Transcript QAV #612

QAV 612 CLUB

Cameron  00:06

Wel­come to QAV. This is episode 612. We’re record­ing this on the 21st of March 2023. This is our last record­ing before Tony dis­ap­pears for a month and a bit. So, if you don’t have any ques­tions in by today, don’t both­er for anoth­er cou­ple of weeks.

Tony  00:28

No, that’s not true. We’ll try and get some record­ings in while I’m over­seas.

Cameron  00:32

We will try. We just had a great chat with Tim Lin­coln. Final­ly, we’ve man­aged to get Tim on. That’ll prob­a­bly come out as next week’s show, I think, while we’ll both be trav­el­ling. You’ll be going over­seas, I’ll be com­ing back from Syd­ney, so peo­ple will enjoy that. He was love­ly. Real­ly love­ly to chat final­ly to Tim, seems like a nice bloke.

Tony  00:52

Yep, I agree, It was great.

Cameron  00:53

Well, I want­ed to start off today’s show by wish­ing a big QAV con­grat­u­la­tions to Rupert Mur­doch on his upcom­ing nup­tials. He’s not divorced from Jer­ry Hall yet, but he’s get­ting mar­ried again after that divorce goes through to his fifth wife, who I’m sure is a love­ly lady who’s only in it for love and devo­tion, and all sorts of good moral val­ues.

Tony  01:25

It’s pos­si­ble that she has a thing for men who are thir­ty years old­er than her, but yeah.

Cameron  01:31

Nine­ty-two-year-old immor­tal bil­lion­aires. I read a quote from him in the Fin today say­ing this will be his last one. At least it bet­ter be. Nine­ty-two. Wow. Well, lis­ten, we’ve got port­fo­lio updates to get into. There’s been a lot of sell­ing from me in the last week, not a lot to buy, we’ll get into com­mod­i­ty updates. But before we get into all that, TK, I’ve been work­ing on a thing over the last cou­ple of days, I haven’t shared with you yet. Kind of the max­im’s of QAV. Not, you know, the fudge and the Josephine and those sorts of things we call the max­ims, but going through, you know… I’ve had a few club mem­bers call me and go, you know, “what are we going to do?” “The mar­ket this” and “the mar­ket that”, and I keep say­ing these lit­tle bon mots of wis­dom that I’ve picked up from you over the years. I’m try­ing to basi­cal­ly get the essence of the phi­los­o­phy of QAV down to a hand­ful of bul­let points. So, let me run through these with you and see what you think. Num­ber one; the mar­ket always goes up over the long term, based on his­to­ry. If his­to­ry is true, if his­to­ry repeats itself any­way, for as long as there have been mar­kets, they’ve always gone up over the long term. We expect that to be true — bar­ring com­plete col­laps­es of the glob­al econ­o­my.

Tony  02:51

Yeah, well, that’s called pos­i­tive expectan­cy. So, you’re invest­ing in an area that you think, or you know, gen­er­al­ly returns a pos­i­tive return. It has to be over the long term, I guess. But it’s, you know, that’s the reverse of going to a casi­no, which has neg­a­tive expectan­cy. You can play roulette, you can see it right there on the table in front of you, there’s one less slot you can win mon­ey on then you need to break even. So, it’s neg­a­tive expectan­cy. So, that’s real­ly, your right, that’s the essence of invest­ing. You can­not invest where there’s neg­a­tive expectan­cy, you’ve got to invest where there’s pos­i­tive expectan­cy.

Cameron  03:25

Right. So, num­ber one; the mar­ket always goes up over the long term. Num­ber two; the mar­ket goes in cycles. Pos­i­tive to neg­a­tive, then back to pos­i­tive, cri­sis to boom and back again.

Tony  03:36

That’s — what’s it called? Not Fibonac­ci? No. It’s Man­del­brot. The mar­ket’s a Man­del­brot: you can look at it between the hours of ten and eleven and it will do the same thing. You can look at it between the hours of ten and four, it will do the same thing. You can look at the hours, you know, over the month of March, it’ll do the same thing over the year, over a hun­dred years. It goes up and down in cycles, but direc­tion­al­ly, it goes up. And it has to. Going back to point one: if the stock mar­ket isn’t going up, the econ­o­my’s going back­wards. Gov­ern­ments are in dis­ar­ray. We have many more prob­lems to wor­ry about than the stock mar­ket if it’s not going up. And that’s why every­one pulls all the stops out if they’re a reg­u­la­tor or a gov­ern­ment to ensure the stock mar­ket goes up.

Cameron  04:22

Num­ber three; in between those cycles, it’s always errat­ic. Good weeks and bad weeks.

Tony  04:26

And Test­ing.

Cameron  04:28

Test­ing?

Tony  04:29

And test­ing. It’s always test­ing you.

Cameron  04:31

Oh, test­ing you. Yeah, right. Num­ber four; there’s no crys­tal ball to tell you when the cycle changes from pos­i­tive to neg­a­tive.

Tony  04:39

The mar­ket nev­er rings a bell when it’s at the top or the bot­tom.

Cameron  04:42

Num­ber five; stay ful­ly invest­ed, even dur­ing the neg­a­tive cycles, because you nev­er know when it has turned around until you have hind­sight.

Tony  04:50

Yeah, I mean, there’s times we’ll go to cash, or at least part­ly to cash. But yeah, gen­er­al­ly, stay invest­ed. As we were talk­ing about with Tim Lin­coln, the mar­ket does­n’t ring a bell at the bot­tom, but you can sense capit­u­la­tion when peo­ple start sell­ing out. Just like you’re get­ting with ques­tions now, “what are we going to do?” This is exact­ly the time when peo­ple change style, change their invest­ment phi­los­o­phy, or just sell out. And when that hap­pens, it’s almost like the decks are cleared and the mar­ket takes off again.

Cameron  05:17

I’ve had a cou­ple of peo­ple, not mem­bers, I think, but peo­ple who are light mem­bers, I think, say­ing, “I’m just gonna go to ETFs.” I’m like, “that’s fine. Just go to ETFs. If you can’t stom­ach it, like, that’s great. I mean, you know, this kind of invest­ing isn’t for every­body. Yeah, you’ve got to have the stom­ach to just wait it out.”

Tony  05:38

Yeah, going to ETFs is bet­ter than going to cash or putting it some­where else in anoth­er invest­ment class, yeah.

Cameron  05:44

Six; only buy stocks when you can buy them at a sig­nif­i­cant dis­count to their intrin­sic val­ue.

Tony  05:50

Why over­pay? There are two thou­sand stocks on the stock mar­ket, why would you over­pay for one?

Cameron  05:55

Sev­en; over the long term, the stock price of com­pa­nies that con­sis­tent­ly per­form well, i.e., gen­er­ate lots of free cash, should do bet­ter than the stock price of com­pa­nies that don’t per­form well.

Tony  06:05

Yeah, well, you can see that in your local cof­fee shop, can’t you? Two cof­fee shops are next to each oth­er; the one that’s bright­ly lit, clean, you know, hap­py smil­ing staff, is gonna do bet­ter than the one that has­n’t had a sweep, the win­dows are board­ed up, and the guy’s smok­ing behind the counter as he’s talk­ing to his SP book­ie while he’s try­ing to make you cof­fee. It’s just obvi­ous that one does bet­ter than the oth­er.

Cameron  06:30

Like I just said to Tim about Stock Doc­tor which I think they do a real­ly good job of, have a good prod­uct and give great cus­tomer ser­vice. I think they do both of those, and I think any busi­ness that does both of those tends to out­per­form busi­ness­es that don’t do those over the long term. And eight, this is where I fin­ished right now; think long term, but pre­serve cap­i­tal by set­ting stop loss­es, then rein­vest­ing those funds as soon as you can.

Tony  06:57

Cor­rect.

Cameron  06:58

Any­thing I’ve missed out?

Tony  07:00

Well, as I said to Tim in that last inter­view, I think you have to be aware that when you start down this path of invest­ing for your­self, you’re doing it for the rest of your life. Don’t think this is the train that’s going to stop in a sta­tion so you can get off and do some­thing else. Well, you can, but to make it work you’ve got to stick to it for the rest of your life.

Cameron  07:18

Yeah. I think about putting these up on the web­site, because I think just try­ing to encap­su­late the think­ing that you’ve impart­ed to me about invest­ing over the last four years, the phi­los­o­phy, I guess, of how you invest and just try­ing to cap­ture that. Because as Tim said, it has been a dif­fi­cult two and a half years for investors, and it may con­tin­ue to be dif­fi­cult for some time. But I just keep remind­ing myself it always goes up over the long term, so we just keep doing what we’re doing, and I don’t real­ly care if the port­fo­lio goes up a lit­tle bit, down a lit­tle bit, up again, down, I have to sell. I don’t care. As I said to you off-air before, I’m kind of bored by all the doom and gloom in the news, in the mar­ket­place right now, of a bank col­laps­ing and being bailed out and this and that. I’m like, “ah, you know what, I real­ly don’t care. Like, the reg­u­la­tors will do what the reg­u­la­tors do, gov­ern­ments will do what the gov­ern­men­t’s do, the mar­ket will go up or it’ll go down.” But even­tu­al­ly, it’ll go up. And you know, our port­fo­lios will do well when the mar­ket sta­bilis­es and goes up when the con­di­tions are right. In the mean­time, we’re just min­imis­ing the dam­age by let­ting stuff go if it drops too far and play­ing a good safe game of chess.

Tony  08:33

Well, yeah, and tak­ing the emo­tion out of it. That’s the impor­tant thing. The last cou­ple of weeks have been real­ly tough for me, too. I’ve had this kind of death spi­ral of rule one sells, and three-point trend sells, and com­mod­i­ty sells, and then I’ve found myself in gold min­ers, gold stocks, right?

Cameron  08:50

It’s all gold.

Tony  08:51

Yeah. And then I’m sure, you know, in a year’s time, or how­ev­er long it’s gonna be, the banks are gonna be super cheap and we’re gonna be in bank stocks. It’s like, I don’t have to pre­dict it, think about it, all I have to do is do it.

Cameron  09:02

I was laugh­ing about play­ing a safe game of chess, because I was hav­ing break­fast with the boys on Sun­day morn­ing. Tay­lor and Hunter were hav­ing a game, and Tay­lor is gen­er­al­ly the best play­er out of the three of us by a long­shot, but he strug­gles play­ing his twin broth­er for some rea­son. There’s this, like, psy­cho­log­i­cal issue. Any­way, halfway through the game, Hunter was crush­ing him. Like, he played this sequence of moves that was tac­ti­cal­ly bril­liant and absolute­ly had Tay­lor on the ropes, and it was real­ly impres­sive stuff. And I said to Hunter, “what­ev­er you do, don’t get cocky right now.” Because it’s like The Doc­tor, if there’s one per­son you nev­er want to put in a cor­ner, it’s Tay­lor with a game of chess. Hunter was like, “no, no, absolute­ly not.” No, it’s what he called “park the bus.” He said, “when we played soc­cer, we had this thing if you get a goal up you just park the bus in defen­sive posi­tions. You don’t let any­thing through, don’t take any risks.” And I said, “right, that’s good.” And then Tay­lor crushed him. Tay­lor beat him and absolute­ly came back from hav­ing a seri­ous deficit and crushed him. It was insane. They both played so well in this game, it was super impres­sive. But yeah, any­way, so play­ing a defen­sive game, that’s how I think of QAV right now. We’re just play­ing defen­sive­ly. The mar­kets are all over the place and we’re just like, “okay, well, we sell stuff when it breach­es the stop loss and buy some­thing else, and just keep rotat­ing the dice and just wait­ing for things to turn around.” And they will. Don’t know when, but they will. And when they turn around, we’ll do well. And that’s just how it goes.

Tony  10:46

Yeah, I mean, I know a lot of peo­ple are draw­ing par­al­lels between now and the GFC and I don’t think that’s valid, because I think it’s com­plete­ly dif­fer­ent. There are some things to com­pare, I guess, but to con­trast as well; bank­ing being par­tic­u­lar­ly one of them. But what does feel like the GFC is just how the port­fo­lio is going down. And, you know, we’re hav­ing to pay atten­tion to it a lot more than what we’d like or what we’d nor­mal­ly do. But I’m glad I went through the GFC, because that gave me the expe­ri­ence to know that port­fo­lios can go down a lot. But, you know, even­tu­al­ly they’ll come back, and then when they do come back, they come back like a freight train. And if you’re not there when they come back, you go back to mud­dling through. You’ve missed out on the big game. So, it’s impor­tant to be there.

Cameron  11:29

Well, our port­fo­lio actu­al­ly is doing quite well — the dum­my port­fo­lio, I’m talk­ing about. So, I was doing my week­ly report this morn­ing, and from incep­tion, we’re now up 16.81% per annum ver­sus the STW up 6.3% per annum. So, we’re still doing two and a half times bet­ter than the STW since incep­tion. And for new lis­ten­ers, that’s since the sec­ond of Sep­tem­ber 2019. For the finan­cial year, you know, we’ve been under­per­form­ing but we’re under­per­form­ing by a lot less right now than we have been. The STW is up 10.95% for the finan­cial year, we’re now up 7.38%. So, a cou­ple of months ago, it was doing twice as well as we were for the finan­cial year. Now we’ve cut into that quite a lot. And the last sev­en days is actu­al­ly kind of inter­est­ing. You know, there’s been a lot of red, but then you’ve got LAU which is up 15.5% in the last sev­en days; RSG is up 7.5% in the last sev­en days. A lot of the oth­er stocks have just been, sort of, neu­tral. But when I look at this quar­ter that we’re still in, from the first of Jan­u­ary through to the end of March, our port­fo­lio is up 1.81% ver­sus the STW, which is up 0.31%. So, we’ve sort of been turn­ing around our per­for­mance vis-a-vis the STW this quar­ter. Like it was­n’t that way a month ago;   ago, it was well ahead of us for the quar­ter. But just in the last few weeks since the SVB col­lapse and all that kind of stuff has been going on, we’ve actu­al­ly recov­ered quite a lot.

Tony  13:16

Yeah. And in some ways, it’s kind of sur­pris­ing to hear the STW is up 10% odd for this finan­cial year, giv­en every­thing that’s hap­pened this finan­cial year. So, the banks have had a good run, I guess, with ris­ing inter­est rates which has sup­port­ed the STW. But yeah, I ful­ly expect­ed that not to last.

Cameron  13:33

Yeah. So, it’s inter­est­ing how things turn around. Any­way, that’s my port­fo­lio updates. But yeah, as I said ear­li­er, there’s been a lot of sell­ing, very lit­tle to buy. I think I bought some more OML today for the dum­my port­fo­lio.

Tony  13:47

Shoot, I’m going to talk about that today. That’s the pulled pork.

Cameron  13:50

I know, I saw that. Any­way, yeah, it’s been very slim pick­ings out there. Near­ly every­thing’s either hav­ing a down day or there’s a few things that are good in the buy list but I already own, you know, two parcels of every­thing because they’ve been the only things, I’ve been able to buy for the last few weeks. So, yeah. Com­mod­i­ty updates this week: there were a few changes. Let me just bring up the buy list to refresh my mem­o­ry. Ther­mal coal has offi­cial­ly become a sell in the last week, which caused a lit­tle bit of hav­oc with some of my stocks. Wheat became a buy again; did­n’t real­ly save GNC, though, in my port­fo­lio. And a Josephine for lithi­um this week; I know that we’ve got one lithi­um stock, I think, that we’ve been talk­ing about. Every­thing else, iron ore is still a buy, gold is still a buy. Looks like cok­ing coal is a Josephine, not sure where that’s… Oh no, it’s a buy still. It’s just popped its head up.

Tony  14:58

No, I got that wrong. When I sent you an email, I made the mis­take of look­ing at the week­ly graph, not the month­ly graph.

Cameron  15:07

Yeah, it’s just a buy. It’s bro­ken through its 2BL. But crude oil is a sell; cop­per and plat­inum are Josephines; alu­mini­um is a sell; zinc and tin are Josephines; mag­ne­sium is a sell; man­ganese is a Josephine; steel is a buy, but LNG is a Josephine; nick­el is a sell; iron and steel scraps is a buy; and then tita­ni­um diox­ide, our newest entrant, is still a buy. But very, very chop­py on the com­mod­i­ty mar­kets at the moment.

Tony  15:38

And just fol­low­ing up from the last show we did, I sold my South 32. I think you did from our port­fo­lios. You asked the ques­tion because I think alu­mini­um was half of South 32 was a sell. When I dug into it, I thought, yeah, the major­i­ty of the things it had were either Josephine’s or sells, so I think we should sell it.

Cameron  15:55

Also fol­low­ing on from last week, Mark Dug­more, one of our min­ing guys, ral­lied to the call talk­ing about min­er­al sands. He said, “the prices for the heavy min­er­al sands prod­ucts, rutile and ilmenite.” Yeah, sor­ry, Siri just start­ed talk­ing to me. “rutile and ilmenite, the min­er­als as source for tita­ni­um met­al (think paint on the out­side of your house, in the plane you next fly on, or in TK’s golf clubs) and zir­con (think tiles) are dif­fi­cult to find on a reg­u­lar month­ly basis. Ilu­ka Resources,” ILU on the ASX, “will some­times have the bench­mark prices in their ASX releas­es, but you can nev­er get an up-to-date price graph. I tried to graph it some time back but gave up because of the time lag.” And he’s giv­en us a cou­ple of charts to have a look at. But thanks for that, Mark. It’s always good to have peo­ple that are in the know help us out with that stuff. But it looks like it’s just going to be dif­fi­cult to get real time charts for min­er­al sands.

Tony  17:00

But you did find one for tita­ni­um diox­ide, yeah?

Cameron  17:03

Yes. That’s the only one that I real­ly have that’s of any use.

Tony  17:09

Okay. Which is good. That’s a min­er­al sand.

Cameron  17:12

It’s some­thing. So, what have you got on your list of things to talk about today, TK?

Tony  17:19

Yeah, just a cou­ple of things. I did a down­load to decide what to do the pulled pork on, and the stock I was going to do is called BRB. I’ve for­got­ten what that stands for. Any­way, it was under takeover today, and the com­pa­ny that was tak­ing it over is RMS, Ramelius Resources, so we’ve got one stock on the buy list tak­ing over anoth­er stock on the buy list today. I decid­ed not to do BRB because it’s up some 30%, it had a big jump yes­ter­day. That’s Break­er Resources NL, is BRB, had a big jump yes­ter­day when Ramelius decid­ed to lob and offer.

Cameron  18:01

Good luck to any­body who owns that. I don’t.

Tony  18:04

I decid­ed not to do a pulled pork just to pre­serve that jump in the price of BRB. But yeah, it’s been on the buy list, so good luck to any­one who owns it. I did want to talk about bank­ing, I do agree with you 100%, that it’s noise, but there’s a lot going on and it is inter­est­ing to just lift the lid a lit­tle bit. I want­ed to talk about two things. One was the fact that in the takeover of Cred­it Suisse by UBS, the Swiss reg­u­la­tors have writ­ten down the bank hybrids to zero, and that was a thing which caught my eye out of all the whole dis­rup­tions in the in the bank­ing world this week. And why does that inter­est me? Because, I mean, do you know what a bank hybrid is, Cam?

Cameron  18:52

No, I’m hop­ing you’re going to explain all of that to me. Is it a bank that runs on elec­tric­i­ty instead of petrol? No?

Tony  19:00

Well, you know, some­times I think Cred­it Suisse was run­ning on hot air. But any­way, it’s just anoth­er form of bond — or it’s not a bond, it’s a type of bond. So, that’s why it’s called a hybrid. It’s got some char­ac­ter­is­tics of being a bond and some char­ac­ter­is­tics of being equi­ty, in oth­er words, a share. And so, banks will often issue these, which have char­ac­ter­is­tics of being a bond. They pay a yield and then return the cap­i­tal at the end. Or they have the right, or some­times you have the right, to con­vert the out­stand­ing amount into shares, into equi­ty. So, they’ve been around for a long time. A lot of retail investors in Aus­tralia in par­tic­u­lar will invest in bank hybrids. I nev­er have, I don’t know much about them. To me, it’s as much about the cred­it risk as well as the price of the bond. So, I think it’s a fair­ly spe­cialised area, but like a lot of things in mar­kets, peo­ple have got­ten used to them, retail investors buy them, and they tend to price them against oth­er bank offer­ings. They always have strange names, like, Comm­Bank issues “Pearls”, oth­er banks issue hybrids with dif­fer­ent names, and they have slight­ly dif­fer­ent char­ac­ter­is­tics and slight­ly dif­fer­ent prices. But peo­ple will gen­er­al­ly say, “oh, well, the newest issue of CBA hybrids pays bet­ter than the lat­est issue of anoth­er bank shares,” for exam­ple. I tend to think they may have got­ten away from the fun­da­men­tals of invest­ing in this area, which is to work out whether you’re being paid for the risk of being owed the mon­ey by the bank. Any­way, it’s a big part of our mar­ket. Most investors, most of the gen­er­al pub­lic, haven’t heard of it, but it’s there. And it’s been treat­ed as if you’re invest­ing in a gov­ern­ment bond, or at least in a big cor­po­rate bond, so your mon­ey return is assured. But as the peo­ple in Switzer­land just found out, who invest­ed in the Cred­it Suisse hybrid, the reg­u­la­tor wrote those $17 bil­lion worth of hybrids down to zero when it got UBS and Cred­it Suisse in the room and knocked their heads togeth­er and said, “right, UBS: buy Cred­it Suisse.” Cred­it Suisse went “nah, we’re not going to hon­our these hybrids.” The reg­u­la­tors said, “oh, yeah, read the fine print. We have the abil­i­ty to write them down to zero.” And they did. So, I guess where I’m com­ing from is in the GFC, before the GFC, no one knew what a col­lat­er­alised debt oblig­a­tion was: a CDO, and a syn­thet­ic CDO, etc., etc. But they sure did dur­ing the GFC. And, you know, this is kind of one of the hall­marks of these things, when sud­den­ly we find out that there are all these prod­ucts cir­cu­lat­ing under the hood of the bank­ing sys­tem which we nev­er hear about, and sud­den­ly ones just col­lapsed. I read in the Fin Review today that the hybrids in Aus­tralia had been marked down 3–5% because of that. So, I’m not say­ing we’re in any­thing like the GFC, but again this is an exam­ple of the prod­ucts that are there in the bank­ing sys­tem which can become frag­ile under stress. That leads me to point num­ber two, which is that bank­ing is just real­ly all about trust. I sat down with Jen­ny the oth­er night and had a quick chat about this because of her expe­ri­ence in bank­ing, and I posed the ques­tion today to her, and I said, “if every­one in the world want­ed to with­draw their deposits, how much do they get?” And she said, “Well, they get the gov­ern­ment guar­an­tee.” And that’s it. Because the way bank­ing works is it takes deposits and it rolls them up and then it lends them out in home loans or in oth­er ways, busi­ness loans, cred­it card port­fo­lios, what­ev­er. Or it uses them as secu­ri­ty to go and do oth­er things and issue bonds and things like that. So, accord­ing to Jen­ny, the way that the reg­u­la­tor’s stress test the banks — and I have to, you know, sort of paren­the­sized this com­men­tary by say­ing the Aus­tralian banks are prob­a­bly the best reg­u­la­tors in the world. Aus­tralian banks and Cana­di­an banks were the only banks that came through the GFC pret­ty much untouched, and they’re very well reg­u­lat­ed. And the reg­u­la­tor in Aus­tralia, APRA, the Aus­tralian Pru­den­tial Reg­u­la­to­ry author­i­ty, is very, very good at keep­ing the banks up to scratch in terms of their risk pro­files, because they know that the banks are impor­tant to the econ­o­my. And if the banks aren’t robust, then the whole econ­o­my is going to have prob­lems. So, it’s very well reg­u­lat­ed in Aus­tralia. How­ev­er, APRA requires the banks to go through stress test­ing every now and then on a peri­od­i­cal basis, and one of the things it mod­els is a bank run. They also mod­el oth­er things like, you know, dra­mat­ic rise in inter­est rates, dra­mat­ic fall in inter­est rates, what hap­pens in a reces­sion, all that kind of stuff. And they try and make sure that the banks have enough cap­i­tal to see them through any sort of stress on the econ­o­my like this. But when I asked Jen­ny about the bank run stress test, she said, “yeah, they mod­el the liq­uid­i­ty of a bank on a on a thir­ty-day basis.” So, if every­one wants to get their mon­ey out of the bank in the next month, how are they able to do that? That works on thir­ty days, but, you know, the SVB run hap­pened in two hours. And some of the runs on Cred­it Suisse have hap­pened because of the dig­i­tal way that bank­ing works very quick­ly now, as well. So, stress test­ing for thir­ty days isn’t going to cut it in this dig­i­tal world. Now, I’m not try­ing to make peo­ple wor­ry about the banks, but it is built on trust, right? If we all want to get our mon­ey out tomor­row, we get the gov­ern­ment guar­an­tee. If we all want to get our mon­ey out with­in thir­ty days, we might get anoth­er 10–15 cents on the dol­lar, which is every­thing the bank can liq­ui­date with­in thir­ty days, which is gen­er­al­ly gov­ern­ment bonds. There are some oth­er sub­sti­tutes there. And then it goes into oth­er lev­els of risky assets and illiq­uid assets, like hybrids, and even­tu­al­ly, mort­gages. So, in the worst-case sce­nario, if the bank had to pay out all its deposits, it may have to come and take away our house. Sell it, get the mort­gage back if we can’t pay it back, and then pay out the depos­i­tors. That’s nev­er hap­pened, but that’s how it has to work if depos­i­tors want to get their mon­ey out. So, bank­ing is built on trust.

Tony  19:01

And after the Hayne Roy­al Com­mis­sion…

Tony  19:02

Well, Hayne was sort of a dif­fer­ent thing. Can you trust the bank? Yeah, sure I get that. But it was­n’t about stress test­ing a bank.

Cameron  19:15

No. Dif­fer­ent kinds of trust.

Tony  25:20

Dif­fer­ent kinds of trust. But that’s always got to be there. And I think in the back of peo­ple’s minds in these sit­u­a­tions is that if every­one wants to get their mon­ey out, a) they can’t, and b) that’s the end of the bank­ing sys­tem.

Cameron  25:30

And what is the amount that the Aus­tralian Gov­ern­ment will guar­an­tee?

Tony  25:37

$250,000. And peo­ple should look it up them­selves, because I’m not sure whether that’s per account or per house­hold, or what? So, yeah, I mean, Jen­ny and I are think­ing now about split­ting out deposits up over dif­fer­ent banks so we can make sure we get it back if there’s a prob­lem.

Cameron  25:56

Not cryp­to?

Tony  25:57

No, not cryp­to.

Cameron  25:58

That’s the cure for all of this, Tony.

Tony  26:00

Meant to be. Or gold.

Cameron  26:03

I saw some­body post­ed the oth­er day the cryp­to price and how it’s fall­en, along with every­thing else recent­ly, say­ing, “oh, hold on a sec­ond, I thought this thing was sup­posed to be con­trary to the world.” Although to be fair, bit­coins had a good run in the last week and a half. But yeah, it actu­al­ly has had a good run since Jan­u­ary.

Tony  26:28

Yeah, okay. I’m gonna play a clip if I can work out the tech­nol­o­gy here from a very old movie called It’s A Won­der­ful Life, and it talks about a bank run. And these things have been around since banks, basi­cal­ly, but this is a good sum­ma­ry of what hap­pened. So, let me just try and cue this up if I can.

26:45

Ernie: “Don’t look now, but there’s some­thing fun­ny going on over there at the bank, George. I’ve nev­er real­ly seen one, but that’s got all the ear­marks of being a run.”

27:02

George: “Now, Just remem­ber that this thing isn’t as black as it appears. I have some news for you, folks. I’ve just found an old man Pot­ter and he’s guar­an­teed cash pay­ments to the bank. The bank is going to reopen next week.”

27:26

Char­lie: “Did he guar­an­tee this place?”

27:26

Ed: “But George I got my mon­ey here.”

27:29

George: “Well, no, Char­lie, I did­n’t even ask him. We don’t need Pot­ter over here.”

27:32

Char­lie: “I’ll take mine now.”

27:35

George: “No… But you’re think­ing of this place all wrong. As if I had the mon­ey back in a safe. The mon­ey’s not here. Your mon­ey is in Joe’s house. That’s right next to yours. And in the Kennedy house, and Mrs Mack­lin’s house and a hun­dred oth­er hous­es. Why, you’re lend­ing them the mon­ey to build and then they’re gonna pay it back to you as best they can. What are you going to do, fore­close on them?”

27:55

Tom: “I’ve got $242 in here, and $242 isn’t going to break any­body.”

28:02

George: “Okay, Tom. All right. There you are, you sign this, you get your mon­ey in six­ty days.”

28:07

Tom: “Six­ty days?”

28:09

George: “Well, that’s what you agreed to when you bought your shares.”

28:11

Ran­dall: “Tom, Tom, Did you get your mon­ey?”

28:12

Tom: “No.”

28:12

Ran­dall: “Well, I did. Old man Pot­ter will pay 50 cents on the dol­lar for every share you’ve got, cash.

28:19

Tom: “Well, what do you say?”

28:21

George: “Oh, Tom, you have to stick to your orig­i­nal agree­ment. I’ll give it six­ty days on this thing.”

28:25

Tom: “Okay Ran­dall.”

28:26

Woman: “Are you going to Pot­ter’s?”

28:27

Tom: “Bet­ter to get half than noth­ing.”

Tony  28:30

Any­way, it’s a good sum­ma­ry. Bank runs have been around for a long time, and basi­cal­ly the clip says don’t for­get that when you demand you’re tak­ing mon­ey out of the bank, you’re actu­al­ly tak­ing it away from the per­son who’s bor­rowed from the bank to build their house next door to you. That’s the inter­con­nect­ed­ness of the bank­ing world. Okay, well, that was me for com­men­tary. I want­ed to do a pulled pork on oOh!media, OML.

Cameron  28:55

I’ll go sell my shares while you get start­ed.

Cameron  1:33:15

The QAV Pod­cast is a pro­duc­tion of Space­craft Pub­lish­ing Pro­pri­etary Lim­it­ed, autho­rised rep­re­sen­ta­tive of AFSL 520442, AFS rep­re­sen­ta­tive num­ber 001292718. Please don’t make any invest­ment deci­sions based sole­ly on lis­ten­ing to this pod­cast. This is pre­sent­ed as gen­er­al advice only, not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ner before mak­ing any invest­ment deci­sions.