise be buying to lay off more workers. This is a contraction. The economy is going to slow.

Starting point is 00:28:28 Eventually things stabilise, production costs fall since resources are sitting idle and the economy starts to expand again. This process of booms and busts is called the business cycle. To understand why these fluctuations might occur Let's take this car analogy just a little further and look at the engine. Much like the four-cylinder engine that powers growth and acceleration, an economy has four components that make up GDP. Each represents a different group that can purchase things in the economy.

Starting point is 00:29:01 They're consumer spending, business spending, which is called investment, government spending, and net exports, which is basically spending by other countries. If any one of these components loses power, the economy will slow down, but not all of them are created equal. Most economies rely heavily on consumer spending. For example, in Australia, consumers account for just under 60% of the GDP, but other countries might rely more heavily on exports. The point is, changes in these four components change the speed of the economy.

Starting point is 00:29:41 So when I'm driving my car on the highway, I use cruise control to regulate my speed. So why don't we have cruise control for the economy? Well, many economists think that the government should play a role in speeding up or slowing down the economy. For example, when there's a recession, the government can increase spending or cut taxes so consumers have more money to spend, which helps the economy back to full employment, which is exactly what they've done to combat the impacts of COVID. now in this way the government is the driver of the car using the accelerator gears and brakes in an attempt to smooth the ride while the economists are the navigators reading the maps anticipating road conditions and helping to steer the course ahead to avoid hazards and crashes

Starting point is 00:30:24 meanwhile we're the patches passengers in the back seat so we need to wear our seat belts and keep our eyes on the road ahead by which i mean we need to save and invest in order to protect us from the inevitable jolts that we'll experience on the journey. So it's important for you to have a general understanding of how the economy works and how it's measured so you can better understand what's happening and the decisions you need to make at different stages of the cycle as your livelihood and your future will be shaped

Starting point is 00:30:54 by what happens in the economy. So we've really just touched on these three major indicators of economic health. And while they can be useful in providing a broad overview of a nation's economy, the reality is, as usual, a lot more nuanced, dynamic and complex than that. Which means that forecasting what is likely to happen is like trying to predict the weather. As well-known Australian economist Shane Oliver recently blogged, the difficulty of getting economic forecasts right is reflected in the long list of jokes about economists

Starting point is 00:31:29 and their forecasts, and here are a couple that I just want to share with you. Three economists went target shooting. The first missed a biometer to the right, the second missed a biometer to the left, and the third exclaimed, we've got it! Economists were invented to make weather forecasts and astrologers look good. An economist is a trained professional paid to guess wrong about the economy. An economist will know tomorrow why the things he or she predicted yesterday didn't happen

Starting point is 00:32:04 Economic forecasting is like driving a car blindfolded and getting instructions from a person looking out the rear window Economics is the only field in which two people can share a Nobel Prize for saying the complete opposite For every economist, there exists an equal and opposite economist economists have predicted six of the last two recessions and folklore has it that u.s president harry truman longed for a one-armed economist one willing to go out on a limb and take an unequivocal position without adding on the other hand now truman's view is often reflected in the

Starting point is 00:32:46 public's view that economic forecasts are inherently ambiguous and that economists never agree on anything. And as these hackneyed and cliché quips illustrate, it's a common belief that economists disagree about a lot of things. But if you dig a little deeper, economists don't disagree much about economics. They generally only disagree about politics and public policy. And exploring the interface between politics and economics is the fun part of being an economist, as you'll hear from today's special guest, Professor Mark Crosby. Mark's an applied international macroeconomist, to call him so, and celebrated academic. He's currently professor at Monash Business School, where he's part of the university's leadership

Starting point is 00:33:35 and executive education team, and the director of international business. He's also a Hibbert lecturer at Melbourne Business School, where he spent 19 years before joining Monash in 2016. And he's also worked as an academic at the University of New South Wales and University of Toronto, as well as research officer at the Australian Treasury in Canberra. His academic interests are in international macroeconomics, with particular interest in policy issues in the Australian and Asian regions, including a lot of work on China, given its major impact on our local economy. His research is focused on topics such as the role of exchange rates in affecting macroeconomic fluctuations, the impact of macroeconomic factors on election

Starting point is 00:34:20 outcomes, and the properties of business cycles. He also consults widely to business and government both in Australia and overseas, including the Hong Kong Monetary Authority and the Monetary Authority of Singapore. His most recent consultancies have examined policies for diversifying Brunei's economy, and policy issues related to South Africa's increasing current account deficit. Mark's a regular contributor to the Australian Financial Review and the Age newspapers, and he's a sought-after public speaker on matters relating to the macroeconomy. I was recently really privileged to enjoy a presentation by Mark on the future of the Australian economy and its impact on housing and financial markets, which has proved to

Starting point is 00:35:01 be very insightful. And our discussion today will give you all of the key trends that you need to be aware of in order to make fully informed decisions on where you're going to invest your time, energy and money in the interesting times ahead. So in our very enlightening conversation today, Mark shares what international macroeconomic policy issues are likely to affect and have the most impact on Australia moving forward. He talks about what impact China's policy changes are likely to help our economy. He talks about whether the current strength in the economy is going to last. He outlines the biggest economic risks that need to be considered

Starting point is 00:35:40 that are likely to impact on property and investment markets. He outlines the economic drivers of our property market cycles. He runs through what we've learned from the pandemic and what we should be doing about it. We discuss the impact of immigration on property prices and what's likely to happen with property when international borders are reopened. And he gives us his read on central banks' approaches to asset prices and potential interventions moving forward.

Starting point is 00:36:07 And given current booming conditions for good properties across the country, he outlines what he believes is likely to happen with property in the short to medium term and where the opportunities and risks are. Now, this is a great conversation that will improve your understanding of complex global interdependencies and will help you make good, sound investment decisions moving forward. and if you want to hear more juicy insights on all things property join me on australia's longest running property investment and real estate show real estate talk which we've just

Starting point is 00:36:38 rebranded as realty talk where you can join me on www.realty.com.au that's realty.com.au as the new host of the show where i interview a number of industry leaders each and every week to discuss all things property so i'll see you there And if you're ready to find out how investment can support your growth goals, then join me live in our unique KnowHow Property Freedom Flight program, where I'll personally guide you through my proven process for property investment success. To book your ticket and to find out more, click the link in the show notes or just go to knowhowproperty.com.au forward slash freedom fighters. In the meantime, enjoy this enlightening chat with Professor Mark Crosby. Hi Freedom Fighters. Now in our always connected, always changing and dynamic global village, it's becoming

Starting point is 00:37:42 more and more evident that to make good considered decisions locally, we need to embrace and be aware of international macroeconomics and its impacts. but how do we decipher and make sense out of the enormous dynamic complexity and the absolute deluge of information that confronts us each and every day? Well, by seeking the guidance of the good economist who has the skill to help us make new things sound familiar and familiar things sound new. And in this regard, I know that today's special guest, Professor Mark Crosby,

Starting point is 00:38:15 is expertly equipped to do just that. After I had the pleasure of listening to one of his recent presentations on Australia's outlook and its implications for property. So welcome, and let's get invested, Mark. Good morning. Mark, great to have you on board. You've got the privilege of being the first economist to join us here on Get Invested,

Starting point is 00:38:35 so I'm really interested to get your insights on where we've come from, where we're at, and where we're heading to. But for those in the audience who don't know who you are, Mark, can you give us a quick rundown on who you are, what you do, and, most importantly, why you do what you do. Sure. My name is Mark Crosby.

Starting point is 00:38:56 I'm a professor of economics at Monash University in the business school there. So I've always been fascinated by economics, the way economies work and don't work, poverty, income inequality and issues like that. I guess my particular interest nowadays is around Australia's linkages and relations with countries in the Asian region. So I've got a particular interest in the Chinese economy

Starting point is 00:39:25 and, of course, that's become so important for Australia, but also Indonesia and the Southeast Asian region where I've spent quite a bit of time working and living over the past 20 or so years. Yeah, OK. So to sort of get us back to how you've come to that exercise, I'd love for you to take us through your journey so far and focus on where you've invested your time,

Starting point is 00:39:50 your energy and your money into, why you've done that and how has that got you to where you now are? Sure. I think in terms of philosophy, I've always sort of taken opportunities. So my passion growing up as a kid in Adelaide, I think where you are now was Aussie Rules and I spent all of my time and effort and so on playing Aussie Rules and played for a team in Adelaide called South Adelaide for a while and really enjoyed that.

Starting point is 00:40:20 But I guess I thought that that wasn't going to take me too far career-wise in those days. So I then focused more on economics. I was very fortunate to go to Canada thinking that I'd just do a master's degree and get the chance to travel while I was doing that. But I really enjoyed that. I met my wife as she became and decided to stay in Canada and continue the economic study and do a PhD.

Starting point is 00:40:48 Tell me, just sort of jumping in there, Mark, a couple of things. I knew I liked you because I'm a bit of a Panthers fan myself in the local Sandville exercise of good old Adelaide. But I'm interested in your attraction to economics. How did that come about? Where did that come from? At school, I did economics. And I guess this is in the late 1970s when things like inflation were becoming problematic.

Starting point is 00:41:18 Unemployment rate was quite high. Obviously, as someone who's young, a young person, you want to make sure you can get a good job. And so if the unemployment rate's high, that's obviously going to make it much more difficult. So that got me interested in the issues. And then I found this sort of way of thinking as an economist to be quite interesting. It's not quite science, but it's not quite art either. there's that that blend of the two and i found that to be quite quite interesting and i still do today i think some some people and even some economists get confused into thinking that

Starting point is 00:41:50 economics is very scientific and we have always a very particular answer i think it's always very important to to question everything that you think as an economist and the models that we use but to use frameworks to try to understand the way the world works so i found that really interesting yeah yeah okay and i guess the the challenge there is that uh you know economists generally have come under a fair bit of scrutiny at odd times for you know i guess the best analogy i can use is is trying to apply science to meteorology it's uh you know you can do a best guess and be close to the mark but but the dynamics of what you're trying to deal with don't always play by the rules so yeah yeah that's exactly right in fact uh i uh briefly

Starting point is 00:42:37 worked at the university of toronto in canada and my predecessor in in the role that i went into was a someone who had a phd in meteorology and then went into economics because he thought it was very similar but more interesting so there you go yeah there you go it's uh i think very very challenging to try and reduce that the level of complexity that you're trying to deal with into easily understandable terms that people can start making decisions on. But I disrupt you there and we'll come back to some of that shortly. So you met your good wife in Toronto and in Canada. Where did that lead you to

Starting point is 00:43:14 from there and why? So I finished a PhD in the middle of the 1990s in Canada. We were looking for jobs in the same city. We both finished back in Sydney after that for a few years um and then i guess um in terms of some professional activities that sent me off in the journey that i've been on uh i started to work in in the asian region so i started to work at the monetary authority of singapore uh for a few years as a consultant uh giving training programs up there then i went to the hong kong monetary authority in 2000 for the first time and i went there every year for a couple of months and that was i think the thing that really

Starting point is 00:43:54 shaped my career. At that time, China was not something that we talked about in Australia or in the US or other large economies. It was a very small economy. It was growing, but it wasn't sort of connected to the world in the way that it is today. But in Hong Kong, of course, they really saw that the rise of China was going to be something very significant. And so in working in Hong Kong, I really got to think about and understand the issues associated with the rise of china so that that became my interest uh as an economist over the next really until today how does the rise of china affect our economy how does it affect the world economy has it affect exchange rates and pretty much everything of property markets in particular as well in the

Starting point is 00:44:39 case of australia um so i've i've visited china now more than 50 times i'm taking study groups from MBA students usually from universities to look at particular industries and businesses and opportunities in China. And that's been fascinating to sort of look at just about every industry you can and understand how they work in China. I've also started to do a lot more work in that same sort of area in Indonesia, particularly in Jakarta. And I lived in Singapore for a year or so as well. So I've got this very strong interest in Asia generally, China in particular and i also think that because of the history that most of us have um and an understanding of european and western economies we still don't really understand some of the issues that are

Starting point is 00:45:30 important in terms of dealing with with asia doing business in asia um understanding that the markets are very different across the region india being very different to china and singapore and so on So that's been my passion over the last 20 years, trying to visit and understand some of the markets that we're closest to. Yeah, okay. And that's obviously brought you back into Melbourne at some point. Tell us how that's come about and where you've ended up where you are now. My wife got a job at BHP when was that, 1996 or 7?

Starting point is 00:46:08 and I had the opportunity to move to the University of Melbourne, which is one of the strongest two or three economics departments in Australia. So I decided to take the jump from Sydney to Melbourne and coming from neither, I've really enjoyed both cities and we've really enjoyed living in Melbourne and bringing up our kids here for the last 20 or so years. So, yeah, it was very sort of serendipitous rather than a planned move

Starting point is 00:46:34 to Melbourne in 1997. Yeah, okay. Well, let's talk about the sojourn with BHP because I imagine that an economist working in a culture like BHP, which is very resource-focused and probably fairly macho on let's do it first and then talk about it afterwards type of mentality, and that's a massive guess by me, obviously. But I can imagine there may have been some challenging times in the time spent there, or am I reading that wrongly? This is my wife. No, obviously the corporate area in Melbourne is quite different to the sites. She was very fortunate to have the opportunity to visit sites around the world and particularly in South Africa after they merged with Billiton.

Starting point is 00:47:23 So she generally found it to be a very positive place to work. Obviously it was growing and growing very rapidly because of the rise of China. So the first few years, I think in the late 1990s, before China started to rise, BHP, like all of the resource miners in Australia, was struggling. It's interesting to reflect on, but at the end of the 20th century, basically the assumption was that Australia was doomed by our reliance on commodities and we needed to do things to move away from that reliance. The chief scientist in 2000, in fact, I think, said that our dollar was going to go to 30 cents because of our reliance on commodities and we needed to become a smarter economy. And that's one thing I always say, don't try and forecast exchange rates. And if you're a scientist, stay well away from them because they're very difficult to forecast. But I would have said at that time, that's not a very sensible forecast.

Starting point is 00:48:23 Commodity prices go up and down like many other prices. They had been on a long downward trend, but the rise of China certainly put an end to that. Yeah, interesting. Okay. And the work you're currently now doing at the uni, are you continuing to focus on Asia and its impact on Australia? Where's the current interest lie? So that's certainly my interest. Obviously, no travel in the last year or so.

Starting point is 00:48:48 In fact, the last trip I did was to Korea and Malaysia just in late February and early March last year, which was a bit hairy as coronavirus was starting to rise, particularly in Seoul and around Seoul at that time. But that's certainly still my interest, is how the economies in the region are affecting one another. Obviously, at the moment, the tension between Australia and China is making our lives very difficult. It's very interesting that overnight the EU has come in

Starting point is 00:49:19 to say that they will support Australia in terms of some of these trade actions that China has taken to support Australia in terms of trying to have those decisions reversed. And I think that's a very good thing. I think no country can push back against China very effectively by itself, but coalitions of countries, especially the EU and the US and coalitions that include them, can push back very effectively on some of the not-so-pleasant decisions that have been made in China

Starting point is 00:49:52 in the last few years. Yeah, that's very pleasing to hear. I certainly wasn't aware of that. And, I mean, Australia's a very easy target for someone like China because they can send a message to the US and other parts of the world by picking off Australia because we're just a drop in the bucket in terms of what we're dealing with elsewhere. So I guess we're sort of an easy target as far as that goes.

Starting point is 00:50:18 Yeah, we're also, it's classic bullying. in the sense that uh china can't in terms of trade pick effectively on the us or europe because china actually has a large trade surplus they sell a lot more stuff to china than than europe buys from china or the us buys um uh sorry than china buys from the us so when if china would have put trade sanctions on the us the us could do the same and that would really damage china but china putting because we sell so much more to china than they sell to us um they can put sanctions on us knowing that it's going to do no harm to their economy so that's that's the big difference as well as countries like us and chile and brazil and so on that are really

Starting point is 00:51:07 dependent on on china uh to a much greater extent than say uh european economies in general or the us um so that's that's the other reason why i think that picked on us we're an easy target and and it doesn't hurt them as much as it would if they picked on the US or Europe. Yeah, okay. I'm going to dig into that area in a fair bit more detail shortly, but I guess just to sort of conclude your own journey and where you have and continue to invest your time, your energy and money, I'd love you to just sort of paint a picture

Starting point is 00:51:40 of what your ideal lifestyle looks like to yourself in terms of, you know, what are you doing where, when and how and then get a sense from you as to what you're personally investing in to either sustain that or maintain that long-term. Yep. So I guess in terms of the perfect lifestyle, I mean, everyone can always wish that you had more money or, you know, things like that, a bigger house and so on.

Starting point is 00:52:10 To my mind, it's about understanding where you are, what you're likely to achieve in terms of income and so on. I've always been pretty conservative. My father was a finance professional and still is and still working, but loves what he's doing, as do I. And I think to me it's about I am pretty conservative when it comes to investments. In terms of investment decisions, I've been very fortunate

Starting point is 00:52:35 to get into Melbourne property early on in our time here. We're lucky enough to afford to be able to buy a holiday house eventually. so i guess i've been long property without being overly aggressive in terms of debt and that i guess particularly with a holiday house it's a luxury rather than i think an investment in some sense so you've got to treat it that way you've got to not gear up too much i've always had the attitude that with things like cars you buy what you can afford and don't borrow for a very heavily depreciating asset so in terms of philosophies though those are the sorts of principles but i've also i guess been willing to take chances so career-wise i've i've

Starting point is 00:53:18 taken a couple of sort of interesting moves a bit of a lateral move up to singapore a few years ago that didn't pan out so well from a career perspective but from a personal perspective that was probably one of the best things i've done in the last 10 years or so because my family really loved the time that we spent there it was such a different experience from from living in australia we got to travel a lot in the region and from a professional perspective i guess i learned more then about what i really want out of a out of a role um what i'm willing to accept and not so going forward i i guess uh i'm i'm still looking to work on my late 50s but i'm still looking to work for another decade or so but i'd like to do things that i enjoy um i would like

Starting point is 00:54:02 in terms of the perfect lifestyle to have a day a week or a day and a half a week off to do my own thing. As I get older, I'm not sort of so interested in working harder to make more money. But other than that, having the means to travel once we're able to again, that's a priority for me. And to do things like sports, I play golf and my wife's a sailor and those are two activities that require a little bit of money

Starting point is 00:54:33 without being extravagant, but I definitely want to keep those in the mix going forward yeah excellent and uh what are you investing into maintain that lifestyle as you wind down the employment income i guess i'm in australia we've got this great opportunity with superannuation so particularly if a couple is working and maximizing superannuation contributions i think is the first step so So in this particular time right now, paying down mortgage debt isn't perhaps so important unless you're very heavily geared in the sense of borrowing 80% to 90% of your property and still being at that sort of ratio. Then you should be paying down your mortgage. But after that, you should be thinking much more about putting more money into super to give you the lifestyle that you want.

Starting point is 00:55:23 As I say, in my stage of career where I'm late 50s, I can start to access super in a couple of years and we've built up a decent enough super pot that with that plus no debt means that we can, I think, enjoy the lifestyle that we want without being outrageous going forward. So I think super in Australia is the key thing for most people. It's looking at trying to get a balance level that's high enough that you're able to live off that for, think about it as 10 to 15 times

Starting point is 00:55:56 your earnings I think is a reasonable part that would allow you to live well into your 70s and 80s. Yeah, the challenge there is that unfortunately a lot of Australians are letting that opportunity slip by by not putting enough into their super and, you know, I think the average super balance of retirement at the moment, you'd probably know this better than I do, Mark, is around sort of between the $600,000 and $700,000 mark.

Starting point is 00:56:24 Yeah, yeah. Based on living off the dividends or the income that comes from the nest egg, that's not going to fund a very attractive lifestyle at all, unfortunately. No, I mean, that's right. That's a fairly challenging number. It's going to allow you to get some pension and so on. But, yeah, so for someone in their 30s, you probably need

Starting point is 00:56:44 to be thinking about, as I say, a pot above $1 million and probably above $1.5 million to be living. I say to my mates, you know, if you've got one and a half to two million in your flying economy class but you're travelling around the world every couple of years, if you've got three to four, you're travelling, you know, business class, and if you've got five to ten, you can do whatever you like. Yeah, that's good.

Starting point is 00:57:06 I like that. That's very good. It's a pretty good definition that sums up the economy business and first-class versions pretty well. Thanks, Mark. Mark, sustainable success, and I emphasise the word sustainable, it's a term that gets thrown around a lot, and I'm sure it's a term that gets thrown around a lot

Starting point is 00:57:25 in economic circles. How would you define sustainable success in those terms? I think there's always risks in everything you do. I haven't got a crystal ball. I can't tell you where the economy will be next year, but we can think about risks. and we can decide to take on that risk or we can be conservative. As I've said, my attitude is always to be fairly conservative.

Starting point is 00:57:54 But I'll give you a couple of examples would be with Bitcoin, something that I've never invested in. I understand it pretty well. I understand the technology. It's a very, very clever technology based on blockchain technology. I understand the way money works and the way central banks work. And I don't think Bitcoin will ever be a sort of global currency of any significant form.

Starting point is 00:58:20 And what that means is I don't think it has much value. That's not to say that prices won't go up and down. And if you really like it and are inclined to throw a few hundred or a thousand dollars at it, that's absolutely fine. But you've got to understand that that's an incredibly risky investment to take. I just wouldn't take it because I don't think it's going to have long-term value.

Starting point is 00:58:42 um just just on that and i i you touched on a pretty important subject i think because uh there's a tendency by a lot of people to associate the uh the amenity of an asset uh you know you know there's a lot of talk around uh cryptocurrency as a store of value etc uh but there's a there's a big difference between that and its potential investment performance and people try and mix up the two as a speculative exercise because that's basically what most people are doing with cryptocurrency at the moment. It's a massive speculative enterprise to throw money at it,

Starting point is 00:59:24 but there's no necessary tie between the perception of its value and its underlying intrinsic value as an asset. And I think a lot of investors and or I call them more gamblers don't necessarily understand the difference between the two. What's your thoughts on that? That's absolutely right. And I'll give you another example that's very similar and that looks more like investing

Starting point is 00:59:51 and that's foreign exchange trading. So in Australia, you can borrow very heavily, you can leverage into foreign exchange trading as a retail investor, as a private investor. You can borrow a couple of hundred times what your stake is in terms of what you sort of think you have at risk. with the foreign exchange market. So you can bet on the Aussie dollar going to 78 US cents or 72.

Starting point is 01:00:18 But again, I have actually made a couple of foreign exchange plays with very different types of players. But that is very risky. Because of the brokerage, 80% of people who invest in foreign exchange lose their money within 12 months. So that's a very poor investment. And understanding that risk, I think, is really important. So what are the assets and what are the activities

Starting point is 01:00:42 where the risk is just too great? In my view, cryptocurrency, foreign exchange are in that basket. Property is always risky, but you've got an underlying asset. Again, that's a fundamental difference between that and Bitcoin. You've got an underlying asset. It's going to give you utility. All of us get enjoyment out of our housing, certainly our non-investment housing.

Starting point is 01:01:03 and it's something that if you think about it longer term where the transactions costs sort of dissipate to some extent, then you should always make a reasonable return, but it's never sort of guaranteed. So the risk profile I think is the first thing I always sort of think about in terms of any investment decision or activity that I make. I'm willing to take some risks. I certainly think about my self-managed super fund as having 5%

Starting point is 01:01:31 to 10% for speculative stuff and some are staying well and some not so well. But I have a very sort of particular way of thinking about that. I'm a strong believer that we are going to transition to, you know, electronic vehicles and more renewables and things like that. So the classic thing of don't buy the mines but buy the picks and shovels, what are the things that support electronic vehicles?

Starting point is 01:01:58 Well, it's lithium, it's cobalt, it's those sorts of things. So looking at metals and so on that are in that space, looking at alternative energies is really interesting stuff happening in Australia around hydrogen and things like that with some of the exports of energy that are not traditional gas and coal and so on. So, yeah, that's – so my approach is to evaluate the risk profile and if it's too risky, I'll just rule it out.

Starting point is 01:02:26 If it's a moderate risk, then you sort of think about the shape of your portfolio and how much you're willing to put into a particular area. So certainly some of my friends have done very well at taking more risk and getting it right, but some equally have done very, very poorly and having to work much longer because they've got things wrong. Yeah, exactly. Exactly right.

Starting point is 01:02:48 Do you mind sharing with us what you would consider to be your worst investment today? um a long time ago 20 years ago i was had a had a class to teach at four o'clock and uh in the morning i started to get a scratchy throat and by two o'clock i was feeling shocking i did go to the class i've made an appointment with the doctor and uh but i told my class i look i'm going to come here for 20 minutes i'm going to give you some stuff to read and i have to go to the doctor because i'm feeling horrible i went to the doctor um the doctor said uh he had an intern he said to the intern what's wrong with mark it's easy one you see well he's got the flu all right so they

Starting point is 01:03:27 gave me they gave me a nasal spray uh from a company called biota um and this i had no symptoms of the flu the next morning having felt shocking sweats and so on overnight by morning i was 100 fine which i found stunning stunning wow so i bought chairs in biota at nine dollars and um The one thing I did do was I hung on to them as they went down to 50 cents and bought a few more. I think I eventually got my money back. But I learned from that that even though it's a great product, even though it works, the one thing that I should have known

Starting point is 01:04:04 as an economist was always look at the competition. And they had a competitor called Tamiflu, which was a much bigger company, backed by a much bigger company, and it cornered 90-odd percent of the market. and so so biota was left with a very good product but in a very small sort of space and the share price did recover a bit after SARS and the need that countries then had for more flu vaccines but with a very good lesson for me not to get sentimental or just look at a product in terms of how good it is which is I think something that a lot of people do they like a

Starting point is 01:04:41 product so they buy the company when you're looking at shares but that's not a that's not a good way to invest always evaluate the competition think about the chances of success maybe buy the competitors as well as the if i had bought tamiflu as well as biota the company that owned tamiflu i would have been much much better off so that was a that was a big lesson for me and something i should have known as an economist but i got caught up in the moment having had their product work so beautifully yeah and that's the i guess as always the the challenge is uh the the sort of emotional engagement that comes out of a personal experience versus the the sort of the fundamental uh rational approach uh that that is perhaps more appropriate and i i guess from my

Starting point is 01:05:25 own perspective i'm a very conservative investor as well mark uh the my approach now is it's not to back horses in a race by choosing individual stocks but to sort of take a more index type approach that gives me inbuilt diversification so that uh you don't run the risk of the the horse running last or having to be put down before it gets to the finish line, so to speak. Absolutely, yeah. No, that's good. Okay, well, I'd love to sort of dig into the economics

Starting point is 01:05:55 of the discussion now if I can because I know that's a subject that's near and dear to your heart. And I'd sort of love to just start by getting your thoughts on, you know, when you talk economics, a lot of Australians' eyes and ears glaze over. Unfortunately, I'd love to get your thoughts initially on, you know, how can we continue to shift Australians' attitudes towards embracing economic thinking as a way of improving their own lives and our lives generally moving forward? Do you have any thoughts on that? That's a tricky one.

Starting point is 01:06:37 I mean, in fact, in Australia, the press sort of coverage of economics is actually pretty good. it's pretty sophisticated so um for example through uh the 1990s and 2000s i think uh there was a lot of press coverage on the need for economic reform both sides of politics were were very good in general in terms of uh in when they're in government they implemented the right policies we had a lot of reforms right across the board on trade on labor markets competition and so on so we have a pretty well functioning well balanced economy until of course the global financial crisis we had no debt the government didn't know any money um in the last few years we've lost our way a little bit uh and i think that started with the spending of money uh after

Starting point is 01:07:25 the global financial crisis which was fine but then we kept spending money and i think there was then an assumption that the the dollars were going to keep coming in from from china so we we should just sort of spend it so we we weren't outrageous i think many countries in other parts of the world are much worse off than us in terms of government debt but we started to worry less about debt and to my mind more importantly worry less about economic reform so how do we get people interested i think we need to get people to understand that there's there's no there's no easy money out there there's no easy jobs that make you lots of money and get you a good lifestyle without being productive and without working hard.

Starting point is 01:08:02 And so it's all very well to hope that the government can support us through whatever measures, but at the end of the day, we've got to have people who are entrepreneurial and businesses that are competitive in a global landscape. And I think one of the things that I tell my kids is think about being more entrepreneurial, whether you're starting your own business but even working in a company. What things can the company do better?

Starting point is 01:08:27 what can you do better to support that because ultimately that's what creates wealth for us as individuals and for the economy as a whole so i think to my mind the sort of more entrepreneurial mindset and more that we're fact that we're living in a very competitive global world now it's very important for our younger people to understand that things are not going to be given to us going forward so hopefully that would get people interested in understanding economics and what supports entrepreneurial activity and businesses more generally. Yeah, no, that sums it up very well, I think. If I talk about, you know, there's sort of a spectrum

Starting point is 01:09:06 of economic theory that ranges from the sort of classical, very rational, logical approach, and in recent years there's been a rise in the sort of behavioural economics movement. Where do you sort of sit on that spectrum in relation to your own thinking around economics, Mark? I think to some extent it depends on the issue, but I certainly have a lot of sympathy for the behavioural view. And I think in some markets, you know, the behavioural issue,

Starting point is 01:09:41 so behavioural economics is basically how does psychology and how does the psychology of individuals and potentially markets affect the way a market works? and in some cases market doesn't work. So, for example, in the case of finance, a classically trained economist would say that, well, people will have some idea of how much money they're earning, how much money they're going to earn over their lifetime,

Starting point is 01:10:05 when they're going to retire, so how much money they need and they would save accordingly. Whereas a behavioural economist would say that people have these natural biases that psychologists would be able to explain to you in terms of the logic of them. um people tend to spend more than they should and save less they use rules of thumb to determine spending obviously marketers know this because they use that to attract people to spend money in on fashion and things like that um but i think as an economist we need to understand that that

Starting point is 01:10:39 behavioral view um so so we force people to save through superannuation which i think is a good thing a classical economist might say we don't need to do that people will save anyway um but i also think in some cases uh classically trained economists for example might say that people should be able to trade foreign exchange my view is um uh we shouldn't allow that for retail traders because uh people always have a sort of optimistic bias in in the sense that they think even though it might be a flip of a coin i'm going to make money so i'm going to gamble on it but there's So there's various biases in people's psychology that are very important to understand.

Starting point is 01:11:19 I think increasingly economists do take that into account and understand it and try to figure out what implications there are for markets and for the economy. But I think understanding those psychological pressures and so on is very, very important nowadays in economics. Yeah, I think it's been a really good move in the right direction because we're not robots. We're not completely rational.

Starting point is 01:11:42 we we tend to be quite emotionally driven as you say there's sort of built-in biases that affect the decisions we make so i think it's been uh you know and as you say i like your thinking around you know it depends on the situation that you're looking at and therefore what's appropriate to that situation in terms of the uh economic approach that you take so so let's leverage into that a little bit then and and look at you know uh how economists do think about the economy Can you sort of give us a rundown on your thoughts on that? Yep. So I guess the first thing you'll notice about any economist is they have lots of data at their fingertips.

Starting point is 01:12:22 So as economists, we understand that to figure out where the economy is today, you need to have sort of lots of data in mind because there's no one piece of data that tells you the economy is doing really well or really poorly or this sector needs some support or whatever. So we tend to be data junkies. We'll look at unemployment. we'll look at interest rates we'll look at gdp the growth in output in the economy and trade flows and all kinds of things and the abs publishes economics data pretty much every day if you are working in a bank you'd look at the motor vehicle registrations for example because if the economy is doing well people will be more confident and more more inclined to buy a new car so so we're data junkies and that gives us a picture of where the economy currently is

Starting point is 01:13:09 i think the disagreement among economists always comes from the assessment of okay this is where the economy is but where is it going and that's one thing where right now i think economists would agree we're in a sort of tricky situation to evaluate because of covid never had to sort of figure out where the economy is going in an environment like we're in currently um then the second thing is what do you do about where we're going so if the economy is heading south then what should the government what are the policy levers the government should pull to to bring the economy back um and if the economy's heading into inflation which is something people have been worried about very recently um what should the government do and the reserve bank do to uh to to bring

Starting point is 01:13:54 inflation back under control so um the in terms of thinking about where the economy is going there's a whole lot of issues there too so you've got the current data but fundamentally again it comes back to the fact that where the economy goes depends very much on confidence and John Maynard Keynes very famously said animal spirits were very important in his writings 80 years ago but it's still the case that if right at the moment in Australia there's a lot of confidence and that's great because that actually supports the economy but if people gear up too much and borrow too much and things then go south then we're at risk of having a sort of a heavy heavy fall so confidence is a good thing but it can be it can be overly good in the sense of perhaps

Starting point is 01:14:41 too much too much spending and too much borrowing but a lack of confidence on the other hand is a disaster for an economy so many economies in Europe have got high debt the problems with COVID lack of confidence very high unemployment for young people and for other people as well in countries like spain so that's an environment where it's very difficult for the government to sort of pull the economy out of its run and getting it get it going again um but the way we way we think about the economy is where is it going where is it going what are the what's the government done to sort of affect the economy and drive the economy what's the private sector thinking and investment in the case of australia you know mining investment and exports is very

Starting point is 01:15:24 important so where's that sector going and that leads into where the where the global economy and particularly Asian economies are going for us in Australia. So that's the way we think about the economy and that's also why there's disagreement because it is difficult to evaluate where the economy is going and therefore what the government should do. Yeah, the description you used when I heard you talk earlier in the year, you sort of positioned economists almost like a doctor

Starting point is 01:15:50 who looked at the symptoms and sort of does a diagnosis and based on that then provides what's considered an appropriate or suggests providing an appropriate treatment and then withdrawing that treatment when the time's right. Do you want to expand any more on that? No, that's exactly right. And the difficulty, again, is that different doctors will have slightly different sort of treatment profiles.

Starting point is 01:16:18 Some will say, you know, don't sweat it out, because the treatment will be worse than the cure. and other doctors will say, no, go hard on the treatment because, you know, you need to knock this off quickly. And so that's exactly where we are now. I think there's been some disagreement. Paul Keating, the former Prime Minister, was critical of the Reserve Bank for not being more aggressive.

Starting point is 01:16:41 I disagree with his view, but there are some very prominent economists who have agreed with him. I disagree with him because I just basically cutting interest rates below zero, flooding the economy with money, is like a sugar hit and it won't deliver sort of long-term fundamental growth in the economy. We need to address things like our productivity and so on if we really want to have sustainable growth in the economy.

Starting point is 01:17:07 But, yeah, his diagnosis would probably be no different to mine. The economy is struggling at the end of last year. It's still in a pretty precarious place and it needs support, but it's then a question of what sort of support it needs. Same thing for a doctor. Yeah. Yeah, totally agree. Well, let's apply that sort of you laid out a pretty good framework there

Starting point is 01:17:28 in terms of the approach that you take to, you know, looking at situations and then addressing them. I wouldn't mind sort of going from a top-down view of getting, because I know you've got a real interest in international macroeconomic policy issues. Can you sort of give us your overview, starting at the global level and then perhaps dropping down into the Asian equation given, you know, our proximity and the heavy impact that that has on what we do

Starting point is 01:17:59 in Australia before we then drill down to look at where we are currently and what your thoughts are on what we should be doing moving forward? I know that's a massive question, but would you like to sort of talk to that in the context of some of the work that you've been doing? Yeah, sure. So firstly, I mean, traditionally in Australia we've sort of said that if the US sneezes, we catch a cold, their economy has any difficulty, we get it as well.

Starting point is 01:18:25 And that was the case when we had a recession in the 1980s and the early 1990s. It was sort of the US-centred recession. But the US has had recessions in early 2000s, the global financial crisis, and our economy powered through those two years. So it's interesting, the sort of connection between the US economy and economies like Australia

Starting point is 01:18:47 has become much weaker. We've never really been that connected to the UK or Europe. So when European economies struggle, it doesn't seem to affect us very much. And through the 21st century, the key driver of our economies really has been China and Asia. So much more important for our exports and much increasingly sort of stronger connections with countries like India and so on as well.

Starting point is 01:19:13 In terms of the outlook, I think the US has bumbled through COVID, obviously, but they're getting the vaccine rollout and getting their economy back on track, and the stimulus from Biden has been enormous. So I think that their economy will do fine in the next 12 to 18 months, and that will be good for the world economy. Europe is in trouble across the board. As I say, that matters less for us, but it is a problem, I think.

Starting point is 01:19:40 But in Asia, China, of course, has done very well, but they're taking a very risky strategy and they've got this internal new policy called dual circulation, which is about supposedly still encouraging trade and exports but encouraging domestic production of goods. And so that can really only mean moving away from trade and their reliance on trade that they have had. um for us for a country like australia we're very reliant on on iron ore in particular but other um

Starting point is 01:20:16 mineral exports to china i don't think that'll go away in the next two years or so three years but there's a lot of speculation about what happens in the sort of medium term in the five to ten year horizon china doesn't want to buy so much iron ore from australia but they kind of have no other choice um and similarly with other other metals so i think we have to be prepared for that in Australia. We've probably got a five-year window, let's say. It might be three and it might be 10. But we've got a window where we can still rely on China to propel our economy. But ultimately, we need to be doing things that position us so that when iron ore prices are back at much lower levels, our economy is still able to create jobs and support people's welfare.

Starting point is 01:20:59 So that's the challenge for us in Australia. While India and so on are very important and increasingly going to demand resources as well. India's just nowhere near as big an economy as China, and I think it'll be a much more sort of sputtering economy. It's never going to grow at the 9% or 10% that China did because of all the sort of issues they've got in their economy. So we need to be finding other ways to grow and to be productive, and that, I think, is about further economic reform,

Starting point is 01:21:33 particularly around productivity efforts, but also, as I say, it's about getting our younger people to think about creating new businesses. And in that regard, we've been pretty good in the last few years in terms of digital businesses and new businesses that have been very successful. But I think we could still do better in that regard. Yeah, okay.

Starting point is 01:21:55 Yeah, no, that's summed it up pretty clearly in terms of where it's at. And, you know, relatively, if you look at how we're performing here in Australia compared to many other parts of the world, we'd certainly, while it's probably ice skating a little bit, we're still in a relatively strong position. Do you think that the sort of current strength that we're seeing in the economy is going to last? And if so, what's your projections on what that looks like? yeah i think this year the i was very worried about what would happen when job keeper came off but um obviously the numbers for unemployment in april didn't show any effect of that which is interesting um so businesses obviously have recovered enough um so in hospitality and so

Starting point is 01:22:42 on tourism it's doing okay i'm hoping to travel if things settle down in melbourne next week and it's very hard to get accommodation yeah so it's parts of the economy that we're here probably education is the exception have all have all bounced very very successfully um but you know the property market of course also has bounced but um i think the interesting thing will be next year um so if international travel comes back and um international trade comes back more to normal what what will that look like so i think um i'm not super pessimistic but i think that the bounce that we're getting at the moment is probably a bit of an excessive bounce and we might see unemployment rise

Starting point is 01:23:27 a little bit next year and the economy slow down and that will, of course, mean things like property prices also perhaps not growing. But as I said earlier, a lot of that is about confidence. So if people are creating businesses and jobs and are confident about that and enough people do it, that will keep the economy ticking along. If people start to get worried for whatever reason,

Starting point is 01:23:48 And, you know, the fundamentals underlying our economy, immigration, which drives construction and so on, are quite weak. So there is probably a lot more risk on the downside than what we would normally see, I think. Yeah, good point. I guess there's a lot of talk around the impact that immigration in particular has on the housing market. But to some degree, in my own experience, and I'd like your thoughts on this, Mark, it's a bit of a lagging impact because a lot of immigrants into the country initially are renting for a period. So it certainly puts pressure on rental markets. But it takes anywhere between two to four years before they start to put down permanent roots and buy property themselves. So there's sort of a long tail in terms of the impact that has.

Starting point is 01:24:43 And I think from where I sit, given the exclusionary exercise we're currently in, that's potentially going to provide us a second wave of demand stimulus at the point that that comes back into play. So while I think it looks to me at the moment that we've had a coiled spring over the last 12 months or so with COVID, I'm talking specifically about property now. And, of course, once you let that spring go, you're going to have a bit of a bounce given that pent-up demand. We're also suffering from very limited supply of properties that's actually been listed for sale. So if you look at the volumes, the supply of properties for sale is low, but people have got a lot of money and very cheap borrowings to get into property. So it's not surprising that we're seeing a very strong performance at the moment, but already we're starting to see signs that the wind's coming out of that sail and it'll probably start

Starting point is 01:25:49 to level off moving forward. But what are your thoughts around that? Yeah, I mean, I think the trickiest thing to know is that some of the demand from China, and this comes from students and it comes from investors in China trying to get their money out of China. So I think you're right. A lot of immigrants probably take a while,

Starting point is 01:26:10 and that's sort of the cold spring, as you sort of used the analogy there. But the one sort of sector of the market that I think is a little bit different is the Chinese market that is about people who want to own land. So in China, you don't own the land, you lease, and people don't trust what the government's going to do at the end of the lease. So there's certainly people obviously buying property in China and very willing to do that.

Starting point is 01:26:35 but they're very comfortable buying property in Australia and the other thing is as the Chinese government tells people in China not to invest money in Australia and send their kids to Australia that doesn't necessarily mean that people won't do that because the people who are most likely to come to Australia are more educated in the first place and more likely to question what the Chinese government says so and you're seeing that at the moment in the property market with still very strong uh demand from chinese buyers even though it's harder for them to get on shore so and and that's the difficult one to know in the property market i think in the next year or so is that if immigration comes back will we see still immigration from china and will we maybe see

Starting point is 01:27:17 more money coming in um from china into property because um it's a sort of safe haven um u.s dollar is called a safe haven but i think australian property is a much better safe haven than that um so but but it may be that the chinese government puts more restrictions on taking money out and makes it harder for people to do that so there's a few questions there and i think that's the big uncertainty for me i think that the driver fundamentally in the property market with immigration is is not so strong so in melbourne sydney we've basically had a hundred thousand people a year moving into our two two bigger cities and that's a big push up and the way i always think about this is that's more demand for land so land prices go up and the

Starting point is 01:28:01 property sitting on top of it is not really going up but it's sitting on land um and in the smaller cities um same same thing is going on so if you don't have people coming in you've got to have less growth in land prices eventually and um and therefore um let's go from property prices But, yeah, so that to me is the biggest question mark going forward. Yeah, okay. And beyond immigration, what other economic drivers do you think are going to impact on the property market short to medium term? Obviously rates is the big one.

Starting point is 01:28:36 I mean, what's been pushing property prices up in the last little while is just the fact that rates are so low. You can borrow it for a mortgage at such cheap rates. The Reserve Bank is more or less committed to keeping rates where they are until the end of next year um so as a borrower you can be pretty sure that rates won't got much just because the reserve bank keeps rates low doesn't mean rates won't go up by but if we start to see inflation and banks may be forced to push rates up a little bit so that that's a little bit of a risk that people should be aware of um but yeah sorry mark just talking

Starting point is 01:29:12 to that we've actually just seen in the last week uh that uh the commonwealth bank are starting to play a little bit with rates and some of their fixed rates have actually gone up which is they're the first movers in that space because the fixed rates have been extremely low you know there's a lot of banks now that are offering fixed rates with a one on the front of it and for the first time we've actually seen seen that jump so that might be a precursor to what you're talking about be yeah yeah so our banks i mean the reserve bank has been lending to banks at very low rates to some extent but our banks are still very reliant on getting money from offshore so if if there's inflation in the u.s for example which there has been and rates go up in the u.s

Starting point is 01:29:58 that will feed through into into the rates that our banks can borrow at offshore and then into mortgage rates so rates is i i'm pretty confident in the next 12 months or so rates aren't going to move a lot and so that that underlying support people's willingness to borrow a lot for housing is still going to be there um but you know that may change sort of second half of next year as it becomes clearer maybe that um that inflation's a bit higher and that rates are likely to rise after that and that will i guess what we've seen is a big run-up in prices of rates of as rates have come down ultimately rates are not going to stay where they are they're going to go up and so you'd expect to see property prices sort of flatten a little bit

Starting point is 01:30:39 or fall off when that occurs. Yeah, okay, and there's already been talk and there always is when we see sort of a booming asset market that we're currently experiencing both in property and in equities for that matter and there's been some media talk around the RBA strike government starting to play with macro-potential measures sometime later this year in terms of policy settings because they can't do much to rates. Some mixed messages around there out there.

Starting point is 01:31:16 What's your read on that situation, on what and if and when there may be some intervention as you see it rolling out? Yeah, I'm not sure. So, in New Zealand, they're introducing rules that require or only allow banks to lend based on sort of 65% to 75% of investment property rental revenue. So, rather than saying, okay, the rent's going to be $100 a week, you're only going to have to call it $70, and that will affect how much you can borrow against that investment property. So, trying to cool the market in that way, that's a pretty funny measure, actually. But more traditionally in Australia, obviously, the banks themselves have been required to make individuals put down more deposit, more collateral for investment properties. Maybe they'll tweak with that.

Starting point is 01:32:12 I know the Reserve Bank finds this a very difficult one because they know that when they cut rates to support the economy, that's going to push up equity prices and asset prices. um but but their ultimate aim is to to get the keep the economy moving and if that means that property prices are high well that's not such a bad thing what they're really worried about is a property price collapse so i don't mind if property prices go up but if they then fall 30 percent as in the u.s with the dfc that's not going to be good so that's that's the sort of balance that they are always sort of struggling with um what can we do to make sure that property prices don't crash um but by the same token uh you know the economy's their main focus so they'll they'll keep an eye on it i think what we've seen in the last sort of six to twelve months with the

Starting point is 01:33:00 bouncing property markets is a bit of a worry for them but you know the market was pretty soft before that so they'll they'll probably be looking very close to what happens in the next three to six months and then potentially making those sort of other decisions around deposits and things like that, basically making sure that the banks are sound in terms of their lending strategies. So I don't think anything is imminent on that front, but as I say, the Reserve Bank and the regulators are probably looking at this in terms of the stability

Starting point is 01:33:32 of the financial system as the underlying thing that they're looking at. Yeah, I think, I mean, talking to your point around the treatment on investors, there's been quite a bit of play in that space in recent years, but the boom in prices has been very strongly driven by owner-occupiers in the recent sphere. And I guess sort of taking that into consideration, the sorts of chances of intervention from where I sit,

Starting point is 01:34:07 I tend to agree with you that the RBA is probably less worried about an increase in property prices at this point in time because given that over half of the average Australian family's wealth sits in their property, that's probably feeding into the confidence that's keeping us spending money in the economy, which is keeping us out of recession. It's probably something they're not that tempted to play with in the short to medium term as a consequence of that.

Starting point is 01:34:39 And then as supply of properties increases, as we get back into a more normal situation, the balance in the property market will probably mean that the current heat that's seen rapid rises is going to dissipate and will sort of plateau for a period. So there may not be a need for the Reserve Bank or the government to be tinkering with lending initiatives at all, depending on the outcome of that. What's your thoughts on that? Yeah, I think that's right. It's sentiment matters as much as anything. I think the Reserve Bank has been very good in the last 20 years in terms of stating the facts, not necessarily doing anything, but even when they state the facts, it's important.

Starting point is 01:35:20 For example, Ian McFarlane in 2003 or thereabouts stated a number of times that he thought that property markets were a bit overblown. That was at the same time that Alan Greenspan, the Chairman of the Federal Reserve in the US, was saying that he didn't think there was a problem in US property markets. so very different rhetoric now just those words from the from the reserve bank governor were enough to get get people in financial markets thinking get people a little bit worried about maybe rates are going to go up and things like that and the property market here sort of flattened

Starting point is 01:35:54 out through 2003 and four and five whereas in the u.s it went gangbusters so that fact that the property market was flat meant that we didn't have as big a problem with a bubble in the property market and subsequent events in the GFC were nowhere near as damaging here as in the US or many parts of Europe. And in recent months and the last few years, we've seen similar things. The Reserve Bank is monitoring the property market. They look very carefully at leverage ratios, so how much people borrow and then how quickly people pay off their loans is something they're very concerned to keep an eye on.

Starting point is 01:36:31 you know if people borrow 90 of their property value but pay off 20 in three or four years then and that's not such a risk um so they've but they're also willing to sort of call out where they see too much growth and clearly in recent months they've been you know stating that uh they're keeping an eye on the property market as as we just discussed i think whether they take action on that basis i'm not so sure i think they'll they'll just wait it out and if you know If my read of the housing market is correct, we'll see a bit of a levelling off in the next sort of 12 months or so, and that would be fine.

Starting point is 01:37:08 I think many people say that our property prices are very high in relation to incomes and things like that, but as long as we have income growth and we've got two-income families and so on, then I don't see prices being a particular problem in terms of being too high because they're really just reflecting this um low level of high quality land in in sydney and melbourne in the inner cities in particular yeah exactly that's that's exactly right on the there's the income growth but there's also the uh the low cost of debt yes if you if you look at it in pure uh debt to income terms then uh

Starting point is 01:37:52 i can see why people are making a noise but if you look at it in terms of debt servicing terms which are very different equation uh the uh you know percentage of income going towards servicing debt relatively is is considerably less so it has has less impact as a as a consequence of that um yeah okay the i guess um uh your thoughts then on uh you know that you touched on this subject earlier in our discussion uh because again it's the old story if if the the government says black then the opposition and the media is going to say white and the the you know there's a i almost laughed actually at some of the media commentary around the the latest budget looking more like a labor budget than a liberal budget because of the the spending and yet from

Starting point is 01:38:44 from where i sit i think the the government and the reserve bank's done an exceptional job given the need to stimulate the the economy and its confidence and yes there is a deficit and yes that will be with us for a while but I'll be less worried about that than doing the opposite and finding ourselves in position like Europe and other parts of the world are trying to contend with what what's your read on all of that yeah no I think that's right certainly last year that you know the spending was absolutely necessary and and worked um what the reserve bank did as i said earlier i think a lot of people push them to do more but i think they did the right amount um and at some level there's only so much that the reserve bank can do there's only so much the

Starting point is 01:39:29 government can do as well uh so i think they struck that balance pretty well um yeah this budget most recent budget again i generally agree with the measures this year the only thing i'd say is they've got deficit projections out for a decade, and I think at some level we ought to be assuming that we can get the economy back on track in the next three to four years and be back towards surplus much more quickly than that. So I think there's some underlying sort of structural issues in the budget that have been deferred and delayed,

Starting point is 01:39:58 but sooner or later we're going to have to get back to them. But I do think this is probably an election budget and they'll probably tackle some of those issues next year. So we'll see, but that's my read on the current budget. Yeah, okay. So I guess sort of bringing that to a head, if you are a mid-30s to mid-40s couple that are sort of looking at where things are heading and looking at where to invest their hard-earned coin

Starting point is 01:40:27 outside of the obvious, which is super, what would your thoughts be around that? And I'll put the disclaimer that this is not financial advice that we're talking here. This is just your views on it. Yeah, I mean, if you're in that situation, if you've got a property with a principal residence with a mortgage on it, even though rates are low and it doesn't look like that's a great place to put your money, I think paying off your mortgage still relatively quickly, getting that mortgage to house price ratio down below 50% quickly is still as good a thing as you can do because there's always the risk that rates will rise in two or three years. So now's the time to get mortgage debt down. um and then there's then there's super outside that i think we've we've talked earlier about the fact that uh you know equity markets have gone gone gangbusters both my kids have just

Starting point is 01:41:19 finished uni and starting jobs and buying shares which i think is great um and i've encouraged them to do that but i have said that there's significant risk there right now because the markets have run so hard for so long and again been supported by low rates so yes they could keep going up for a bit longer but but ultimately when when rates go up there'll be a bit of a correction there yeah so so that's uh you know that's that's the risk but but you learn from that you learn how to understand the market and obviously uh don't don't you don't borrow into the equity market would certainly or at least be careful if you do would certainly be something that i would um advise so uh but but yeah the mortgage on your principal residence um there's

Starting point is 01:42:03 been a lot of talk about regional markets, and I think one of the things we have seen in Australia is that COVID has meant that obviously working from home is now going to be the norm at least a couple of days or one day a week for most people, and that makes regional properties much more sort of attractive and accessible. So I think Melbourne, Geelong, Bendigo, Ballarat, those sorts of markets are going to be very interesting in terms of properties uh going forward and if you can find a nice sort of um long weekender i think that would certainly be something to consider whereas uh you know in the past when people were working five days a week they really are a bit of a bit of a luxury now

Starting point is 01:42:48 they can become something that supports a very good lifestyle i think that's something that's really interesting in terms of the property market um as we speak and whether that's supported by You know, technology enabling us to work from home more going forward, but also better infrastructure, better rail connections with regional centres or not, I think is something we could still work on. So I think that's sort of the interesting one to me around regional housing markets and markets like Hobart. um maybe people will be more attracted to smaller uh smaller cities and cities with different lifestyles um because of the ability to to work from those cities in in many roles totally agree and i i think the loser in all of that is going to be the cbds of uh uh most of our capital cities uh do you have any both in the commercial office space uh

Starting point is 01:43:45 but in you know across the board pretty much a bit of a hollowing out almost in that sense what's what's your read of that and your thoughts around uh you know the future for cbd property yeah absolutely i think it's a big challenge for you know city of melbourne and so on um so student markets are obviously very much down and big question marks about how much that will come back um next year and beyond um so that support for student housing in the in the inner cities of all of our cities is well down unlikely to stay well down people's willingness to live in apartments in the inner city maybe you get the weekender and you buy an apartment in the city or near the city maybe that's a hope for the longer term but also again in the commercial

Starting point is 01:44:32 space if if people are only working three and a half days a week instead of five in the office then you only need 70 roughly of the the commercial space so that's a big challenge for i think for our inner cities is the the whole property market is likely to have some uh some factors that are working against it over the next few years obviously there's a supply demand balance there so that will eventually sort of sort itself out um you know maybe we'll we'll see i guess the student housing has been for a very particular market in in our inner cities and very small apartments very small rooms and so on maybe we'll see some of those reconfigured to be more attractive um sort of larger apartments and so on but obviously that that takes time and uh it

Starting point is 01:45:16 won't happen with all of them but no i agree with you i think that's that's a major challenge for our for our inner cities and for the um organizations that try to um stimulate growth in our inner cities is that there's there's just this big um hole coming from from covert in terms of commercial and residential uh inner city real estate yeah and i think the the sort of hidden an invisible flow-on from that is that a lot of the particularly large institutional superannuation funds are heavily invested in CBD property. Do you think that's likely to have an impact on superbalances in times ahead?

Starting point is 01:45:58 What's your thoughts on that one? Actually, that's a good question. I hadn't thought of that. But, I mean, none of them would have, you know, 10% of the portfolio in it, but they do have a lot of commercial property in particular. So that will affect their returns. I guess, obviously, they're long-term holders,

Starting point is 01:46:16 so I don't know how they, you know, if I've got an idea, but I'm not exactly sure how they price that, how often they reprice that. But, yeah, that obviously would be a bit of a drag on returns. The key for them is the rental returns and, I don't know, vacancy rates in commercial inner-city properties is well up, so those average rental returns will be down. Yeah, so that's a good question, but obviously it will affect

Starting point is 01:46:46 their returns a little bit, but as I say, I think it's a small enough percentage of their assets that it's not going to be a disaster, but it'll certainly be something they'll have to figure out how to manage. Yeah, okay. Well, look, it's been a sensational discussion on the ins and outs of past, present and future, Mark. I really appreciate you sharing your wisdom on that because it certainly puts a perspective around, you know, why things are happening the way they are and what's likely to be coming up in the near future. I'm going to sort of switch gears now and jump into what I affectionately refer to as the bushfire lightning round or the ambush series, which are just five quick questions that the listeners are always wanting to glean guest thoughts on.

Starting point is 01:47:31 So the first of those is what's your favourite quote and why? This will be an obvious one from what I've been saying. The maxim of Descartes, which is question everything. And I think you'll see that in some of my comments earlier. No, that sums it up beautifully. What about a top book that you'd recommend listeners read and why? uh it's a top book i recommend is always sort of based on my wife and his love of literature so i'm probably a bit of an outlier in this regard but i uh i loved russian literature enough as a

Starting point is 01:48:11 as a sort of high late high school student and a university student i tried very briefly to learn russian in university that that's the hardest language apparently there is but i love russian literature so the sort of simple things some of the stuff by chekhov was really really good to read and quick to read but um crime and punishment by dostoevsky is a classic that um people should read the classics i guess is my view and that's that's one of the classics for me yeah no totally totally agree um shifting gears a little bit and that's most australians still believe they pay too much tax although i think paying taxes is good because it means you're earning income but what's the top legal thing that that you've done to minimize the tax that you pay

Starting point is 01:48:54 mark so i've gone part-time this year that's been the best decision so i'm paying less tax um yeah and uh so so lifestyle thing but um we we had a holiday house that we weren't letting and i guess um you know that's a very expensive decision i think the point there is always to recognize that some the decisions that you make have financial consequences when you renovate uh your house that that's going to be a good decision potentially but make sure you don't over capitalize and um yeah um so it's similarly with with tax i think we were not letting our other house not um depreciating the asset and i think that was probably from a tax perspective it just gives us more flexibility when we do start

Starting point is 01:49:39 to do that i have started to do that yeah exactly right totally agree um back on the investment subject for a minute what's what's both the worst and the best piece of investment advice that you've received today i think the worst quite recently is to buy bitcoin again i still think this is a very risky asset and you've got to recognize it as such and you've got to understand it so you can understand that it's uh what is the what is the fundamental value and as i said earlier i just i don't see any fundamental value to bitcoin i don't think it will be a means of exchange um ultimately in terms of the best piece of investment advice i think it is just to diversify uh this risk so make i guess the tricky thing for all of us if we've got a significant

Starting point is 01:50:25 balance in super the trickiest decision is how to allocate that what what um asset allocation decision we make and we many of us don't even think about this but we all make decisions because you put your money either into balanced or equities or some mixed bonds so you have choices in your allocation of your super money and how you I guess my view on that at my age is to be have a fairly balanced allocation but if you're younger you may want to have a much bigger allocation into equities even at the moment where equity prices seem high because you've got a longer time horizon but that investment advice of diversifying and understanding that the relative risks is very important and I guess people get into trouble

Starting point is 01:51:14 where they trust a financial advisor and put all their life savings in with one particular financial advisor and one particular sort of class of investments, which can be a great strategy if it works, but it's very risky. Yeah, 100% agree. And unfortunately, I'm hearing way too many stories about people selling properties to throw it all into Bitcoin or other cryptos, and I shake my head at the risk

Starting point is 01:51:40 that they are putting themselves at, unfortunately. Okay, the final question in the series, what's a personal habit that you believe contributes most to your success today? I think in terms of investment success, again, it's diversifying. So we could have made higher returns by having more money in equities in the last few years. But I think in the long term, be realistic about what an investment return is.

Starting point is 01:52:10 Traditionally, economists would have said, you know, six percent or something like that is a is a good return seven percent um across equities and so on over over a period of a decade i think now with inflation so low you can probably bring that down to five to six so don't go chasing double digit returns anymore because that's going to be very hard to achieve uh and and i guess uh what that means is you have to you have to budget and save a little bit harder. So I think the younger people don't give up on being able to buy a property and think, well, I'm not going to do it

Starting point is 01:52:44 so I shouldn't be saving. Save in the form of super and make sure you have a budget that you're working to achieve the investment success that you need. Yeah, brilliant thoughts around that. The final question then that sort of gives you an opportunity to sort of pull the threads together on everything we've spoken about today.

Starting point is 01:53:06 If I gave you a microphone, Mark, that spoke to every single one of the 7.7 billion people that are currently alive in the world or thereabouts, and I gave you 60 seconds to talk, what would you say? I think one of the things that really drives a lot of the conflicts that we see, I think, is the fact that we're generally a very competitive species, and I think what's lost in a lot of the things that we see, both as individuals and also

Starting point is 01:53:35 some of the tension between countries is that we're all after the same things. We're all after having a supportive and loving family. We're all after peace and prosperity. And sometimes you need to step back and be generous and search for win-wins rather than trying to sort of make success by being overly competitive, incredibly competitive, by, you know,

Starting point is 01:53:58 in the extreme case looking to rip people off and climbing over others. So be generous, be thoughtful, and look after one another. I think that will ultimately make you much happier, even if perhaps you're not quite as wealthy as you might have been in that particular case. Yeah, you summed that up beautifully. I've been saying for some time that true fulfilment comes

Starting point is 01:54:20 from giving, not taking. And I think you've sort of brought that to a close beautifully, mate. Look, I really appreciate you spending some time with us today. It certainly does put an educated perspective on what we're currently dealing with, and let's face it, there's an increasing complexity and with our access to information, trying to make some sense out of that is challenging.

Starting point is 01:54:48 I think you've done a fantastic job at helping us to be able to make some sense of where we're at and what we need to be doing about it. So I appreciate your time today, Mark. No problem, Bushy. It's great to talk to you. Thank you. Cheers.

Starting point is 01:55:05 To get a summary of all this investment gold in the show notes, just email me on hello at khgroup.com.au. That's H-E-L-L-O at khgroup.com.au. Or check us out at www.bushymartin.com.au forward slash getinvested. I look forward to joining you next week for another episode of the Get Invested podcast. So thanks for listening. And as always, dream as if you live forever

Starting point is 01:55:33 and live as if you die tomorrow.

Property Hub - Investment Insights & Inspiration - Get Invested: Prof. Mark Crosby on where are we heading?

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