179 Christopher Joye Trumps Tariffs How The Trade War Will Hit Australia

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I'm Mike Boris, and this is Straight Talk.

Chris Joy, welcome to Straight Talk.

Thanks for having me, mate.

So, you know, you're still the, you know, like, I know you're downplayed,

but, you know, you're a portfolio manager.

This is what you like to describe yourself as, amongst many other millions of things

that I know you do, which we won't talk about today.

Portfolio manager at Coolabar.

Tell me a little bit of the story about Coolabar, in terms of what you are doing now.

Like, what's Coolabar doing right now, in terms of its investors?

Yeah, so we run $15 billion.

Across about 50 portfolios.

I have 53 professionals around the world.

We have offices in London, Miami, Auckland, Sydney, and Melbourne.

I'm smiling because you've known me since I was at university.

And you've kind of backed me the whole way along,

so I really appreciate your support, Mark.

It's got nothing to do with me, mate, but you've done it all on your own.

By the way, for those guys who don't know, this bloke is the most dynamic,

hard-working boss that I've ever met in my life.

And he's got a million ideas, and he actually executes on them,

which is the reason I backed him.

I did it purely out of economics, from my own point of view,

and I did very well out of him, so don't get him wrong.

Don't misinterpret.

But I did back him, and I believe in him, and I've known his family for a long time, too.

But, mate, what are your portfolios covering off now?

So originally, we did an enhanced cash fund,

but you've got a lot more things going on now.

Yeah, so today we run enhanced cash strategies, long-short credit strategies.

I mean, we do everything in fixed income, sovereign strategies.

Today.

Today.

Today we're the biggest trader of Aussie Commonwealth government bonds in the world.

So we are about 5% to 6% of the total market turnover.

I think we're bigger than anyone, according to my guys' estimates.

But I have 53 guys around the world and girls.

We have 12 traders, 19 analysts.

And we really specialize in just pricing the correct or fair value interest rate

for a bond to pay us.

Australian assets, huh?

Global.

Global assets.

Very global, yeah.

So two-thirds of our trading.

We trade about $1 billion.

We trade about $1 billion a day.

Last year, we bought and sold close to $150 billion.

But our edge is we're highly quantitative.

So we have 80 different bond pricing models we use around the world.

But really what we're trying to do is conceptually simple.

What interest rate should CBA pay us on a three-year senior bond?

Or ANZ pay us on a five-year subordinated bond?

Or Australia pay us on a 10-year government bond?

And we do that all around the world, all day.

And we're incredibly active, very systematic, very quantitative,

and just very rigorous in figuring out what the fair value interest rate is.

And what we really want to do, mate, is find a bond paying 7%

that should only pay 6.5%.

And when that interest rate drops down to our fair value target,

we get a little bit of price appreciation.

And then we rinse and repeat.

You get a capital gain.

Yeah, get a capital gain, exactly.

And then today we do offer strategies that actually have very high yields as well.

We use some gearing.

So our floating rate high yield fund, which is also available as an ETF,

the ticker is YLDX,

it's paying about a 7.5% weighted average interest rate on its portfolio.

And the portfolio is ostensibly very high grade.

So the portfolio is 70% major bank senior ranking bonds

and 30% major bank subordinated bonds.

The average credit rating is very high at A+.

It's daily liquid.

It's floating rate.

But we use about 65% gearing to boost the interest rate.

So the bonds are paying about 5% and we're getting 7.5%

because we're using that gearing to boost the interest rate on the portfolio.

But Cool Bar Capital Investments, we set up in 2011 with a lot of help from you

and your nephew, Luke, still works for me.

We were just talking about the fact that, Luke, if you're listening, mate,

you could emulate your uncle's aesthetic appeal and dress sense.

Luke really struggles with the way he presents himself.

That's because of his father.

He's my brother.

I blame my brother.

Yeah, Adrian.

But Luke's our chief operating officer.

Brilliant boy.

And so, yeah, that's kind of what we do.

We just trade more actively in Australian fixed income, I think,

than any other party locally.

But we are one of the most active traders in the world.

So over the last 24 hours, we probably traded a billion dollars Aussie

in the US and European.

And that's why we need a global team and global offices.

We just opened up the Miami office.

We've got 10 guys in London, five traders in London,

five analysts in London.

And no one really does what we do.

Like, we're very differentiated in terms of our approach.

Typically, in fixed income, it's just you hold to maturity.

You buy a bond, you get the yield on the bond, less the fees.

You don't trade it around.

And if you want more yield, you take more risk.

You take more liquidity risk or more default risk

or more interest rate risk.

And we don't do that.

We focus on super liquid bonds.

Very low volatility that are floating rate

that really don't have any default risk.

And we generate the total return through trading.

So in the last 12 months, our floating rate high yield fund

and our long-shore credit fund would have returned 9% to 10% after fees.

And they're currently paying yields around 7%, 7.5%.

So that means, by definition, you've got to understand

the interest rate markets, you and your team, that is.

So let's talk about Australia.

We're in the middle of an election period, so it's a bit tricky.

Let's park the election period to the side.

You know, today, on the day we're doing the podcast,

we've got a Reserve Bank board meeting and there's probably no point

because by the time this goes down, the decision's already going to be made.

But if I look forward to May, the May meeting,

which I think is around 17th or 18th of May,

off the back of the April numbers, which will be the March quarter numbers,

which are pretty important to come out,

where do you guys see the official rate?

Of interest rates in Australia.

And I'm not talking about bond markets, I'm not talking about BBS,

I'm talking about just the official rate,

which off the back of which, you know, home loan rates get set.

Where do you see official rates for the calendar year of 25?

And you can be, tell me subject to this subject,

because of course we'll be subject to the data.

Where's it going?

Yeah, so in 2023 and 2022, we argued rates need to go a lot higher.

And I think some folks were calling for rate cuts in 2023

and we said, no, they need to go higher.

RBA only lifted its cash rate to 4.35%.

Pretty much every other developed central bank,

New Zealand, Canada, UK, US, went to 5.5 and a half.

And in 2024, there were a lot of calls for rate cuts, rate hikes.

The inflation data was pretty brisk in 2024.

It actually got revised up.

If they'd had that information, the revisions,

they almost certainly would have hiked once more in 2024.

But when they had that opportunity to hike,

they didn't see that revised.

They didn't see that revised data, but they didn't cut in 2024.

And that was it.

Our view was they're either going to hike in 2024 again

or they're not going to cut.

And a lot of people, the market, for example,

the financial market was pricing in quite big rate cuts

from the RBA last year.

And we said, that's horseshit.

That's not going to happen.

Even at the beginning of the year.

Yeah, you're exactly right.

Like at the start of the year, and we look at the Fed,

at the start of the year, the market was pricing

in 175 basis points of rate cuts from the Fed.

And we said, that's BS.

It's not going to happen.

They're going to.

It's going to be cut by a fraction of that.

And the market was pricing the Fed starting to cut in March,

and then they had the RBA a bit later than that.

And, of course, the RBA didn't cut at all,

which was the right decision.

And the Fed only started cutting in September,

and they only cut by 100,

and now they're completely on the sidelines.

But in December this year, we started publishing.

I wrote a weekly column for the Financial Review.

I started saying in the AFR that I thought they'd cut in February.

Why?

Yeah.

It changed your mind.

Yeah.

So not the data per se, but in December,

the RBA completely changed their tune,

and they surprised everyone.

They shifted to something called an easing bias for no reason.

But we thought we figured out why they shifted.

And that was because we knew in December the inflation data

the next month in January, and they met in February,

would be soft.

You're talking about the December quarter?

Yeah, December quarter.

Yeah.

So the December quarter data.

0.5 trim mean, I think it was.

That's right.

Very good memory.

Yeah.

So we knew it was going to print 0.5.

Yeah.

Well, that was our forecast, and we published that number in December.

And for statistical reasons, there was good grounds to believe the final quarter of 2024

was going to be a soft print.

So just to explain, Chris, a little bit more about that.

So just for our audience sake, because he's one of the fastest talkers I know,

because he's one of the fastest thinkers I know, but just to put it into context,

explain why 0.5 for the December quarter, in other words, for the last three months of

2024, giving you a 0.5, why is it important relative to where the Reserve Bank wanted to be?

It wants to be between two and three.

Why is that the case, that quarter?

Why is that quarter so important?

Well, a 0.5 outcome would imply that on a short-term basis, the core inflation rate

in Australia was actually hitting the bottom of the target band.

Like round two.

Yeah, exactly.

Four times 0.5.

Because they target officially the midpoint of two to three.

So they target-

They target two and a half.

Yeah.

And 0.5 is actually at the bottom of that range.

But is that correct?

Can I just say just that?

But historically, though, they've been only interested on the historical inflation,

which is the 0.5 for that quarter, but every other quarter before that would have given you a 3.2.

Correct.

Why do you think they changed their-

Well, you know, so this is the little puzzle.

Yeah.

Okay, so-

This is the puzzle I don't get.

Well, I think it's very easy to understand what happened.

So-

Michelle Bullock, a few weeks before the December board meeting, had said,

we need at least two quarters of soft inflation data or positive inflation data to be comfortable

that we can lower rates.

And then in December, we all wake up and she turns around and says, in her statement after

the board meeting, that basically they've adopted an easing bias and they're laying

the groundwork, we felt, to cut in February, and there was only one new data print available

between December and the February.

Which was the January release, which was the fourth quarter data.

So she kind of had busted her own decision-making rule that she'd announced only a few weeks

prior.

So you take the fact that you've got this inconsistency in their messaging, why are

they so keen to set up the grounds for a potential easing in February, and the fact that they

knew and we knew that we were forecasting a 0.5 trim mean print, and it printed, took

0.5 for the fourth quarter, which was implying that it was annualizing around two, but crucially,

the trajectory.

The data was hitting, even though the 12-month rate might have been above three, the trajectory

of the data was heading towards their target.

And remember, they think that the normal or neutral interest rate in Australia is around

three and a half.

There have been some recent reassessments of that where it might be closer to three.

But if they're at 4.35 and they think that through the cycle, interest rate that is neither

stimulatory for the economy or contracturing is around three and a half, you can mount

the case if you're them and you want to cut.

And you're a bit dovish, and maybe you're a bit politically compromised, that it would

be pretty nice to kind of punch out an interest rate cut in February, knowing that an election

would be held after then, and that cutting in the middle of an election in April would

be difficult, right?

Which is now.

Which is now.

That's the situation we sit in.

So we did not think they should cut.

So I was very clear.

I wrote this repeatedly in the financial review, and I think everyone understands this.

We said, we don't think there's any case to cut.

Yet.

No, but we think they will cut in February.

Yeah.

Yeah.

Yeah.

Yeah.

We forecast the February cut.

Okay.

Yeah.

Yeah.

Yeah.

A hundred percent.

We're very, very clear.

I wrote it repeatedly.

We don't think they should cut, but we think they will cut.

And people were a bit confused because we'd been very hawkish in 2024 saying no cuts and

no case for cutting.

But I knew people would get confused, so we made it very, very explicit that we thought

they would cut in February, but we didn't agree with the logic, right?

Because by her own logic, she needed two quarters of data, and suddenly she's very comfortable

with one quarter of data.

And the key point is the 0.5% trim imprint was statistically

biased.

So all the smart forecasters knew that it was going to print soft for some statistical

reasons, right?

So it wasn't necessarily a high quality signal.

And then they cut in February.

So then this all begs the question, the puzzle is, well, why did they cut?

If you know what we know, which was maybe it was statistically biased, the cost of living

subsidies that Jim Chalmers has given the community, and that the state governments

have also replicated, they are sandbagging the inflation data.

They're artificially suppressing the inflation data.

They're doing that deliberately.

They're doing that deliberately.

They're doing that deliberately to try and get the RBA to cut.

And lo and behold, they've cut.

But obviously, when their cost of living subsidies expire, the data pops back up.

And my simple kind of calculus is Chalmers appointed Michelle Bullock.

So he single-handedly selected her.

And it was a controversial appointment in the sense that he was expected to appoint

someone outside of the bank, and he went for the insider.

So he hand-selected Michelle Bullock.

He hand-selected her deputy, Hauser.

And he's appointed a lot of the board members.

And now there's this new committee that will set interest rates.

And he's also selected.

So do you think it was political?

Do you think there was – I don't think he – I'm not asking, did he ring up and say,

listen, I want a rate reduction.

But I have to tell you this.

Well, we now know, actually.

The Financial Review has published a lot of information on this.

He's jaw-boned the heck out of the RBA.

Like, he's absolutely put them under enormous pressure.

And you've got to remember, his idol is Paul Keating.

He wrote his PhD on Paul Keating.

And Paul Keating was famous for jaw-boning and haranguing the RBA.

And so I just think he's pulling straight from the Paul Keating playbook.

I actually don't know.

I don't have a huge issue with it at all.

Like, you know –

Well, Costello used to do it against the banks.

Yeah, like, there's a lot – you know, people say that the RBA is politically independent

and the politicians shouldn't give them heat.

I agree, like, the politicians shouldn't create too much heat for them.

But if he wants to have a go and say, hey, here are all the reasons I think you should cut,

I personally think he's entitled to make that case.

So if Jim Chalmers is listening, I would just say, dude, I've got no problem with you harassing her.

But he did.

Like, that's very clear.

AFI has published a lot of stuff showing that –

but, like, you know, my understanding is he put a lot of pressure on the board

and he has an appointee to the board.

He's Treasury Secretary as well.

So Steve Kennedy sits on the board.

But that board didn't meet at that meeting, though.

The new board didn't meet at that meeting.

The meeting at this meeting, at the April meeting, but they didn't meet in February meeting.

No, no, but Steve Kennedy sits on the –

On the current board, the old board, yeah.

Who works for Chalmers.

Yeah, yeah.

Chalmers has pressured the RBA much more directly than any recent treasurer.

Except for Paul Keating in the 90s.

Yeah, yeah.

But by the way –

Yeah, yeah.

Yeah.

Again, I'd say I have no problem with that.

I don't think it's appropriate.

My mate John Keogh at the AFR, he appropriately, you know, says that that's inappropriate.

I think I can perfectly understand how people think that's inappropriate.

But I say fair play to Jim Chalmers.

Like, if I was in his shoes, I'd probably be putting pressure on the RBA.

I've got no problem.

He can make the intellectual case.

Like, it's a – you know, we have free speech.

Sure, we recognize they're politically independent.

But there's no problem with politicians prosecuting their intellectual agenda

like, you know, I think he should be doing everything possible.

If he honestly believes, and he probably does believe, that rates should be lower,

and our mate Stephen Koukoulis has argued, you know, forever and a day rates should be lower,

he obviously is very sympathetic to the Labor cause.

Although he and I disagreed on that February meeting, as I said,

based on what they've done historically, we should not get –

we will not get a rate reduction in February.

I think we'll get it later on in the year.

But I didn't know –

Well, he knows.

I mean, I was consistently – like, we publish relentlessly.

He and I discussed it.

Koukou and I discussed what you were publishing.

Yeah, yeah.

So we called the February cut very, very clearly.

But coming back to – I think the interesting thing around the political nexus is what we know is

Chalmers has put a lot of pressure on – directly on Bullock and on the board.

But I think that's fine.

Like, they can make their case.

But the RBA needs to be big and strong enough.

Like, we're all grown, you know, men and women.

So were you disappointed in the way she came out in her press conference after

because she then sort of looked like she was resigning back from her position?

It's ridiculous.

It's ridiculous.

I'm disappointed in the –

I was.

The RBA.

So the RBA made – there was no intellectual or evidentiary basis based on their decision-making

framework that they'd set up that we need two quarters of data a couple of weeks before

the December meeting.

And then suddenly, something happened in December where they were laying the foundations for

a political cut.

It was a political cut because they knew they were going to get that soft print.

And that was the perfect excuse to cut.

And as soon as they went to that easing bias, the market had it like 70% priced.

And they know that if the market's got it priced, then it's very hard for them not to cut

because they can then say, well, the whole world thinks we should cut.

She boxed herself in.

Yeah.

No, but that was deliberate because what the RBA says, well, market expectations.

You know, every bond trader on the planet thinks we should cut rates.

It's obviously the right thing to do.

And so they cut rates.

And, you know, by the time they came to the meeting, I think it was like 80% priced.

And they could have eviscerated the pricing.

It takes 30 seconds for Bullitt to stand up in January and say, oh, we did – they – she

has no problem.

And on numerous occasions – and she did this after the February meeting saying she

thought that market pricing was junk.

So she could have set up, you know, that conversation prior – in January at any point in time

they could have said – and this is another reason why I was very confident they were

cutting – they did nothing to dispel market pricing.

And they often do.

They did no preconditioning.

No.

Well, but they just have to give a speech and say, well, respectfully, we completely disagree

with market pricing.

They do that all the time.

They didn't engage in any of that rhetoric.

So that's a bit – later on was there then.

Yeah, it was later on was there.

That's why we were kind of like –

That's why I was saying it was later on was there.

But interestingly, and this is where it gets all the more absurd, after they cut –

That's what I'm saying.

They never cut more than – just once.

Like, that's just, you know, an irrelevancy.

They never cut only once.

Yeah.

So they never cut only once.

I think I said more than once.

Yeah.

So they never only cut once.

Yeah, it's a series.

And after they cut, the most ridiculous narrative was, oh, it's kind of more or less one and

done.

And that market pricing, which was for a very, I thought, reasonable – and Kukini, I would

I think be at one with this.

The market was only pricing two and a half more cuts throughout the whole year of 2025.

And she said, you know, market pricing was unrealistic.

And she and her proxies at the RBA went out on this campaign to completely dismiss market

pricing.

I just think it's madness.

So if you're going to cut once, presumably there's a case – like, you want to move

the cash rate meaningfully and materially, and 25 basis points is not meaningful material.

It does nothing to the inflation.

It does nothing to the inflation data, according to their own modelling.

It certainly does nothing to promote anything either.

It's not a stimulation.

Yeah, so where it's a little complex and nuanced is this.

One cut statistically does nothing, right?

However, I argued prior to the cut that one cut is meaningful.

I thought they'd cut more than once, and I think they will cut more than once.

I think they'll cut in May.

There's a possibility they cut today.

I think it's less than likely they will in the middle of the campaign.

So they're not going to cut today.

There's not enough data around that.

I think there's a good chance they cut in May.

And –

Well, cool.

Can we just –

Let's look at that just before you go on, in terms of the rest of the year.

Can we just look at May?

What would you –

What do you want to see in the April –

It probably comes out 27th, 28th.

The April numbers for the March quarter, what are you looking for?

What do you think they're going to be looking for, more importantly,

to justify a cut in May?

So the kind of question is, does core inflation print at 0.6 or 0.7?

I think it could print either.

I think the risk is to a lower print.

And I think they could cut on it.

And I think there's a good chance they cut.

I think it's a 67% probability they cut.

I think market pricing is actually there or thereabouts.

I think it's 67%.

Yeah.

And I think there's really interesting dynamics at play with the Aussie inflation data.

But just before we come back to that, I just want to square away this point on the single cut.

The single cut is meaningful in this respect.

And I wrote this repeatedly.

I think I wrote it twice in the financial review in January.

It radically changes the atmospherics, the zeitgeist.

Mm-hmm.

And what's amazing, and I expected this to happen,

is if you look at the house price data,

dude, if you go to CoreLogic's website,

and you go to house price indices.

I've done it.

Yeah, go on.

And if you go to what is called the back series,

and there's a chart, it's a dynamic chart,

and you can deselect all cities or select cities.

And if you deselect every city but Sydney,

and you look at the chart,

what you'll see is house prices fell by about 2%, soft.

But house prices rose in Sydney.

About 18% from January 23 to September 24.

Massive boom, right?

But from September 24 through to the RBA meeting in February,

they fell 2%.

But more or less the week they met, they started rising again.

And they look like a straight line.

They're rising quite quickly now.

House prices are increasing again.

And exactly the same thing's happened with even greater force in Melbourne.

So house prices in Melbourne only rose 5%, 6%.

Very different situation between Jan 23 and about,

March 24.

But they started falling earlier.

I mean, Victoria's a bit of a failed state,

like basket case, lots of problems.

And so the housing market's been much weaker.

And so house prices in Melbourne, I think,

yeah, they started falling in March,

and they fell all the way through to the RBA meeting in February,

but almost perfectly synchronously with the RBA meeting.

If you look at that chart, it looks like they're rising.

They've risen 1% already just since February.

So the housing market has reacted instantaneously.

And that's why one cuts meaningful, because it changes the narrative.

So rather than people debating about hikes or rates remaining high for long,

suddenly we're talking about cuts.

And how many cuts?

Is it two?

Is it three?

So your question is, how many this year?

I think they'll try and chisel out two or three over the course of the year.

What are they going to be looking for?

And I think the risk is they do more.

Yeah.

And I think the game changer, for my view, is the election of Donald Trump.

So I had no strong view on who would win the US election.

That's not our wheelhouse.

We don't do political.

We don't do political forecasting.

So we just trade the data as it materializes.

But once Trump was elected, we had very strong views.

Those views are first.

This was a very contrary view.

We told everyone who would listen, I've written a million times in the AFR,

he's dead freaking serious on tariffs.

He's not negotiating.

There's no out of the deal bullshit.

Trump, and it's quite complicated.

I'll come back to why he's dead serious on the tariffs in a second.

But there's big implications for Australia, mate.

Because what's going to happen is you're going to have these huge walls

erected around the US economy.

And the Chinese aren't going to be able to sell jack shit into the US economy.

They're going to block China from the US economy completely.

So what are the Chinese, our biggest supplier of goods into Australia is China.

And if China can't sell BYD cars into the US,

where do you think they're going to dump the cars and all the other goods?

Little old Australia and the EU and other markets.

But we're going to get a ton of cheap Chinese goods dumped into Australia.

Are we going to do anything about it?

If they are in turn eviscerating our manufacturing,

not that we produce cars anymore, but if that's impacting our ability to sell cars,

to compete against the Chinese,

is our boy or doesn't going to do anything about it?

No chance.

We've got no spine on this stuff, right?

So we're going to have actually a lot of, I think, deflationary forces.

Cheap goods.

Cheap goods that result from the trade war.

So it's counterintuitive because you think trade war price is going up inflationary.

It's very inflationary for the US.

But if you look at the Peterson Institute modeling,

and I've written on this six, 12 months ago.

Actually, not after the November election.

I wrote it.

The Peterson Institute modeling, when we tear apart the data as we've done,

shows you get deflation in Australia.

Prices actually fall because the cheap goods get dumped on us.

So what does that mean for the RBA?

Well, you've got two things.

China's, can you say fucked on this?

You can say whatever you like.

Yeah, cool.

It's my podcast.

Okay, cool.

China's fucked, right?

Their economy is just like, I've said China's uninvestable for over a decade.

You know that?

Yep.

Probably about 15 years I've been arguing that.

And they're going to get so screwed by this, right?

They're going to be,

they're going to be blocked from the entire, you know,

from most Western liberal democratic markets,

they're going to be blocked from.

But particularly from the biggest market, which is the US.

And so that's not good for Australia.

So you're going to have the Chinese economy, which is already struggling.

That's going to be amplified and really exacerbated by Trump.

He's going for the fucking jugular, right?

Trump is a killer.

And literally and figuratively,

because he doesn't mind running those special forces operations,

taking out guys in Yemen or, you know, Soleimani,

the Republican general, the Iranian who was leaving a Baghdadi airport

and Trump flew two Hellfire missiles into his convoy of cars and assassinated him.

He likes his little assassination programs, old Trumpy.

I'm not saying I agree or disagree.

I'm just saying he likes that stuff.

You know, he gave an interview the other day and he goes,

you don't understand, I am a bad motherfucker.

He didn't use the word motherfucker, but he's like, I'm a bad man.

It's funny.

Another story about Trump.

Apparently he was sitting with the Taliban leadership in person

before they evacuated Afghanistan.

And he looks the head of the Taliban in the eye and he says,

we're going to leave Afghanistan.

But if there's one hair on one head of one American soldier

that's in any way adversely impacted and he pulls out a photograph,

he said, this is your home.

This is where your wife and children live.

We're taking them all out.

And apparently they didn't do diddly squat.

Um, so that's a bit of a segue, but, um.

And some people like that.

Yeah.

That show of strength.

Yeah, yeah, they do.

Yeah, they definitely do in America.

Um.

So you're, you're saying that Trump's, Trump's non-negotiable on the,

on the tariffs, that tariffs are going to build a war around America

and make everything much more expensive in America, potentially.

But for Australia, so you come back to Australia,

so the Chinese economy is going to really get pounded.

Yeah.

And that's bad news for Australia.

Now, why is it bad news if everything arrives here cheaper?

Well, that's positive.

But, you know, if we're, we,

she's our number one trade partner.

But we have to export back there.

Yeah, if we're exporting, you know, um, commodities to, uh, China,

then that's not very good for us.

Well, we are.

70% of our stuff goes to China.

Correct.

So resources I'm talking about.

So, um, what you're saying is that if China's struggling,

we will, our export will start to suffer.

Correct.

Um, now she may try and stimulate.

So President Xi may try and compensate for this,

which paradoxically could increase demand for commodities.

But, you know, the way the RBA, I think, will look at this is,

this is not positive for Australia.

Like China, you know,

having a quasi-recession of sorts, um,

is, can't be positive for Australia.

And then the other thing is you're going to get a deflationary impulse.

So the prices of goods will be lower than they otherwise would be.

And I think it's already starting to happen.

Um, and so what that means is for the RBA,

they could cut in May quite comfortably.

Um, the inflation data could start surprising on the downside,

particularly if they extend these cost of living subsidies,

which they seem to be doing.

And, um, uh, yeah,

you could get a decent number,

uh, RBA rate cuts,

but two to three, I think as a minimum makes sense for this year in total.

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You know, a cash rate, which you mentioned a bit earlier,

but like sort of cash rate,

which sort of settles down around three and a half percent.

You know, and let's say inflation is like two and a half percent.

You know, there used to be a concept of net zero

or something.

You know, close to zero with the difference

between the inflation rate and the cash rate.

And then unemployment is sort of around, let's say four, yeah.

Can you see a period, like this is a bit weird to me,

like it seems a bit weird to me,

but then wage growth is the same around about 3.2, 4.2,

around that territory.

It seems to me that we've sort of got a restructure

of where all our numbers are sitting.

They're all sitting, they're all going to sit somewhere

between three and a half and four and a half.

Unemployment, wage growth, inflation,

cash rate, blah, blah, blah.

I mean, a cash rate might get to two and a half,

but it's going to bounce around a little bit.

I've never really seen that before in the past.

Do you think we've, as a result of COVID,

we will have, we have a restructured statistical environment

or is this just a reaction to what happened during COVID

and we'll go back to our old system,

our old structure that we used to have in the past,

like 20 or 30 years of inflation on average between two and three.

Like since, since 96, I think it was,

or something like that.

Around that territory, we had like nearly 25 years

of inflation around that number.

Well, I definitely feel like we're in a more inflationary

environment globally.

And I think that will actually ultimately reassert itself

in Australia.

So, you know, the tariff impact on inflation is temporary.

And so therefore the deflationary impulse that we've been talking

about in response to the tariffs could also be temporary.

But I think it's, you know, the prevailing kind of atmospherics

for tariff inflation is temporary.

And I think that's going to be a big part of what we're going to do

in 2025 are going to be potentially quite friendly

for the RBA in the context of giving it the capacity to cut rates.

But I think what's changed since the pandemic is the size of government.

Government spending as a share of the economy is the biggest

since World War II basically in Australia.

And, you know, if you look at jobs, you know,

57% of jobs growth in Australia over the last few years

has been accounted for by-

Public sector.

Yeah.

Well, not just the public sector.

Sorry, just three sectors within the public sector.

Health.

Health, education, and public administration alone have powered

almost 60% of all jobs growth.

And there's no change in that dynamic.

So what's fascinating, I think, for Australia-

Is that around the world though too?

Not just here?

I mean, just generally.

Globally, yeah, globally.

But what's the- and that's a key point.

The difference in the US is they've had some cathartic crises.

They had arguably a tougher pandemic.

They definitely had a much tougher 2008 crisis.

Like they had a huge increase in unemployment.

Unemployment barely budged.

We didn't even have a recession in Australia.

We really-

They had a much, much tougher 2001 recession in the US.

We haven't had a proper recession since 91.

But the key point is Australians, I think,

are really in the throes of Dutch disease

or what is known as moral hazard,

which basically means we've been this wonder down under

that's been incredibly fortunate for a crazy amount of time.

And that good fortune has been driven by probably three key things.

Huge endowments of natural resources that have made us very rich

because we can sell them to the rest of the world for high prices.

And then at the same time, we've been lucky that there's been

a commodity price boom.

Secondly, we've run the strongest population growth in the developed world

for about 30 years, and we continue to run a crazy strong population growth.

And population growth just brings demand into the country initially

because these guys come with money often, and that's a net demand shock.

In the medium term, the population growth actually expands the pool of available workers.

And I think this is what's happening with the wage data.

In contrast to, say, the US where they're deporting people and the borders are closing.

In Australia, we've got people rushing into the country, and that's actually relieving

some of the pressure on labor costs.

And we needed that because in the pandemic, we'd closed our borders,

and the unemployment rate was incredibly low, the lowest in half a century or thereabouts.

And labor costs had obviously accelerated.

But resources, population growth have been the two key drivers of Australian prosperity for a long time.

But then finally, our physical amenity.

I mean, Australia is the most beautiful country in the world, and the physical amenity is incredible.

And then with super, now taking 12% of our wages, super poured a huge amount of money into infrastructure.

As did governments, and the quality of Aussie infrastructure is like, I think, coming up to, you know, it looks second to none.

If you look at just the Sydney, the tunnels, the Metro Railway, the light railway, the way we've equipped our cities and the quality of our cities.

You go to America, anyone who travels to America, you look at the poverty, the crime, the, you know, just the dilapidated nature of the infrastructure.

San Francisco is a basket case.

Basket case.

LA is too.

And this is the point, Mark.

In the US, you've had crises.

So if you look at California, it's a failed state.

You know, LA and San Francisco, you know, increasingly uninhabitable.

Which would be weird, because there's seven large economy in the world.

Yeah.

As a, as a state.

And, and, you know, huge fiscal crises, like massive budget deficits.

Then juxtaposed against that, you've got the counterfactual, which is Texas and Florida.

Budget surpluses, thriving.

Low taxes.

Low taxes, businesses are moving there, population growth is strong, low crime.

And so I think that, that contrast between New York, California, the Democrat states, and the Republican states, has galvanized this, this kind of intellectual crisis, whereby the, the Trump-Musk, you know, paradigm is on the ascendancy.

And they, amazingly, you know, Musk is probably the only guy in human history who could do what he's doing right now, because, you know, he's a rich guy.

Just doesn't give a fuck.

He doesn't give a fuck.

And he's the richest guy in the history of humanity.

He doesn't give a fuck.

Yeah.

So he worth, was worth it.

He's worth over 400 billion US, and, but he, he does give a fuck in this sense.

He wants, his singular mission is to get to Mars.

He wants to create, you know, an interplanetary species, and he thinks government is the key obstacle to getting to Mars.

So I think what Musk's insight has been is government, NASA, everyone, regulation is just blocking our progress, and our capacity to get the human species, sort of, civilizing Mars.

And so therefore, what do I need to do?

Well, I need to get a sympathetic leader, somebody that I'm backing.

So Musk, more or less, helped Trump win the election.

And now, he's more, uh, it looks like he's living in the White House.

He's as if permanently, uh, appended to Trump's hip.

And, um, Musk has the solutions to almost all of Trump's policy problems.

Trump wants to cut taxes, but that cost 8.1 trillion US over 10 years.

Now, unless you find revenue to pay for the tax cuts, issuing 8.1 trillion debt would create a huge惨

huge debt crisis in the sense of just much higher interest rates.

They can pay the interest, but you get a massive increase

in U.S. interest rates.

And that would be potentially catastrophic.

So he needs the tariffs to pay for the tax cuts.

This is what people didn't understand.

He wasn't bluffing on the tariffs.

He's dead serious on the tariffs because the tariffs he announced

to date raise about $2 trillion of revenue.

Which allows him to give tax cuts to the wages.

So $2 trillion of revenue means he's only, if the tax cuts are caught,

that's over 10 years.

If the tax cuts only cost $8.1 trillion over 10 years,

he only needs to now find $6 trillion, right?

Which means cut costs.

Yeah, but the tariffs are important for another reason.

Basically, I think the U.S. judges that over the last 30 years,

the Western world took the view of, there was a lot of vainglorious,

hubris post-World War II, which was democracies defeated socialism.

And we have the dominant political and business model.

And everyone in the world is going to buy into that model.

And they're going to embrace it.

And they're just going to become acolytes of our belief system.

So the idea was,

we'll trade, we'll do free trade with everybody, we'll reduce tariffs,

we'll get rid of protectionism.

And the Russians and the Chinese, when they look at the prosperity in Europe,

the UK, U.S., Australia, New Zealand, Canada, there's no way in the world

they can't embrace that prosperity.

So they're going to trade with us.

They're going to reduce trade barriers, and they're going to ultimately migrate

their political systems away from authoritarianism to democracies.

Well, the Russians and Chinese basically, I think, thought we were pretty gullible.

And so they just used those free trade opportunities to appropriate intellectual property,

to use state-subsidized firms to build market share, control markets,

build national champions, companies like Huawei, BYD, et cetera.

And basically, Western manufacturing shifted to China.

The supply chain shifted to China.

Remember, we used to talk about outsourcing.

Outsourcing was great for Western companies because you could build it in low-cost China

and bring it back to the U.S., and everyone benefited.

The Chinese benefited, and the U.S. consumers benefited through low costs.

But at some point, the penny dropped that the Chinese weren't going to sign up

to the Western liberal democratic business model.

Philosophically, no.

And they weren't actually playing by the rules they had agreed to play

because the Chinese government was giving their firms all these unfair competitive advantages.

And Musk is the best example.

He builds a factory or factories in China, assuming he's going to sell zillions of Teslas

to the Chinese, the biggest consumer market numerically in the world.

The Chinese just steal the IP and create a bigger, badder, stronger EV company called

BYD that starts decimating Tesla's market share.

So Musk's naivety created this monster in the form of BYD.

So the Americans basically realized, actually, we need to reshore or domesticate all of our

manufacturing.

We need to bring back all the supply chains because now there's also security dependencies

on the Chinese.

I mean, the Chinese are making things that we use in our military kit, and we actually

now recognize we are.

Man.

We ended up in a serious kinetic conflict with the Chinese.

So Trump's plan with the tariffs is probably, if you don't believe in free trade, it's the

right plan.

And the other reason it's the right plan, and nobody understands this, is the US economy

is an autarky.

And what that means is it doesn't really trade with the rest of the world, aside from the

Chinese and their proxies like Mexico.

So the US, we have a statistic called trade intensity, which is exports plus imports divided

by your economy or GDP.

And US trade intensity is only about 25%.

The average advanced economy is 60 to 70%.

The EU is 100 to 110%.

And so the US doesn't really need to trade with the rest of the world if they bring their

manufacturing back, which is what they want to do.

And Musk has proven with SpaceX and Tesla, you can manufacture in the US, particularly

now that everything's robotic.

The labor costs are not such a big deal anymore because it's all automated.

So that's the plan.

It's the right plan because the US is the heart and hub of all the research, innovation,

and genuine entrepreneurship.

And commercial and business insight.

And so it makes sense that if you can't trust the Chinese, you've got to bring your manufacturing

back.

That'll net benefit the US.

And then basically, so they bring up all these tariffs and they say to the rest of the world,

if you produce a good in a country outside of the US, you won't be able to import into

the US.

We'll make you cost ineffective or cost, we'll put you at a competitive disadvantage.

So I think companies have now signed up to $2 trillion of manufacturing spending in the

US.

In other words, move their business to the US.

Yeah.

They're going to bring all those businesses back to the US.

Like Blue Scope.

Blue Scope's a good example.

They produce steel in the US, US plant.

So they're not importing or exporting to there.

Yeah.

So everyone's going to do that because the tariffs is going to, otherwise the tariffs

will kill their businesses.

Now-

But they're smart.

100%.

100%.

Super smart.

So they're going to trade with themselves, erect these huge trade barriers, rebuild all

the manufacturing capacity.

And then at the same time, nobble the Chinese, which is geostrategically important because

the Chinese were growing big and powerful because they were-

Stealing Western market share and stealing Western clients and innovation and IP.

Now, the final piece of the puzzle is Musk.

So at the same time, one of the big problems we have in society is just the growth of government.

Again, there's been more jobs growth in Australia in the last few years in the government sector

than in the private sector.

And Musk realizes that there's this massive corruption inside these bureaucracies and

there's huge overreach, which is crushing innovation.

It's crushing entrepreneurship.

It's crushing idea generation.

And it's basically crushing productivity and prosperity.

So Musk is the only guy in the world, probably in human history, who's got the ability to

go in there.

And he did it with X or Twitter.

He cut 80% of their workforce instantaneously and he built a better product.

So because he's the richest man in the world, he rocks up and he says, I want to get to

Mars, but I've got to remove the public obstacles.

At the same time, my mate Trump has promised 8.1 trillion tax cuts.

Well, if I just reduce government spending, this is Musk's model.

If I reduce government spending by 15%, which is-

Which is not that much.

You and I have run businesses.

We run businesses.

If we have to cut costs by 15%-

Done.

Done.

Easy.

If we need to.

Now, in the US, you've had untrammeled historic, unprecedented government growth for decades,

but particularly since the pandemic.

So you cut it by 15%, you raise a trillion a year of savings.

Now, the US budget deficit is less than 2 trillion.

So you halve the budget deficit.

So over 10 years, you're basically generating 10%.

Trillion of savings.

So Musk's cost-cutting program alone pays for all the tax cuts and some, right?

And the truth is, I reckon they could cut government spending by 30%,

like if they really went hard.

So 15% is probably just the beginning.

Now, the problem for the global economy, the problem for interest rates,

and the problem for Australians is this, and for your super balances.

They've got to do the government spending cuts fast and hard,

because they've got to do them before the midterm elections in November 26,

because otherwise, at that point,

they could lose control of Congress.

Unless you get an extended period.

But yeah, they're working on that now.

So they want to-

Get a third term.

No, this is the midterm elections.

Yeah, I'm sorry.

They've got a short period to get all this done, is your point, yeah?

Yeah, exactly.

So they want to get it done hard and fast.

So the government spending cuts, they've already done $135 billion.

And so there's obviously a lot more coming.

So that comes hard and fast.

The trillions of dollars in new manufacturing investment,

which will create a huge growth engine, that's going to come later.

So you've got this ACP.

There's going to be a lot of synchronicity in the timing of,

you get a demand, a negative demand shock.

So they're destroying public spending, on the one hand, immediately.

But on the other hand, the growth engine comes later.

And so what that means, you probably get a bit of a recession in the US

in the next couple of quarters, or at least a growth air pocket.

And that, at the same time, probably emboldens the Fed

to start thinking about cutting rates.

You will get this temporary inflation shock, but it is temporary.

Yes, consumer inflation expectations are elevated,

but I think the Fed,

the Fed will probably continue cutting rates,

particularly when they see the negative growth data

from the Doge initiative run by Musk.

And then the other thing is the trade war is creating mayhem in markets.

So US equities have dropped 10%.

NASDAQ's dropped 13%.

People are very risk averse, very nervous.

So you might say, well, what about his tax cuts?

Well, chances are people are going to save a lot of those tax cuts

and they won't spend them.

So I think in the short term, this is very bad for markets

because markets can't see past their nose.

Markets are going to focus on the growth shock,

the fact that companies that service governments

are not going to be earning nearly as much money,

all those consulting firms, all those building contractors.

I mean, all the service providers to the US government

are going to get butt-bashed by Musk.

And that's short-term very negative.

But in the long-term, it's super positive

because you're going to get this massively revitalized

US manufacturing industry and trillions of dollars

in new investment in productive equipment

that's going to create a lot of autonomy for the US.

US won't be relying on anyone by the end of this program.

So given that,

what would you say to Jim Chalmers,

who may well end up getting re-elected along with this party

and what a former government is?

What one question would Chris Joy ask Jim Chalmers

that you would like to hear Jim Chalmers address publicly?

Because Jim's going to be here next week

and I'm going to ask him.

Well, I mean, the hard question-

The policy question I'm talking about, of course.

The hard questions for Chalmers is,

does he actually care about reform?

Or is he really just interested in power?

He wrote a paper-

He wrote a paper-

He wrote a paper-

He wrote a PhD, but not on economics.

He wrote a PhD on Paul Keating's politics,

his power politics.

So the first question is,

does he really care about reform?

And I think if you judge them on their actions,

they've massively increased government spending.

The budget's lurched from surplus to deficit.

We have a problem in Australia

where government spending is now the highest since World War II.

And interest rates, paradoxically,

would be a hell of a lot lower in Australia

were it not for all of this government spending.

Yeah, correct.

And the problem-

Here's the really-

The kind of far-reaching problem.

You should just explain it,

because effectively the massive government spending

has propped up the economy,

which makes it look a lot better than it really is.

If the public sector wasn't accounting

for most of the jobs growth,

then unemployment would be much higher.

Wages growth would be much weaker.

Inflation would be lower.

But the demand-

I mean, Aussie economic growth has,

in recent years,

been mostly accounted,

if not 100% driven by public spending.

So the problem for Australians

is we have no productivity.

And Chalmers has no solutions.

As to how he's going to grow productivity.

And what is productivity?

Because productivity sounds like economist jargon.

Productivity is just entrepreneurship,

innovation,

idea generation.

Productivity is just doing business smarter.

Encouraging people to take risks.

Yeah, it's basically producing more with fewer resources.

That's what productivity is.

And 100% encouraging people to take risks,

to establish a disruptive business

that's going to produce more,

or the same amount that other people-

For less.

For less.

So therefore,

you can produce more cheaply,

and therefore you can undercut your competitors

and appropriate market share.

So the problem that Chalmers has

is he has no solution to the fact

that we have the worst productivity in decades.

And Australia is mired in a massive productivity problem.

And in the long run, that's disastrous.

It's kind of like Dan Andrews.

Dan Andrews in Victoria spends crazy amounts of money.

In 2019, just before the pandemic,

the Victorians only owed the world.

West of the world, 50 to 60 billion.

Today, or within a few years,

they'll owe close to 300 billion.

Wow.

Back in 2020,

when Victorians borrowed money as a government,

they paid an interest rate

that was very similar to what the Commonwealth pays.

Today, they now pay 100 basis points in extra interest

because no one wants to buy Victorian government bonds,

and they're likely to be downgraded.

Queensland is likely to be downgraded in our view.

New South Wales is likely to be downgraded.

And because we haven't had a cathartic crisis,

because we don't have yet a California,

although Victoria is heading that way,

or a San Francisco,

there's no counterfactuals.

And because there's so much public spending,

the government of the day

is actually conflicting economically the voters

by sharing them with all this cash.

But they're making Australians very complacent,

very, very lazy.

And this is the Dutch disease

that we were talking about earlier.

The fact that we've got really dumb growth

in the form of huge commodity exports

coupled with really very primitive population growth,

none of that is productivity.

Yeah.

And productivity is the,

the only thing that can grow wealth.

And again,

I don't even like the word productivity.

Entrepreneurship and innovation

is what drives prosperity.

And we don't have that in Australia.

Tax rates are going up,

not down,

arguably at the margin,

particularly once you adjust for indexation

or bracket creep.

And I think what you'll see over the next few decades

is that Australian businesses will leave Australia

because we're going to become so uncompetitive

to the rest of the world.

You'd be much better setting up in Singapore,

Dubai, Abu Dhabi, Italy, Portugal.

All these ascendant countries are doing tax deals

to attract the best and brightest businesses and brains.

And people are moving.

Like, you know, Nico Cain, I think his name is.

He was the top guy at Macquarie Bank.

They paid him over 50 million a year.

He resigned to take a job in Dubai.

Why?

Because presumably he can get much better

economic incentives in Dubai.

So the top Macquarie banker

doesn't want to live in Australia,

notwithstanding he's presumably a very proud Australian

who loves to live in Dubai.

So he's going to have to take a job in Dubai.

He's going to have to take a job in Dubai.

He's going to have to take a job in Dubai.

Like we all do, the amenity of living in Australia.

And I know a lot of people doing exactly the same thing.

And by the way, you can always buy Australian assets too.

So it doesn't make much difference.

Australian assets are still available for you to buy,

but you're operating in a different environment

where you pay less tax.

It's much more efficient, lots of that's regulated.

And you have access to many other parts of the world.

As a market economist,

just something that struck me whilst I was talking,

whilst he was talking,

was, as you know,

the regulator in Australia requires lenders in Australia

to be able to pay taxes.

It doesn't require,

but suggest to lenders in Australia

that they apply a threshold of 3%

over the prevailing interest,

over the lending rate

when they're assessing a borrower to buy a house.

And the suggestion is that,

like if you do what we say,

then you will have to hold less capital.

If you don't do what we say

and your portfolio is, you know,

you're lending your threshold,

the extra amount that you look at

in terms of person's ability to service that loan

is say if you only apply 2%,

they are numb as a result of that.

You know, we might ask you

to hold a little bit more capital against it

because we think that loan might be more risky

or the portfolio.

Portfolio loans might be more risky.

One of the things I don't really don't like,

and I know I have a kindred thought process

with you on this,

is to some extent that plays right

into the hands of elitism in Australia

because only the elite can afford

and the elite's kids can afford,

which by the way are our kids,

to borrow those amounts of money

because we have to top them up.

You know, we're always going to be topping them up,

which, you know, you expect parents to do

if they have a capacity to do it.

But the problem is,

in terms of affordability,

affordability is not just the price of the property,

but it's the ability to pay for the property.

In other words, borrow the money to buy the property

because most people borrow anyway.

So given the market interest rates at the moment

and they're more likely to come down than go up,

what do you think about the 3% threshold

sitting on top of people's ability to borrow

and or servicing, you know, our servicing assessment?

I see that Dutton's come out and said it's unfair.

What do you think about that 3%?

Listen, I think, you know,

I think it's a good example of, you know,

a situation where there are probably much better models

that regulators,

and our regulators have not covered themselves in glory recently,

particularly APRA,

which is responsible for this regulation.

There's many more dynamic models that could apply

that would result in better outcomes for everybody.

So, you know, 3% as an extra interest rate buffer

that banks apply on your serviceability test

when figuring out what you can afford to repay.

And how much will lend you, therefore?

Yeah, how much will lend you, therefore,

and therefore what, you know, property you can afford to purchase.

That made a lot of sense when the cash rate was at 0%.

Yeah, totally.

Because obviously, you know,

the cash rate could have easily increased by, as it did.

It did.

And with the benefit of hindsight,

it increased by, you know, 425 basis points.

But when the cash rate's at 425 basis points,

or at the time it was at 435,

it made no sense, right, or very little sense.

So it should be dynamic.

You know, that serviceability buffer,

I think, should be dynamic,

be calibrated according to where the cash rate is

at any point in time.

So I definitely think at this point in time

there's scope to lower it.

Yeah, I mean, you know, here and now you'd say

prudently at least by 100 basis points, right?

You know, it's hard to...

And they used to do that.

I don't know why.

We haven't changed for so long.

And the only other question I have for you...

But by the way, on that note,

I mean, I think Jim Chalmers and Dutton should...

They control APRA.

And they can absolutely say,

hey, we don't agree with the serviceability buffer,

you should change it.

Well, Dutton has said that.

Dutton has said he's going to start that off.

But APRA, you know, sometimes the RPA and APRA...

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RBA is a little bit different because they are meant

to be avowedly independent of the government apparatus,

but certainly ASIC and APRA, but APRA in particular

have made some funny decisions, some odd decisions,

like phasing out the hybrid market is one

which has never been done before anywhere in the world.

And yeah, if I was a smart politician, I'd just say,

dudes, it makes no sense to whack 300 basis points

on top of a 435 cash rate.

We're going to cut it to 200 and see how things go

and potentially we'll cut it to 200.

We'll cut it to 200.

We'll cut it a little bit lower, maybe down to 150.

Because if it all of a sudden increases,

massive amount of borrowing and house prices.

Go berserk.

You can go and change it again.

You can put it up to two and a half.

You can say you can calibrate.

And the only other question I had for you is,

if you don't mind, if I just grab you before you go,

because I know you're busy and I've got to know the podcast as well,

but you talked about policy.

You talked about, you know, has Jim got serious policy?

Does he really want to make reform and have changes, make changes?

What do you think about the concept of,

and a lot of people are talking about it

and Matt Coleman's been talking about it.

I mean, there's a lot of people who have been talking about it

for a long time, I have too,

about having an adjustment in the GST from 10 to, say, 15.

But let's assume it never goes above or below.

But you adjust the GST in lockstep with the RBA making changes

so that, up or down, so that everybody gets affected

and or everybody gets the benefit of it.

So, you know, during a period when we're trying to, you know,

dampen spending instead of just putting the RBA,

the RBA putting up the cash rate, which puts up your mortgage rate,

on top of that, whoever it is, puts up the GST rate,

five base points, two base points, 20 base points, whatever it is,

trying to make sure that they affect everybody.

Because, you know, we have these conflicting markets, you know,

we have all the people with mortgages who are paying more

and then say someone like, you know, your parents who might be still alive,

don't have a mortgage, you know, have money in a super fund, blah, blah, blah.

They're not affected and therefore they're out spending like drunken sailors

and taking the trips to Berlin and Bali.

Spending money in restaurants.

Yeah, I think it makes a lot of sense.

If the RBA was doing it.

Yeah, RBA should do it.

Yeah.

What do you think about that as a potential charmer's policy?

Yeah, I think it's great.

Like if the RBA was doing it, it just gives them more tools, more levers.

It would be more board-based.

It would probably reduce the amount by which they had to increase interest rates

for a given impact.

I do think that like we would be better off with a higher GST

and lower income taxes.

Me too.

We're better at having a fair, flatter tax regime

where the government...

The guy that works harder than, you know, his contemporary

who chooses not to work hard doesn't end up paying...

He'll always pay more tax because he's earning more income.

But how is it fair that he actually pays a higher percentage of his income

in the form of tax than the guy that's, you know, choosing not to work hard?

That's kind of perverse.

So this tax regime where we get taxed proportionally more

the harder we work...

I know.

What they call a progressive tax system.

Yeah, yeah.

It's a massive disincentive.

We can't afford the defamation, entrepreneurship and, you know,

productivity and prosperity.

Coming back to Chalmers, I think the problem in Australia,

we got a huge moral hazard.

I feel like there's a lot of complacency in the community.

Young kids have incredible lives.

You know, there's no unemployment.

Wages are very healthy.

There's massive amounts of public support.

NDIS is supporting one in 10 kids.

Unbelievable.

I think the problem will be 20 or 30 years hence.

echo this in dan andrews in victoria so dan andrews decides to spend more money than any

victorian has in the history of the state and government's a solution to every problem but now

increasingly it's looking like a failed state no one wants to live in victoria and people are

leaving businesses don't want to operate in victoria taxes are high taxes are high and rising

everywhere because they're having to pay for the debt um you know victoria will shortly be paying

about 12 billion a year or circa five three to five hospitals worth um in interest payments alone

on their debt so they've gone from again 50 60 billion debt to close to 300 billion in debt

and um yeah none of these guys seem to have any solutions for the long term they just seem to be

optimizing for i want to win the next election i want to become prime minister i want to be

you know maximize my personal power i think a lot of these there's a self-selection bias in

politics where you get a lot of you know narcissistic

individuals who um are not actually genuinely interested in policy reform even the smart guys

um we don't need to mention him no um but uh but uh i wasn't talking about my mate malcolm

turnbull just for everyone's doubt um there's others on the left side of politics that probably

fall into that cohort but um but it's it's funny you know many more politicians than i do but i

know a lot of politicians and finding the guys that are actually you know really uh earnestly

committed to making the world a better place it you know it's hard hard yakka you know all these

guys are the kids who are at uni who are doing student politics yapping around trying to kind

of self-promote themselves to advance their um you know personal power and uh you know control

and influence so i think politics is a funny funny business like i would never want to go into

i think it's failing us yeah i think it's really disappointing yeah the choice of candidates as

well yeah

like you just think that um there'd be more opportunities it's not like the american

system has necessarily generated you know super compelling candidates and it seems like the

compelling candidates in the u.s system are also for whatever reason um you know they they uh there's

a lot of attrition like guys that want to you know the people that seem to have a lot of ability

they seem to flame out for one reason or another you get these highly bifurcated bifurcated polarized

uh environments where you get a biden versus a trump but i think trump's i think the difference

i'm around like my final comment is and you know i i'm not politically partisan i don't think myself

um and i thought trump mark one was you know pretty mercurial and capricious and hyperbolic and

everything that people criticize him for being but this dude is a year shot off and he's had

multiple assassination attempts he's coming up towards 80 he's only got one term there's no

third term at this point um he's not kind of uh doing this to win another election this is all a

legacy trade and that's why i think it's a good thing that he's not doing this to win another election

that's why i think he's going for the jugular he's he's he's really serious and that's why there's

been no trump put option for the market if the market keeps on thinking he's going to acquiesce

and he's going to bend the knee and say oh it's all okay i'm just trying to negotiate a good deal

but he i think is really really focused on far-reaching reform that's going to be his

personal legacy he wants to change the u.s he does want to make the u.s great again um and so i think

it could be a very turbulent volatile time and it's certainly an extremely uncertain time so

i think we can see that the uncertainty and policy uncertainty is uh heightened and that

makes decision making hard so i think for markets um tough for the next six to 12 months at some

point that manufacturing miracle will assert itself and the markets will start focusing on

that and that's where i think you can see a recovery but i think in the in summary in 2025

rate cuts from the fed and the rba um disinflation in australia high inflation in the u.s um i do

think we're in the medium term in a higher for longer environment particularly when the

manufacturing investment starts coming online so i don't see massive rate cuts i do think that

people that are struggling under the the weight of high interest rate burdens businesses and

households um the marginal borrowers are probably going to continue to struggle we've got you know

record high insolvencies in australia but we also see the same thing in the uk us and new zealand

and i don't think that's really going to change fundamentally i think we're still living in an

inflationary world but there's these cross currents now because of the trade war and where can people

follow your updates

on twitter at cjoe on linkedin uh we publish our macro strategies kieran davies publishes

on livewire and then i publish weekly in the um so livewire.com is a it's a free service

because i subscribe to that cool about you got a publication in cool bar uh we've got our website

cool by capital.com um and then in the financial review that article that colmar wright publishes

on friday and then appears on the paper on saturdays most weekends chris joy thanks very much

for watching this episode of the beauty of life i hope you enjoyed it and i'll see you next week

bye

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