0:04

Australia's most powerful regulators say

0:06

higher interest rates aren't causing widespread

0:08

financial distress. The value

0:11

of lithium stocks surpasses the value

0:13

of gold stocks for the first time, and

0:15

Lennon and McCartney are back together

0:17

thanks to AI. It's Thursday

0:20

the 15th of June 2023.

0:22

Welcome to Fear & Greed, Australia's most popular

0:24

business podcast. I'm Michael Thompson,

0:27

and good morning, Sean Aylmer.

0:28

Good morning, Michael.

0:30

Sean, after the show you have an interview,

0:32

a cracking interview for investors. You're

0:34

speaking to Dermot Ryan, Portfolio Manager

0:37

at Renaissance Smaller Companies Fund.

0:40

Yeah, all about investing in small caps.

0:42

As Dermot points out, the small

0:44

cap index has underperformed the

0:46

main index and certainly the large cap index quite

0:48

substantially. So Dermot thinks maybe

0:51

it's time to have a bit of a sniff around so in these small

0:53

cap companies. He throws a few names

0:55

at us that he's interested in for sure. Well

0:57

worth a listen, particularly if you're an

0:59

investor.

1:00

Yeah, it certainly is. It is a cracker. It's coming

1:02

up a little bit later on. The main story this morning though,

1:04

Sean, the Council of Financial

1:06

Regulators, which sounds very ominous

1:09

really, doesn't it?

1:10

It does.

1:10

Has backed the banking watchdogs

1:13

enforcement of a 3% serviceability

1:15

buffer when assessing home loan applicants.

1:17

Yes. That's despite borrowers finding

1:20

it increasingly difficult to

1:22

refinance their mortgages with different

1:24

lenders at higher interest rates. Now, the serviceability

1:26

buffer is all important. It's the amount

1:29

extra that a borrower needs

1:31

to be able to afford above

1:33

the rate being charged when it gets the home

1:35

loan. It's a security measure. The problem

1:37

is that many mortgage holders have rolled off fixed

1:40

rate loans onto much higher

1:42

variable rates. What do they do? They

1:44

go and see what else is out there.

1:46

Sensible decision to do that. The problem

1:48

is the buffer prevents them from switching

1:50

loans to get a better deal because they can't

1:52

afford that extra 3%. So the argument

1:54

is it is much too high. It should only be

1:56

1% or 2%. The council,

1:58

however, which is made up of the Reserve Bank Treasury,

2:01

the Australian Securities and Investments Commission, and

2:03

the Australian Prudential Regulation Authority,

2:05

which is e- banking watchdog we mentioned, said

2:08

households are experiencing significant

2:10

pressure on their finances as they grapple with

2:12

increased interest rates and inflation. However,

2:15

they think the 3% should

2:17

remain. Their argument, which is fair

2:20

enough, is that you actually have to put that

2:22

buffer in, so if rates go much

2:24

higher, people are still able to afford home

2:26

loans.

2:27

That is a very high powered council.

2:30

And they also said that the 12 rate

2:32

rises since early May last year

2:35

hadn't triggered widespread financial

2:37

distress.

2:38

That's right. And that comment

2:40

provides support somewhat for the Reserve

2:42

Bank to keep lifting rates if

2:45

it feels it's necessary. Today's

2:47

labor force figures will give some guide on

2:49

that particular issue. The council,

2:51

which is chaired by Reserve Bank Governor, Phil Lowe,

2:53

found that the cost of Living crunch, higher

2:55

mortgage bills and climbing rents has

2:58

left some households suffering significant

3:00

pressures on their finances. But

3:02

it also said most households

3:05

are well placed to manage the impact on budgets

3:07

due to strong labor market conditions and

3:09

sizeable saving buffers.

3:12

Put all that together in the Mixmaster, Michael, in the Mixmaster-

3:16

You do love your bizarre cooking analogies.

3:17

I love my Mixmaster. Where

3:21

you do end up with this we

3:23

hear plenty about higher rates and

3:25

cost of living pressure and certainly it's a big

3:27

political issue, but the regulators

3:30

are saying, " Yep, it is an issue,

3:33

but we're not seeing a lot of distress out

3:35

there yet," so they're perhaps a little

3:37

calmer about it than the politicians are.

3:40

I just love the Council of Financial

3:42

Regulators. It

3:44

sounds so cool. When I picture

3:46

that, I picture the meeting in a very dark

3:48

room all wearing kind of cloaks

3:52

and things and maybe Yoda

3:54

is there?

3:55

Oh yeah. Led

3:57

by Yoda Lowe.

4:00

Do you reckon Phil Lowe has ever been called

4:02

Yoda Lowe before?

4:05

He's a very thin man. Maybe.

4:08

Yoda Lowe sounds like someone who would come from Switzerland.

4:11

Well, that's got a Sound of Music sort of feel

4:13

to it, hasn't it? Yoda Lowe.

4:13

It certainly does. Goodness me, you've taken

4:15

us to a strange place, Sean. Local markets.

4:18

How did they perform yesterday?

4:18

The S & P ASX 200

4:21

closed up 0.3% to 7, 000...

4:24

Yoda Lowe. That's

4:27

got me going. Anyway, the

4:29

market was up 0. 3% to 7, 162

4:32

points. Good day for lithium stocks,

4:34

not so much the healthcare sector, particularly

4:37

CSL. More on that shortly. Materials

4:39

stocks were easily the best performers while

4:41

financials also did well. The healthcare sector

4:43

tanked while tech stocks had

4:45

a rough day. Now, mostly it was about

4:47

China's decision to cut some interest rates

4:50

on Tuesday in expectations

4:52

of a further stimulus in the world's second

4:54

largest economy. That helped push up

4:56

the price of iron ore, which is a big ingredient

4:59

for steel, of course. As a result, BHP

5:01

share price jumped 3.6%, Fortesque

5:03

Metals was up 4.3% and

5:06

Rio Tinto rose 2. 9%. Otherwise,

5:09

Macquarie Group, Westpac, National Australia Bank,

5:11

and Woodside all rose more than 1%. On the

5:13

flip side, WiseTech Global and Zero were off around 2%,

5:16

and Aristocrat Leisure was down 1.5%.

5:19

And what about international markets?

5:20

I mentioned higher iron ore prices. That

5:22

was the big news yesterday. Otherwise, not

5:25

a lot of movement going in on

5:27

commodities. The Aussie dollars is doing pretty well though. It's

5:29

now buying just under 69 US

5:31

cents.

5:32

All right. We'll be back in a moment with the rest of the

5:34

day's. Business news. Sean,

5:42

as you mentioned earlier, CSL's share price

5:44

tumbled 7% yesterday after

5:46

the blood plasma group said earnings

5:48

hadn't met expectations with

5:50

weak margins in its blood collection centers.

5:53

The third largest company on the ISX

5:55

also operates a drugs division and yesterday

5:57

flagged the impact of generic drugs competing

5:59

against its iron deficiency

6:01

drug. While earnings this financial year will

6:04

come in at the top end of guidance, it's

6:06

the forecast for next year that sent the share price

6:08

lower. Profit margins at blood

6:10

collection centers have been hurt by Covid.

6:12

People were more reluctant to give blood. That meant

6:15

CSL had to up incentives; normally

6:17

that's payments to donors. That's still

6:19

hurting. The bad news is that given competition

6:22

in the market, CSL still has to pay those

6:24

incentives, those higher fees, hence

6:26

profit margins are being squeezed. Its

6:28

share price of around $ 287 a share

6:30

is now about the same as it was immediately before

6:33

the Covid outbreak.

6:35

7%. That is a big drop. So

6:37

investors would've really taken a bath on that one, a

6:39

blood bath, if you will.

6:42

Oh, I was going to make a serious comment about it because CSL

6:44

always upgrade. They never downgrade. They've

6:47

got a new CEO, it's his first time and he

6:49

comes and downgrades and you have just,

6:52

I don't know, trivialized it.

6:53

I have, and it was quite a lengthy

6:56

setup for it as well.

6:56

Yeah, yeah.

6:58

Anyway, moving on. Sean, we move

7:00

on to quite a serious story here. Federal

7:02

Independent Senator Lidia Thorpe,

7:05

has in parliament accused

7:07

Victorian Liberal Senator David

7:09

Van of " harassing"

7:12

and again, " sexually

7:14

assaulting" her, then hours

7:16

later, she withdrew the allegation.

7:19

The allegations were made by Thorpe

7:21

Soon after question time yesterday

7:23

as Van made a speech accusing

7:25

the Labor Party of disgraceful

7:28

behavior in its handling of the Brittany

7:30

Higgins sexual assault allegations. As

7:32

Van spoke, Thorpe could be heard

7:34

interjecting and calling out the word perpetrator.

7:37

And then again, I quote, " You can talk."

7:40

Senate deputy president Andrew McLaughlin attempted

7:42

to stop Thorpe from interjecting, according

7:45

to the Sydney Morning Herald. Then the former

7:47

Green Senator Rose on a point of order and said, "

7:50

I'm feeling really uncomfortable

7:53

when a perpetrator is speaking about

7:55

violence." McLaughlin

7:57

replied, " That's

7:59

inappropriate, and I have to ask you to withdraw

8:01

that." Then Thorpe responded,

8:04

and again, I quote because it's important that we get

8:06

this exact, " I can't because

8:08

this person harassed me, sexually assaulted

8:10

me." She went on, " And to have

8:12

him talking about this today is an absolute

8:15

disgrace on the whole party." As

8:17

Thorpe sat down, McLaughlin said he'd

8:19

have to refer her comments to the Senate President

8:21

Sue Lines. Van then raised to his

8:23

feet and said, and I quote, " I utterly reject

8:26

that statement, that disgusting

8:28

statement outright, it is just

8:31

a lie and I reject it." Hours

8:33

later, after Van's lawyers had been in touch

8:35

with Thorpe, she withdrew

8:38

the comments and said she'd have more

8:40

to say on it today.

8:41

Yeah, very serious story there out of Canberra, Sean.

8:43

Now, mentioned this one at the top of the show. The value

8:46

of ASX listed critical minerals companies

8:48

has surpassed the value of gold stocks

8:51

for the first time demonstrating the weight

8:53

of money going into green transition companies.

8:56

As of Tuesday nights close, the value of Major

8:58

ASX listed critical minerals

9:00

companies was $ 86.

9:02

2 billion. That's

9:05

up $ 8. 6 billion in the past

9:07

decade. According to the Financial Review, the basket

9:09

of the 25 companies that comprised the S & P ASX

9:12

all ordinary gold index was

9:14

86.1 billion, 0. 1 of a billion less.

9:18

Companies that mine minerals such as lithium

9:20

rare earths, graphite and nickel have gained favor

9:23

over the past decade, and particularly in

9:25

recent years as governments declare them critical

9:28

to de- carbonization efforts and national security.

9:30

There are now 88 lithium producers

9:33

or explorers on the ASX. That's

9:35

about 4% of the total

9:37

number of companies on the (inaudible)

9:40

. Australian miners are now the world's

9:42

biggest producer of raw lithium and

9:44

one of the biggest producers of rare earths outside

9:46

China.

9:48

Sean, senior executives at some of Australia's

9:50

largest listed companies, pocketed

9:52

average pay rises more than

9:54

double the rate of inflation over

9:56

the past year.

9:57

The base salaries of managing directors across ASX

10:00

listed company rose an average of 14% while

10:02

CEO salaries rose an average off 15%

10:06

according to the latest Board and Executive

10:08

Remuneration Report released by the Governance

10:10

Institute of Australia. Chief

10:12

Executive of the Institute, Megan Motto

10:14

said with AGM season looming,

10:16

boards will need to have a strong narrative around

10:19

their remuneration policies to stand up to shareholder

10:21

scrutiny and manage reputation

10:24

risks. The report also highlights that 42% of ASX

10:27

listed board directors and 71%

10:30

of senior executives received a pay

10:32

rise in the last 12 months. And

10:34

just before we leave the subject of pay,

10:36

the Reserve Bank yesterday came out and said it

10:38

had underpaid 1, 173

10:41

current and former staff during

10:43

the past seven years. It's

10:46

pretty much the most prestigious organization

10:48

yet to be involved in the underpayment

10:51

of workers. Of course, there are many companies

10:53

involved in that.

10:54

Well, absolutely, and everyone

10:56

would be looking at this and going, " If it could happen to them,

10:58

it could happen to any of us."

11:00

Exactly right.

11:01

Now, Sean, IAG is lifting

11:03

Australian home insurance prices

11:05

by 20% and car premiums

11:07

by 14%, putting even

11:09

more pressure on households.

11:11

Yep. The price rise has prompted IAG

11:14

Chief Executive Nick Hawkins, to say he

11:16

had never in his career seen

11:18

the whole industry push through such hefty

11:20

increases across a range of insurance

11:22

products. " Increasing cost pressures

11:25

are behind the rise," he said. IAG,

11:27

one of Australia's two biggest home and car insurers

11:30

with brands including NRMA and CGU, "

11:33

Is not price gouging customers,"

11:35

Hawkins said. Instead, it's trying

11:37

to get a reasonable return taking into account

11:40

the material input cost changes that

11:43

IAG and the industry have had to put up

11:45

with over the past 12 to 24

11:47

months. IAG share price closed

11:49

up 2. 6% yesterday.

11:52

Maggie Beer, the gourmet food

11:54

producer, is looking to quadruple

11:56

sales within five years. That's a

11:58

fairly lofty goal, isn't it? In part by pushing

12:01

into pasta products and non- food

12:04

lifestyle, entertaining and gardening

12:06

products.

12:07

The company ain't big, but it is often

12:10

in the news. It's had a rough

12:12

2023 with its share price

12:14

down more than 30% following

12:16

weaker earnings on the back of higher supply

12:18

chain costs and problems at its Paris

12:21

Creek Farms dairy and yogurt business.

12:23

Also, it bought online hampers business,

12:26

Hampers and Gifts, during the pandemic. That

12:28

business has suffered in recent quarters. It's

12:30

got a new Chief Executive, Kinda Grange.

12:33

She talked up the company yesterday saying she wants

12:35

to boost revenue to $ 300 million within

12:37

five years. She'll push the company into

12:39

pasta and sugo ranges and

12:41

also add to its ice cream offerings.

12:44

In non- food, the company will expand its range

12:46

of baking and cooking products under the Maggie

12:48

Living banner. That currently includes wooden

12:50

spoons and rolling pins, Michael. I love that.

12:53

Also, it's going to expand into gardening

12:55

tools and table setting products, which

12:57

of course begs the question, what

13:00

is a table setting product? Is it

13:03

a product that you use to set the table or

13:05

is it just something that makes the table look good when

13:08

it's set?

13:08

Well, I automatically assumed it was

13:10

cutlery.

13:12

Is that all?

13:13

Well, I don't know. I'm just intrigued about the gardening

13:15

tools expansion. I

13:18

just find that fascinating. Out of everything they could expand

13:20

into that they go into gardening

13:22

tools.

13:23

Do you know what, something about the wooden spoon, which I think

13:25

is totally fascinating. It

13:28

is one of the few products

13:31

that has never improved over thousands

13:33

of years. So thousands

13:36

of years before us, people were using wooden

13:38

spoons and we're still using wooden spoons because it just

13:40

doesn't transfer heat.

13:41

You know what, I reject that entirely. What

13:44

about your silicon spatulas and things?

13:46

They are futuristic and you use those

13:48

for stirring and it's so much better because

13:50

it doesn't absorb any of the flavor or any

13:52

of the staining if you're doing a pasta product.

13:54

I'm not absolutely... You may be a hundred

13:56

percent correct. No problems there. But

13:59

the wooden spoon is something that you was used

14:01

a thousand years ago and is still used today.

14:04

I don't think the silicon products were used a thousand years

14:06

ago.

14:06

No, they weren't. And I say

14:08

that the wooden spoons should no longer be used. I'm

14:10

calling for a really full boycott. God,

14:13

that got out of hand quickly, didn't it?

14:14

It did. Last story. Last

14:16

local story, Michael.

14:18

Last one. Qantas. It's an airline story,

14:20

Sean, I love airline stories. Qantas

14:23

has launched direct flights from

14:25

Auckland to New York.

14:27

The first flight departed yesterday,

14:29

and Qantas Chief Executive, Alan Joyce, said

14:32

that travelers would like

14:34

the longer flight because it's less painful.

14:37

Instead of transiting in Los Angeles, passengers

14:39

can now fly through Auckland and then

14:41

onto New York. Qantas will boost a number

14:43

of flights each week to four from the current

14:45

three to meet what Mr. Joyce described

14:48

as very strong demand.

14:50

Now a direct Melbourne and Sydney to New York flight

14:52

is scheduled for 2025 when

14:54

the next generation Airbus A350-1000

14:57

planes arrive. Of course, we've done

14:59

that story before. Qantas expects it will earn about $ 400

15:01

million in extra revenue with travelers

15:04

expected to pay a fair premium

15:07

to take those flights. More of the cabins

15:09

will be dedicated to business, first and premium

15:12

economy seats.

15:13

All right onto international news now, Sean.

15:15

Russia has unveiled a windfall tax

15:18

on big companies to raise an estimated

15:20

300 billion rubles

15:22

or $ 8 billion AUD from

15:25

its oligarchs as the war in Ukraine

15:27

continues to really stretch the Kremlin's

15:29

finances.

15:30

The proposed levy will require

15:32

Russian groups making

15:34

profits of more than 1 billion rubles a

15:36

year since 2021 to pay

15:39

a one- off tax worth up to 10%

15:42

of the gains, according to report in

15:44

the Financial Times. Could you imagine that

15:47

happening in Australia or the US?

15:50

One senior cabinet official claimed

15:52

the idea for the levy had come from the companies

15:54

themselves who realized

15:57

they had made, I quote, " gigantic"

16:00

profits during the period that needed to be

16:02

properly taxed. It's

16:06

one of a series of measures to bolster the

16:08

Kremlin's coffers after falling oil revenues

16:11

under Western sanctions and a surge in war

16:13

related defense spending led

16:15

to Russia running up a 3. 4

16:17

trillion ruble budget deficit

16:20

in the first half of this year.

16:22

Sean, Donald Trump yesterday morning pleaded

16:24

not guilty to federal criminal charges

16:27

that he unlawfully kept national security

16:29

documents and lied to officials who

16:31

sought to recover them.

16:33

I know we should ignore this story, but

16:36

we can't. Trump called the charges

16:38

the most evil and heinous

16:40

abuse of power in America's history.

16:42

He went on to say that President Joe Biden

16:45

had engaged in political persecution

16:47

like something straight out of a fascist

16:50

or communist nation and Department

16:52

of Justice Special Counsel, Jack Smith,

16:55

who brought the case against Mr.

16:57

Trump, he called him deranged.

17:00

Mr. Trump, who if convicted

17:02

can still campaign to be president and

17:04

wouldn't be barred from taking office, is

17:07

beating his closest Republican

17:09

rival by 30 percentage points

17:11

in the polls. He's also holding

17:13

a winning margin over Biden, 45.5%

17:17

to 43. 7%.

17:18

All right, one last one, Sean. Mentioned this one

17:20

at the top of the show. This is pretty extraordinary.

17:23

More than 50 years after the

17:25

Beatles broke up, founding member

17:28

Paul McCartney says, artificial intelligence

17:30

has helped create one

17:32

last Beatles' song that will

17:34

be released later this year.

17:35

" The song was made using

17:38

a demo tape with John Lennon's

17:40

voice," McCartney said in an

17:42

interview with BBC Radio 4.

17:44

Using artificial intelligence producers

17:46

could take Lennon's voice and, "

17:49

get it pure" as McCartney

17:51

put it, and then mix the song.

17:53

Of course, Lennon was killed outside his Manhattan

17:55

apartment building in December 1980.

17:58

His widow Yoko Ono sometime

18:00

afterwards gave the demo tape to McCartney.

18:03

Two other songs in that tape, Free as a Bird

18:05

and Real Love were later completed

18:07

by the three surviving Beatles, or three surviving

18:10

at that time, and they were released

18:12

in 1995/1996.

18:14

Now, there's going to be one last Beatles

18:16

song. Incredible.

18:18

Yeah, it really is. Okay, up next

18:20

is the Fear and Greed daily interview

18:22

with Dermot Ryan, Portfolio Manager

18:25

at Renaissance Smaller Companies

18:27

Fund.

18:28

All about small caps and the fact

18:30

that they have been hammered in recent times,

18:32

but Dermot thinks might

18:34

be time to have a look at them again and he gives

18:36

us a few suggestions about the ones he likes.

18:38

Great chat.

18:39

Yeah. We're not an investing podcast, but it's well worth

18:41

a listen. You should get professional advice

18:44

before making any investment decisions and

18:46

also while you're at it, have a listen to the

18:48

new episode of How Do They Afford That, which came

18:50

out yesterday. This week's episode

18:52

is all about car loans and car leases

18:55

and basically how to make those kinds of things work

18:57

for you. Thank you very much, Sean.

18:59

Thank you, Michael.

19:00

It's Thursday the 15th of June 2023.

19:02

Make sure you're following the podcast and

19:04

join us online on LinkedIn, Instagram,

19:07

Twitter, and Facebook. I'm Michael Thompson

19:09

and that was Fear and Greed. Have a great day.