June 13, 2025 • 39 mins
This week on the Chanticleer podcast, James & Anthony discuss the fresh record high for the ASX by answering your 10 burning questions about markets, look at how Australia’s IVF sector was plunged into crisis and extract the lesson from markets from the LA Riots
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Episode Transcript
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Speaker 1 (00:04):
The Australian Financial Review.
Speaker 2 (00:08):
Hello, I'm James Thompson, senior chanticleer columnist to the far
Welcome to our weekly news breakdown of all things business,
finance and markets with me today, as always is most
chanta clear colleague. He always keeps the big dogs of
the capital markets on us.
Speaker 1 (00:28):
It's Anthony McDonald.
Speaker 2 (00:29):
How are you Anthony barking mah this week, James rinege fantastic. Well,
this week we mark the fresh record high for the
ASX by answering your ten burning questions about the markets.
We look at how Australia's IVF sector was plunged into
crisis and extract the lessons for markets from the la rights.
(00:55):
All right, Anthony, let's start with the Monash IVF story.
We've talked about some scandals here on the podcast in
recent years, but this one is unbelievable and unbelievably sad
really for those involved. Can you take us through what's
happened here?
Speaker 3 (01:09):
Yeah, James, this is a bit all time chocker. I
reckon mon Nash IVF is. The name suggests IVF provided
a number two in Australia about fifteen or twenty percent
market share, so it's a big player. First, it was
revealed by Melbourn's Herald's son a few months ago that
they bungled a treatment in Queensland where they incorrectly put
the embry of one patient into someone else, resulting in
the birth of a child. Mo Nash blamed it on
(01:30):
human error, commissioned an independent investigation into the incident, called
it an isolated incident. And there's a second stuff up, James,
involving a same sex couple in Clayton in Victoria, and
there's another investigation into that incident. It's all pretty stunning stuff.
And James, we don't cover the IVF sector every day.
I mean, it's one that's really grown a lot in
the past twenty years and it's been a big sort
(01:51):
of change to society, I guess in Australia. But it's
life and the stuff. James, you can't afford to get it wrong.
And I check with someone in the known this just
to double check, you know, I mean, does this stuff
sort of happen and we just don't normally hear about it.
I mean, is this part of the the industry of
birth and fertility and everything? We just don't know about it?
(02:13):
And they said no, No, this is this is extremely
rare globally given the protocols in place, and for it
to happen so soon after the first one, it's shocking.
And remember, James, this company, Monash. I yes, it's only
just settled. A case to do with this destruction of
healthy embryos was a class action from twenty twenty one
and it's settled late last year. I think it paid
fifty six million bucks. And in that case it had
(02:35):
seven hundred former patients alleged the clinic used inaccurate genetic
testing and destroyed potentially viable embryos. So look, James, I'm
not even going to disrespect the people involved by talking
about Monash's share price or earningstawgrades or whatever. But yeah,
it's just a shocker. I mean, you wrote about it.
What did you think?
Speaker 2 (02:51):
Ah, look, just so poorly handled. And you know, as
you say, you feel for the couple's involved and their
families and everyone around this story. It's really awful, really
and you know that the seriousness of it can't be overstated.
But yeah, I think what compounds it for me is
(03:12):
my ashes handled this really poorly. You know, it knew
about the first stuff up back in February, but didn't
tell the market till April when the Herald Sun broke
the story. And then when asked by the ASEX, well,
didn't you think that was meaningful enough to tell investors?
They said, oh, into isolated incident, human error, won't happen again.
(03:34):
Then we get this new bit of breaking news. On Tuesday.
I went to the company and said, surely heads have
got a role here, there's got to be changed. I
got the classic response back that management has.
Speaker 1 (03:47):
The full support of them.
Speaker 2 (03:49):
Heard that for I guess what happens two days later
that goes to CEO.
Speaker 1 (03:53):
What a shock? I mean?
Speaker 2 (03:56):
I said on Tuesday that I didn't think monash ivf
would would survive and it's and I guess that's been
proven right because the CEO has gone. I wonder, though, Anthony,
the stock's been heavily sold off, that there's this is
a pretty fragmented sector. The trust of customers and potential
customers in the monash Iv brand be at rock bottom.
(04:16):
You know, I'd be surprised if there's not more change here. Obviously,
they're going to get the results of this independent review
that they've got to Senior Council doing I mean, there's
just got to be more change at Monash IVF. It's
really hard to see how the brand isn't completely trashed
by these two things, isn't it.
Speaker 3 (04:32):
Yeah? Absolutely, And to have one in Queensland and one Victoria.
I mean this is a very sort of localized thing
that two of the three big estates, two of the
three biggest markets. Yeah, that's that's not good, James.
Speaker 2 (04:42):
And I think, I think, Anthony, there's an industry wide
issue here. You know, the whole industry will be hurt
by this. You know, people will be saying, well, if
it can happen at Monash, if one of the leaders
in the market, maybe it can happen at my IVF provider.
And it's only human to have those thoughts. So I
think the whole industry is going to have a bit
of a cleanup job to do here and needs to
(05:03):
reassure people that their processes are absolutely unimpeachable.
Speaker 3 (05:08):
James, We've been fascinated all week by this protests in
Los Angeles over Donald Trump's handling of the deportation of
illegal immigrants. Our new US correspondent Jess Gardner, a friend
of the pod who's been on the pot in the past. Yeah,
she's now on the ground. The pitches coming out of
there have been amazing, and one of our nine colleagues
was even shot by Robert Bullet James. It's a big drama.
Does it have any implications for our markets?
Speaker 2 (05:30):
Well, look, I think markets have largely looked past the
sort of drama on the streets, But there is an
important story for markets behind this. I mean, one of
the things that America has really grown strongly through in
the last few years is the growth in population and
the growth in the labor market through legal and illegal immigration.
(05:51):
So what you're seeing now is Trump's clamp down on both,
whether it's through these deportations, much tighter border controls. There's
travel bands on several countries outright, bands, which is quite incredible.
What we're seeing now, though, is that the growth in
the population is starting to slow and the growth in
the labor market starting to slow. The risk there is
(06:13):
if the US economy remains resilient, then wages will start.
Speaker 1 (06:17):
To creep up.
Speaker 2 (06:18):
That increases inflationary pressure, possibly keeps the Federal Reserve from
cutting interest rates, and pushes bond yields up. So there
is an economic story under all this, which is quite important.
You know that there's a possibility that this is quite
a negative supply shock for the US market, and one
we sort of didn't expect would be a problem. So
(06:41):
it's worth watching. Obviously, the deportation policy is quite controversial,
but there is a longer term economic impact that I
think most people are missing.
Speaker 3 (06:52):
Yeah, but James, maybe a I saved the day.
Speaker 2 (06:54):
Maybe, yeah, that's true. But look, I mean you remember,
you've got an aging population anyway in America, so bringing
in new workers is really important, as we know in
Australia too, So you just don't want to get into
one of those sort of wage inflation spirals. You're right,
maybe AI will save the day and this will all
(07:16):
be academic, but just just watch this in the next
little while. It's one to watch in the next six
months or so.
Speaker 3 (07:23):
And James, while we're recording on Friday, Israel's just launched
air strikes on what it says are nuclear sites in Iran. Yeah,
what's the likely market reaction there?
Speaker 2 (07:32):
Well, classic market reaction here, Anthony, oil price straight up.
I think it's up eight percent on Friday morning. Gold
price straight up, markets, equity markets, the ax is dipped
a touch, and the Wall Street futures of for Friday
Night's trade of dipped to touch too. Look, I mean
it's what people in markets call a classic risk off move,
(07:54):
and usually these things fade pretty quickly. The one thing
I'd say, though, Anthony, is watch the oil price. The
oil price has come down quite sharply in the last
you know, since the start of the year, basically the
last six months or so, and that's actually been quite
an important thing for bringing inflation down around the world.
So a sudden spike in the oil price, if it's maintained,
(08:16):
and that's the big if, that could be something to
watch too. So that is, you know, the inflation. The
inflation story is never quite over till it's over right.
Speaker 3 (08:25):
Yeah, it's true. A good point about oil, James. I mean,
that's something that really does flow through to just about everything,
you know, just the cost of transport, transport, cost of
raw materials, all that through the roof.
Speaker 2 (08:35):
Yeah. Yeah, Well, Anthony, let's move to our big topic
this week. This week, the ASX two hundred did something
that really seemed impossible about two months ago. It's set
another record high, closing at eight five hundred and ninety
two points on Wednesday, beating its previous records set in
the middle of February. Now, for me, the resident bear,
it's frankly a bit of a strange moment. We're back
(08:58):
at the top in the midst of hu huge global turmoil,
with the Australian economy treading water, and with Australian companies
heading for a third straight year of profits going backwards.
But Anthony, to mark this moment, we've decided to do
something a bit different on the podcast. Our dear listeners
have been inundating us with questions in recent weeks, which
we absolutely love. So we're going to use this new
(09:20):
ASX high as a moment to answer ten of your
top questions on the local market now to help us.
So it's not just our boring voices yabbering at you
the whole time. We've enlisted our producers Alex and Mandy
to read out the questions on your behalf. So let's
get stuck in. Mandy, can you ask the first question?
Speaker 3 (09:38):
All right?
Speaker 4 (09:38):
Joseph Martis asks, given the general theme that the share
price of the ASX Magnificent one that's CBA, of course,
is being driven above traditional valuation factors by the demand
created by ETFs in turn driven by super fund investment
flow demand. Why is BHP, which is our second biggest
(09:59):
ASA company with a waiting of seven point six percent,
not experiencing a price surge like CBA.
Speaker 2 (10:08):
Well, I think, Joseph, there's two answers to that. The
first one's name is Donald Trump. The second one's name
is China. So what investors are looking for at the
moment is there looking around the world for domestically focused
stories that are sort of hidden from the impact of tariffs. Now,
CBA perfect example. It's basically a bet on the domestic
(10:31):
Australian economy. It's a huge company, it's very liquid, so
you can get in and out nice and easily. BHP's
got a lot of those characteristics, Anthony, but it's still
so exposed to China. And if you're in the middle
of a trade war between the US and China that
seems to sort of be on a roller coaster every
second day between war and peace, then you're better to
(10:53):
lessen your exposure to those big China stories, aren't you.
Speaker 3 (10:56):
Yeah, I agree with you on that one, James. The
other thing i'd say about CBA well, it's a big stock.
It's not that liquid like it's got retail shareholders own
just over half the company, and they're very sticky. You know.
They've been selling a little bit as the shap bross
goes up, but not a lot. They don't want to
crystallize these big capital gains for tax purposes. So you've
got a lot of long term shareholders there, whether they're institutional, retail, whatever,
(11:18):
can't afford to sell because of the tax it will crystallize.
So I'd argue the free float is actually about half
the company or so not not the full size. I'm
like BHP, where you've got a lot more trading in
and out every day.
Speaker 2 (11:29):
Yeah, half of CBA is still a pretty big company
there right now. A good point. All right, let's have
our second question.
Speaker 5 (11:36):
Okay, guys, Danny from Victoria. He'd like to know if
you two think CSL is a good long term stock.
Speaker 3 (11:43):
One hundred percent. I do, Danny. I'm not making any
buyholder sell call on this, and it's not my place
to give advice and by no means of my own
institutional investor, but if you're asking me if it's a
bloody excellent company still CSL. Then the answer from me
is yes, I mean hasn't lost it shineing in recent
years from a shap price perspective. Absolutely, But I think
(12:05):
what you've got to understand about CSL is three things
a sort of crunched in the past five years, Danny.
So first of all, the industry structure deteriorated, so the
cost of gathering plasma, which is core to their products,
went up for various reasons, started happening in COVID and
its crunch margins. The second thing is that it's just
been poor from a capital allocation perspective. So if you
CSL was one of the shrewdest spenders and investors in
(12:27):
its own business, it went out there paid way too
much money for a big business called V four, which
was US twelve billion dollars and arguably it's big R
and D spend has been spent in the wrong places
in recent years. And the third thing is tariff's Danny,
I mean that's overhanging this company. CSL's on the front
foot saying don't worry too much about the tariffs, but
(12:47):
there is concern that big farmer the farmer industries on
the nose and it's going to get crunched hard. So
those three concerns have really weighed on the share price
quite amazingly in the past four or five years, Danny,
to the point where CSL's gone from one of our best,
shiniest blue chip companies trading at forty times forward earnings
(13:08):
to trading at about half that. Like it's quite an
astounding fall, and instead a lot of that money's gone
to CBA. Now, I would say those three things. CSL's
trying to fix the three of them. The industry structure
is still good, it's working on the capital allocation piece,
and it's trying to prove that the tariffs one going
to be a long term problem.
Speaker 2 (13:26):
Yeah yeah, well said up. One of my favorite sayings
in markets is from a guy called James Aitken who
says everyone wants to be Warren Buffett until they have
to be like Warren Buffett, and Warren Buffett always likes
to invest for the long term. Right. Well, there's no
company I reckon in Australia that thinks about the long
term as well as CSL does. That they are constantly
(13:47):
looking ten, fifteen, twenty years out because that's how long
it takes to develop these drugs. They never take the
foot off R and D, and look, I think that's
why over the long term, this is a good stock
to be in. All right, let's hear from our next question.
Speaker 4 (14:03):
This is from Sue. She asks, what is the payout
rate of private insurers? Does this explain why the share
prices of IAG and Medibank have done so well in
the past year.
Speaker 2 (14:14):
Yeah, this has been a hot topic, Sue in the
last little while with Healthscope going under. Are the health
insurers keeping too much of the pie?
Speaker 3 (14:22):
So?
Speaker 2 (14:24):
Morgan Stanley analyst Andre Stadnik, he's done the numbers for US.
So private health insurers collected twenty nine point four billion
dollars worth of premiums in the twenty twenty four financial
year and they paid out eighty four point two percent
of that, So that's not too far off long term averages. Actually,
so the claims they're holding too much back, well, I
(14:46):
guess pre COVID that the numbers were around eighty seven percent,
So yes, they've increased their profit hold a little bit,
but not too much. Interestingly, Anthony Home and Motor Insurance,
they pay seventy one of their premiums collected back, so
that's a fair bit of profit, isn't it It is?
Speaker 3 (15:05):
It is, Yeah, so very important to separate these to
their James like obviously Medy been private private health insurance,
IAG completely different. It's general insurance. So yeah, homes car's
commercial insurance. I mean, why it's done well basically the
nine claims environment. Like I know we've had floods up
in Tare recently, we had the big Lismore ones a
few years ago. But James has been pretty lucky in
terms of the big disasters in the areas where it
(15:27):
has really high exposure Brisbane, Sydney, Melbourne basically the biggest areas.
If you get a giant hailstorm that hits some car
yards in Sydney, Melbourne or Brisbane, you have a really
bad year for IAG. I mean that's that's how it goes.
It's it's actually offloading a lot more risk as well,
and they've kind of discovered some of the magic of reinsurance.
Speaker 2 (15:48):
Yeah, absolutely absolutely. Let's hear from our next question.
Speaker 5 (15:52):
All right, Tony from Queensland, and he wants to know
how high do you think Sigma shares will go and
perhaps you could tell us what Sigma does and how
it makes its money.
Speaker 3 (16:03):
Sigema's a big wholesale supply into chemists and also owned
a few chemist chains of its own. Now it was
a reasonly small Australian company James until it bought Chemist
Warehouse in a deal that concluded last year. And as
for how much further their shares can run, look, I
don't know, and I think it would be remiss of
me to speculate. But what I will tell you, though, Tony,
is that the more we hear about Chemist's Warehouse, the
more the market gets to learn about them, since they've
(16:25):
listed via Sigma Healthcare. And the more that we learn
about how Chemist wa House thinks about the basics right,
just the real basics of retail price, product promotion place,
the more I think that we understand this is a
really impressive story. There's plenty of growth in this thing
if it doesn't get too big to manage, and they
can keep it all together. This thing's got growth in
Australia in each of its states. It's got growth off
(16:49):
sure that I mean they're pushing into a bunch of
markets off Sure James only in small ways, but often
with JV partners and stuff like New Zealand, Island, China Jubai.
And that's interesting to me because it comes as where
seeing this real retreat from offshore by a bunch of
Australian businesses. Only this week we saw Quantas, for example,
shut down or say it's about to shut down. It's
Jetstar International business that's run out of Singapore. Now, James,
(17:12):
I think this Chemist Warehouse, which we kind of think
of Sigma as chemists warehouse now because that's ninety percent
of the business. Basically, it's making more money than we
expected when it got put into Sigma. Sigma was the
wholesale supplier. It turns out putting a wholesale supplier into
the actual retail operations that's churning out more profit too.
(17:33):
Who would have thought, James vertical integrations a great business
move for them? So I think this in terms of
the share price, it's hideously expensive. Sigma shares are three
dollars plus. You could buy them for less than a
dollar for most of the past twenty years. It's trading
more than fifty times forward profits. It's very expensive. But
I mean this Chemist Warehouse is just an absolute machine. Yeah.
Speaker 2 (17:55):
Look, I mean it's it's up one hundred and eighty
percent in the last in the last year, so that's
how much further can it run? I think I think
it's a legitimate question, actually, Tony's asking. I reckon there's
two factors that I'd want to watch. I want to
be certain that Mario Verocki, the CEO of the Chemists
Warehouse business, and the Gants brothers who co founded that
(18:18):
with him. I want to be certain they're sticking around.
Those guys are the key that they are the magicians.
They've got the secret source in bottles out the back
of the Chemist's Warehouse and I want them. I want
them there to smother across this business for many years
to come. And I guess I want the U. Yeah
to your point about Australian businesses going offshore, I'd want
(18:39):
a bit more evidence that this model works in other places.
You know, it sounds pretty logical, right, everyone likes cheap medicines,
aging populations everywhere. This will work everywhere. But there's something
quite uniquely Australian about Chemist's Warehouse too. You know, it's
not on an episode of Bluey for nothing. It's a
(19:01):
very Australian beast. And I just want to I want
to learn a bit more about how that overseas expansions going.
Let's have the next question.
Speaker 4 (19:09):
Guy, what wants to know have real estate investment trusts
had their run or with interest rates dropping, is their
border come.
Speaker 2 (19:16):
I think interest rates are really important here, guy, they're
coming back. That'll help the real estate investment trusts. But
I reckon the bigger thing that real estate investment trusts
have in their favor is the three maybe four great
property shortages of Australia. We all know about the housing one,
but Anthony, we're not building many new office towers at
(19:38):
the moment, and maybe that's maybe that's a good thing,
but we're certainly not building them in the prime locations
in Sydney and Melbourne at the rate we were. We're
not building many more supermarkets. There's hardly any new retail space,
not many new greenfield shopping centers, so not many brand
new shopping centers. There are extensions to existing shopping centers,
(19:58):
but not many new shopping centers. And we're not building
a whole lot more commercial property either. So there's a
chance that if the economy can continue to grow even
at the sort of relatively poor pace that it's been
growing at, in recent years, we get to this point
where we've got a shortage of good retail property, and
(20:20):
if you can find those real estate investment trusts that
have got the right properties in the right places, I
think those existing properties become even more valuable commodities, don't they.
Speaker 3 (20:31):
Yeah, I agree, James. I mean the past five years
we've seen an absolute rebasing higher in terms of what
it costs to build a property. So anything that you've
already got in the ground is much more valuable than
it was in the past, just because the cost to
rebuild it's so expensive. And Guy, I can tell you
there's a bunch of institutional investors find managers who are
trying to pick the bottom in terms of the price
(20:52):
of the rates. I mean, they're still interested in them.
You've got to be careful. We all know what happens
to people that pick bottoms, James. But there's a lot
of sectors watching trading. A discount still five percent plus
across the ASEX three hundred reit sector. That's more than
it is normally, so they reckon that. There's fire. Managers
are telling us they're still value in Australian real estate.
They're just trying to pick the right moment.
Speaker 1 (21:13):
Yeah, that's right.
Speaker 2 (21:15):
Yes, I'm still getting over your picking bottoms comment. Sorry, Anthony,
but let's move on to the next question while we can.
Speaker 5 (21:22):
All right, we're into the back half. Patrick from Beautiful
Victoria asks Trump's election caused a slump in green energy stocks,
following the principle that you buy stocks that are out
of favor against longer term themes. Is the sector not
a massive bargain at present?
Speaker 1 (21:40):
That's a great question, it is.
Speaker 3 (21:42):
I do love a contrarian. Yesh, me too, And yeah,
absolutely it can be a great time to invest. But you
have to ask, is a slump cyclical of structural Has
Trump throwing the renewable tracks so far off path the
industry will not exist the extent we thought it would.
I'd say probably not to that, James. Sure, it's not
happening as quickly as maybe was expected a couple of
(22:04):
years ago. You know, the energy transition is slower as
we talked about all the time this pod. They are
a stack of renewables though in the grid, James, is
a stack plan for the grid. We're not in the
business of turning down energy at the moment. The world
is energy hungry, and it's going to get more energy
hungry as the AI and electrification of everything takes place.
But the problem though, Patrick, and if you're thinking about Australia,
(22:26):
there's not many green energy stocks. I mean, the biggest
renewables developers here ag on Origin Energy, and I'm not
sure you'd call them green energy stocks. They're huge polluters.
You know, they own the big coal fired power plants.
And I really like Origin. I like the way it
goes about it. I like I think there's got some
very valuable assets and I'm pleased to see it's still
listed on the AX. But I wouldn't consider it a
(22:47):
green energy exposure though. I mean, we used to have
a few wind energy developers Infigen and Tilt. They both
got snapped up. There was a hydro developer, gen X,
got pretty crappy. It was bought last year. There's not
a lot out there for you, Patrick, unless look offshore.
Speaker 2 (23:01):
Well, and I think that goes to the story here,
isn't it. It doesn't think you need lots of patient capital,
which the public markets sometimes aren't great at, and so
a lot of these assets have ended up in private hands.
But look, I'm with you, you know you think about Victoria.
At the moment, Anthony, our big coal generator is sort
of on the blink at the moment. We've used in
(23:21):
a couple of days thirteen percent of our budgeted gas
for the whole year just to keep our houses warm
and the lights on. So you know, I think that
says that we need to get this renewable and we
probably need more gas, but we need the renewable energy
to really come in and help bridge that gap. So
I like your approach here, Patrick. I guess it's a
(23:42):
bit like that question about the real estate investment trusts
picking the bottom. Here is the tough bit, because I
mean I was reading this week. I think Trump's new
energy secretary is saying quite openly we're favoring fossil fuels
over renewables, and that sort of that sentiment can hang
over a sector for a long time. So let's just
(24:02):
see how Let's see where that gets to. Let's take
the next question.
Speaker 4 (24:06):
Well, sticking with the American scen Francis from New South
Wales asks why isn't the US choosing Australia's rare earths.
Speaker 2 (24:13):
Well, that's a good question, Francis. The issue is that
even Australia's rare earth's at the moment largely need to
get processed in China. China is the home to the
vast majority of processing capacity in the world for rare earths,
and so even if America I wanted to grab our
critical minerals, which they clearly do, and we've got plenty
(24:35):
of rare earths and critical minerals to offer, we still
need to figure out the way to process them. We're
trying to work through that is it economic or cost
effective to do it in Australia. But most of our
listed rare earths players listed on the Stock Exchange is
still pretty junior in size and scope, and they're still
trying to figure this processing question out themselves. So, Anthony,
(24:59):
I think where we're part of the solution for the
US rare earth's question, but we're not quite there yet, right.
Speaker 3 (25:06):
Yeah, it's tricky one because there's so many different types
of rare earths and the processing required. Like you said, James,
it's not a scale industry for us, so it's really
hard for us to build up a big rare earth's
industry like we've done with iron ore and coal, which
are these big bull commodities. Everything happens in big tarnages
and we build the big infrastructure and we get this
great sort of motor around it. So yeah, unfortunately we're
(25:31):
just not there yet and I'm not sure we'll ever
get there either.
Speaker 5 (25:35):
Okay, Andrew for Melbourne has an AI focused question and
he asks, in an AI era, what do business operating
models look like?
Speaker 3 (25:44):
Yeah, tough one, A big, good question. Let's think about
this two ways, James. I'm not sure if Andrew wants
us to think about the AI businesses themselves or how
businesses use AI and what businesses look like. So let's
just go with the AI businesses themselves to start with
the ones that are we built to capitalize on AI.
I mean, in Australia, that's going to be the uses
of AI. It's the software, you know, it's the rostering
(26:07):
systems or paperwork for age care providers. It's the automating
cement deliveries for borrel. I mean, that stuff's happening. So
it's these applications of AI that's where Australia is playing
in this big AI world. We're not big enough, we're
not rich enough to be building the actual infrastructure. I
mean that's coming out of the US. The big tech companies,
so our startups and everything are looking at building software
(26:32):
that uses AI. And that's okay, that's where Australia's found
its placed in the world. We've done that B to
B B two C software quite well. I mean it's
a sector that's kind of risen from the ground in
the past fifteen or twenty years with your Elastian's, your Canvas,
your wives Tech and heaps of other unicorns now behind them.
We're not building the large language models to knock off
(26:52):
Google's geminile open ais chat Jbitt James. I think that's
that's just the reality. Now the other side, if you
think about what an ordinary business's business model will look
like in the AI era, I mean, this is where
we get into the hollowing out of the workforce James.
I mean we've already seen with the generative AI. We're
seeing some of the hollowing out of the content sort
(27:13):
of jobs. Now, for example, advertising agencies off shore have
been slashing jobs. All the content production stuff is really
been cut. It's been sped up by the AI that's
able to do what people could do. You know, you
can debate either way, whether it's as good and if
you're looking also at a lot of the professional services firms,
(27:34):
I hear about this all the time, where you can
do five days work in five hours now with AI,
so tax advice on a complicated transaction. You used to
spend a whole week on it in the past to
think about similar situations. Now they feed it through the AI.
AI will tell them which presints to look at and
it gets much quicker. So I guess that what that means, James,
is smaller sort of back office functions in businesses themselves elves.
(28:01):
The way everyone's thinking about is you're kind of going
to have the bosses that run the business is still
you're going to have the people that serve the people
at the bottom and in between. A lot of stuff
is going to be done by AI. Whether that works
or not, I'm not sure, James, because I still look
at the people that are telling us about this stuff.
They're the AI vendors themselves, and all of this has
(28:23):
been dealt out in the physical world. So the way
they get their message through to Matt Common or Vicky
Brady or whoever, is to fly them over to the
US and tell them face to face about how the
AI works, So I'm still waiting to see that that
flick over into the virtual world as well.
Speaker 2 (28:37):
Yeah, good point. No, I think you're right. I think
lots of we'll still need management, We'll still need salespeople
will still need customer service. It's that back office that's
going to really change. And I think companies will have
their own AI customized to their business, so it's the
most effective use of your own data and away we go.
I think we've got another AI related question too.
Speaker 1 (28:57):
Though, Yeah, we have.
Speaker 4 (28:59):
From Melanie sit asks Australia's AI discourse often focuses on
job losses and automation risk, but how can we frame
the national conversation to address how AI will change jobs,
reshape career paths, and elevate the importance of distinctly human
capabilities like contextual judgment, empathy, storytelling and ethics. What role
(29:19):
should education and policy play in preparing our workforce for
this era of human plus machine collaboration and are we
at risk of underinvesting in those very capabilities that will
unlock AI's full productivity potential.
Speaker 2 (29:34):
Well, in honor of Q and A, which has now
been axed by the ABC, we could almost take that
as a comment, Melanie. I think it's a really good point.
What role should education and policy play? I would say
some role. At the moment, it's playing zero role. I mean,
I think we talked last week about, you know, is
there education from what I can see, is very worried
(29:58):
about the use of AI plagiary Are kids really learning
with it? Maybe we need to flip that on its
head and start saying, right, we need to prepare kids
to be able to get the most out of these
AI tools and be AI ninja's in the classroom. I'm
not seeing that shift at the moment, and I'm not
seeing a hell of a lot of policy coming out
(30:18):
of state, local, and the federal government about how to
prepare the workforce, how to prepare the community. I really
hope this is just around the corner. You know, Anthony
Albanezi is now having a productivity round table, the idea
of which you know, I love that phrase, Anthony. This
is a meeting that should have been an email. I
(30:39):
don't know what that. I don't know what a roundtable,
how a round table fits into that. But we've got
to get something out of this, and I think it's
got to include how is business government coming together to
figure out the sort of path forward through AI.
Speaker 3 (30:55):
I think we'll get there, James. We always do. It
just takes time. And as a matter of how much
times like the energy transition, right, go back to the
summits we had five years ago, seven years ago, as
energy transitions is never going to happen, and then a
year or two ago it's sort of clicks. It's like,
all right, well, capitals coming to the sector. It is happening.
It is happening. But you know, we do get around it.
It's just we always take a while to make the change.
Speaker 2 (31:17):
Yeah, I think that's right. I mean we should. We
should always remain pretty bullish about the world's ability to
muddle through stuff. We're good muddlers in the end. My
only concern is this is coming so quickly. We might not.
We don't have that much time to muddle so anyway,
let's hope we need to get onto it now.
Speaker 5 (31:36):
Okay, we've come to the end of our Q and
a experiment. Question ten of ten is from Guy Pinder,
and he asks, I've been investing in equity for about
eight years, and one constant I've noticed is the surprisingly
resilient optimism and bullish sentiment that pervades the market. Do
you think as individual investors, our natural risk tolerance and
(31:57):
bullishness generally fall short of the market's brought out resilience,
and that perhaps we need to become a bit more
comfortable with discomfort if we want to achieve decent long
term returns.
Speaker 2 (32:08):
I'm feeling personally attacked here, Anthony.
Speaker 3 (32:10):
Yeah, Look, James, I think guys worked out something in
eight years that's equally been staring me in the face,
and this tonguement taken me longer to get my head around.
It's the market, James. Over low long run, it goes up. Now,
your average investment over long run increases in value, which
means you do better and make more money by being
bullish than bever ish. Now, James, the past eight years, guy,
(32:31):
they've been they've been exceptional. Okay, So the AX is
averaged ten point six percent a year returns. So if
you add the capital plus the dividends ten point six
percent a year over the past eight years. The guy's
talking about the S and P five hundred. Now, that's
the big market in the US, the one that sends
the sentiment for markets globally that's been even stronger fourteen
(32:51):
percent a year over the past eight years. Now that
that's phenomenal, But even if you look at the thirty numbers, James,
there still very strong. ASEX does about ten percent a
year over thirty years, and in the US it's ten
point six percent a year, so they're very very strong numbers. Now,
what this is a reminder of, James, is despite all
the uncertainty, and every year starts with more uncertainy than
(33:15):
the last. You can be guaranteed in January and February
every year people are going to be telling us, so
it's never been more uncertain. They're so much to worry
about economy, rates, inflation, GDP, jobs, market, geo politics, China,
energy transition, Iran today AI, whatever we're talking about. There's
lots of uncertainty, and yet the market investors, they have
(33:36):
to look through it. Why James is to get that
ten percent. History shows that, on average the market goes up,
and I think once you do appreciate that, it takes
a bit of a mind shift and you come to
realize that it pays to look for the good in things, James.
The good in a company's announcement, the good in the
earnings result, the good in the bits of its new
(33:57):
business strategy, not just the bad. Now as journalists, James,
this is a quantum leap, and I'm not sure we're
ever going to be able to make it. And that's
why I say be careful asking us for stock tips,
because we see the bard in things. And that's just
inherently because we sit here every day of the week
reading these companies announcements and they are shoving junk down
our throats, telling us that everything is good when it
(34:19):
isn't necessarily right. So it makes us cynical, and it's
our sort of role in this whole theater of the
markets to be cynical and try and think about, you know,
the things that could go wrong and the risks. But
to come back to guys question, I agree, you do
need to get comfortable with the discomfort to achieve decent
long term returns in equity markets. That's the whole game.
Speaker 2 (34:44):
I would say, guy, you're absolutely right. You know, the
resilience of the market and thebility for investors want things
to go up right, That's why they're in markets. That's
why they take risks. They want things to go up.
And for the last thirty years, as Anthony said, they
generally have now I would say, to be mister beer
as usual, the last thirty years have been pretty bloody
(35:04):
good for the world, globalization, low interest rates. We've had
a few big moments of panic, but you know, we've
the pandemics GFC. But you know we haven't had a
we haven't had a world war. It hasn't been the
nineteen thirties and forties if you think of a period
of tumult like that. So you know, I guess I
would say, guy, remember a balanced diet. You need the
(35:27):
balls and the bears. You need your vegetables and you
need your desserts. So as long as you're keeping both
cases in mind, and you'll get both cases here on
the chant Clear podcast, you'll be totally fine. But what
a great question to finish with, Anthony. We'll better take
a break now, we'll come back and look at what's
out next week. There's a very important piece of Australian
economic data that the RBA will be looking closely.
Speaker 1 (35:49):
Back in a second.
Speaker 2 (36:05):
Welcome back if you want to know more about what
we're talking about today, and a whole lot more AFI
Subscribers can sign up to the Chanticleer newsletter at join
dot afi dot com forward slash chant Clear. Every Saturday morning,
the newsletter pulls together the best Shanta Clear columns from
the week and delivers them straight to your inbox. All right, Anthony,
we're back climbing the summit again. On Tuesday, the ESG
(36:28):
summit in Sydney. Now we had a good question about
green energy. Is there are going to be a lot
of green energy on the menu on Tuesday?
Speaker 3 (36:34):
There will be, but hopefully not too much changed. And
he always need to remember that ESG is about much
more than just decarbonization, and I think the agenda this
year reflects that. So looking forward to hearing a lot
more about governance, sustainability, sort of more broadly than just
the E in ESG.
Speaker 2 (36:51):
Yeah, the good stories are always in the G, I
Reckon On Thursday, we get a really important read on
the Australian economy employment data. The RBA will be watching
this really closely. As we've said, a little they like
a little bit of weakening of the labor market. I
think just a little bit would seal the deal for
more rate cuts. But Anthony, the case for July rate
(37:11):
cuts seems to be getting stronger, doesn't.
Speaker 3 (37:13):
It It does, James, all right.
Speaker 2 (37:15):
And then Friday morning, our time, speaking of rate cuts,
the Federal Reserve in the US will make its latest
interest rate decision. I think the consensus here, Anthony is
no cut, still too early with all the tariff stuff,
but the September cut is looking more and more likely
after a good inflation print this week or a soft
inflation print.
Speaker 3 (37:35):
Yeah, hearing lots about September coming out of the US, James.
That seems to be where the whole crowd is crowding around.
Speaker 2 (37:42):
Absolutely all right, Well, thank you so much for all
the great questions that you've sent in. If you've got
a question that you'd want to get to us, please
email us at chanticleer at afi dot com. You can
send a question in audio form by recording a voice
memo on your phone, including a naming where you're from,
and emailing it to us at that address, And of course,
the widget on chanticleer Articles at afar dot com is
(38:05):
another place that you can register your questions. We've had
great fun going through all the questions today, some really
good tough questions for us. I thought, Anthony really our
listeners are all over it, aren't they.
Speaker 3 (38:15):
Yeah, I just want to reiterate that thanks to everyone
that's sending questions. We really ramped up the call for
questions on our columns a month or two ago now,
James and we haven't covered off as many of them
as we could have, but don't worry, James and I've
been reading them all and it's great to hear what
people are interested in and the thoughts that they have
after our columns. It definitely gives us something to work towards.
Speaker 2 (38:37):
Yeah.
Speaker 3 (38:38):
Absolutely so we'll be back to regular programming next week,
but keep those questions streaming.
Speaker 1 (38:42):
In Fantastic or on Anthony.
Speaker 2 (38:44):
Another big week looms, Enjoy the ESG summit and we'll
be back looking at another week of drama and no
doubt next week.
Speaker 3 (38:51):
Yeah, thank you, James, have a good weekend, terrific.
Speaker 2 (38:54):
See you then, Thanks everybody, Talk to you soon. If
you like the podcast and you want to hear more,
consider sharing or giving the podcast a review, as it
helps other listeners find us, and don't forget to follow
wherever you get your podcasts. At the Financial Review, we
investigate the big stories about markets, business and power. For more,
(39:14):
go to afi dot com and you can subscribe to
the Financial Review. The Daily Habit of Successful People at
AFAR dot com slash subscribe trantically was hosted by me
James Thompson and Anthony McDonald and it was produced by
Alex Gou with assistance from Mandy Cohen. A Theme is
by Alex Gou. Head of Premium content is Fiona Buffini
Speaker 1 (39:42):
The Australian Financial Review
The Australian Financial Review.
Speaker 2 (00:08):
Hello, I'm James Thompson, senior chanticleer columnist to the far
Welcome to our weekly news breakdown of all things business,
finance and markets with me today, as always is most
chanta clear colleague. He always keeps the big dogs of
the capital markets on us.
Speaker 1 (00:28):
It's Anthony McDonald.
Speaker 2 (00:29):
How are you Anthony barking mah this week, James rinege fantastic. Well,
this week we mark the fresh record high for the
ASX by answering your ten burning questions about the markets.
We look at how Australia's IVF sector was plunged into
crisis and extract the lessons for markets from the la rights.
(00:55):
All right, Anthony, let's start with the Monash IVF story.
We've talked about some scandals here on the podcast in
recent years, but this one is unbelievable and unbelievably sad
really for those involved. Can you take us through what's
happened here?
Speaker 3 (01:09):
Yeah, James, this is a bit all time chocker. I
reckon mon Nash IVF is. The name suggests IVF provided
a number two in Australia about fifteen or twenty percent
market share, so it's a big player. First, it was
revealed by Melbourn's Herald's son a few months ago that
they bungled a treatment in Queensland where they incorrectly put
the embry of one patient into someone else, resulting in
the birth of a child. Mo Nash blamed it on
(01:30):
human error, commissioned an independent investigation into the incident, called
it an isolated incident. And there's a second stuff up, James,
involving a same sex couple in Clayton in Victoria, and
there's another investigation into that incident. It's all pretty stunning stuff.
And James, we don't cover the IVF sector every day.
I mean, it's one that's really grown a lot in
the past twenty years and it's been a big sort
(01:51):
of change to society, I guess in Australia. But it's
life and the stuff. James, you can't afford to get it wrong.
And I check with someone in the known this just
to double check, you know, I mean, does this stuff
sort of happen and we just don't normally hear about it.
I mean, is this part of the the industry of
birth and fertility and everything? We just don't know about it?
(02:13):
And they said no, No, this is this is extremely
rare globally given the protocols in place, and for it
to happen so soon after the first one, it's shocking.
And remember, James, this company, Monash. I yes, it's only
just settled. A case to do with this destruction of
healthy embryos was a class action from twenty twenty one
and it's settled late last year. I think it paid
fifty six million bucks. And in that case it had
(02:35):
seven hundred former patients alleged the clinic used inaccurate genetic
testing and destroyed potentially viable embryos. So look, James, I'm
not even going to disrespect the people involved by talking
about Monash's share price or earningstawgrades or whatever. But yeah,
it's just a shocker. I mean, you wrote about it.
What did you think?
Speaker 2 (02:51):
Ah, look, just so poorly handled. And you know, as
you say, you feel for the couple's involved and their
families and everyone around this story. It's really awful, really
and you know that the seriousness of it can't be overstated.
But yeah, I think what compounds it for me is
(03:12):
my ashes handled this really poorly. You know, it knew
about the first stuff up back in February, but didn't
tell the market till April when the Herald Sun broke
the story. And then when asked by the ASEX, well,
didn't you think that was meaningful enough to tell investors?
They said, oh, into isolated incident, human error, won't happen again.
(03:34):
Then we get this new bit of breaking news. On Tuesday.
I went to the company and said, surely heads have
got a role here, there's got to be changed. I
got the classic response back that management has.
Speaker 1 (03:47):
The full support of them.
Speaker 2 (03:49):
Heard that for I guess what happens two days later
that goes to CEO.
Speaker 1 (03:53):
What a shock? I mean?
Speaker 2 (03:56):
I said on Tuesday that I didn't think monash ivf
would would survive and it's and I guess that's been
proven right because the CEO has gone. I wonder, though, Anthony,
the stock's been heavily sold off, that there's this is
a pretty fragmented sector. The trust of customers and potential
customers in the monash Iv brand be at rock bottom.
(04:16):
You know, I'd be surprised if there's not more change here. Obviously,
they're going to get the results of this independent review
that they've got to Senior Council doing I mean, there's
just got to be more change at Monash IVF. It's
really hard to see how the brand isn't completely trashed
by these two things, isn't it.
Speaker 3 (04:32):
Yeah? Absolutely, And to have one in Queensland and one Victoria.
I mean this is a very sort of localized thing
that two of the three big estates, two of the
three biggest markets. Yeah, that's that's not good, James.
Speaker 2 (04:42):
And I think, I think, Anthony, there's an industry wide
issue here. You know, the whole industry will be hurt
by this. You know, people will be saying, well, if
it can happen at Monash, if one of the leaders
in the market, maybe it can happen at my IVF provider.
And it's only human to have those thoughts. So I
think the whole industry is going to have a bit
of a cleanup job to do here and needs to
(05:03):
reassure people that their processes are absolutely unimpeachable.
Speaker 3 (05:08):
James, We've been fascinated all week by this protests in
Los Angeles over Donald Trump's handling of the deportation of
illegal immigrants. Our new US correspondent Jess Gardner, a friend
of the pod who's been on the pot in the past. Yeah,
she's now on the ground. The pitches coming out of
there have been amazing, and one of our nine colleagues
was even shot by Robert Bullet James. It's a big drama.
Does it have any implications for our markets?
Speaker 2 (05:30):
Well, look, I think markets have largely looked past the
sort of drama on the streets, But there is an
important story for markets behind this. I mean, one of
the things that America has really grown strongly through in
the last few years is the growth in population and
the growth in the labor market through legal and illegal immigration.
(05:51):
So what you're seeing now is Trump's clamp down on both,
whether it's through these deportations, much tighter border controls. There's
travel bands on several countries outright, bands, which is quite incredible.
What we're seeing now, though, is that the growth in
the population is starting to slow and the growth in
the labor market starting to slow. The risk there is
(06:13):
if the US economy remains resilient, then wages will start.
Speaker 1 (06:17):
To creep up.
Speaker 2 (06:18):
That increases inflationary pressure, possibly keeps the Federal Reserve from
cutting interest rates, and pushes bond yields up. So there
is an economic story under all this, which is quite important.
You know that there's a possibility that this is quite
a negative supply shock for the US market, and one
we sort of didn't expect would be a problem. So
(06:41):
it's worth watching. Obviously, the deportation policy is quite controversial,
but there is a longer term economic impact that I
think most people are missing.
Speaker 3 (06:52):
Yeah, but James, maybe a I saved the day.
Speaker 2 (06:54):
Maybe, yeah, that's true. But look, I mean you remember,
you've got an aging population anyway in America, so bringing
in new workers is really important, as we know in
Australia too, So you just don't want to get into
one of those sort of wage inflation spirals. You're right,
maybe AI will save the day and this will all
(07:16):
be academic, but just just watch this in the next
little while. It's one to watch in the next six
months or so.
Speaker 3 (07:23):
And James, while we're recording on Friday, Israel's just launched
air strikes on what it says are nuclear sites in Iran. Yeah,
what's the likely market reaction there?
Speaker 2 (07:32):
Well, classic market reaction here, Anthony, oil price straight up.
I think it's up eight percent on Friday morning. Gold
price straight up, markets, equity markets, the ax is dipped
a touch, and the Wall Street futures of for Friday
Night's trade of dipped to touch too. Look, I mean
it's what people in markets call a classic risk off move,
(07:54):
and usually these things fade pretty quickly. The one thing
I'd say, though, Anthony, is watch the oil price. The
oil price has come down quite sharply in the last
you know, since the start of the year, basically the
last six months or so, and that's actually been quite
an important thing for bringing inflation down around the world.
So a sudden spike in the oil price, if it's maintained,
(08:16):
and that's the big if, that could be something to
watch too. So that is, you know, the inflation. The
inflation story is never quite over till it's over right.
Speaker 3 (08:25):
Yeah, it's true. A good point about oil, James. I mean,
that's something that really does flow through to just about everything,
you know, just the cost of transport, transport, cost of
raw materials, all that through the roof.
Speaker 2 (08:35):
Yeah. Yeah, Well, Anthony, let's move to our big topic
this week. This week, the ASX two hundred did something
that really seemed impossible about two months ago. It's set
another record high, closing at eight five hundred and ninety
two points on Wednesday, beating its previous records set in
the middle of February. Now, for me, the resident bear,
it's frankly a bit of a strange moment. We're back
(08:58):
at the top in the midst of hu huge global turmoil,
with the Australian economy treading water, and with Australian companies
heading for a third straight year of profits going backwards.
But Anthony, to mark this moment, we've decided to do
something a bit different on the podcast. Our dear listeners
have been inundating us with questions in recent weeks, which
we absolutely love. So we're going to use this new
(09:20):
ASX high as a moment to answer ten of your
top questions on the local market now to help us.
So it's not just our boring voices yabbering at you
the whole time. We've enlisted our producers Alex and Mandy
to read out the questions on your behalf. So let's
get stuck in. Mandy, can you ask the first question?
Speaker 3 (09:38):
All right?
Speaker 4 (09:38):
Joseph Martis asks, given the general theme that the share
price of the ASX Magnificent one that's CBA, of course,
is being driven above traditional valuation factors by the demand
created by ETFs in turn driven by super fund investment
flow demand. Why is BHP, which is our second biggest
(09:59):
ASA company with a waiting of seven point six percent,
not experiencing a price surge like CBA.
Speaker 2 (10:08):
Well, I think, Joseph, there's two answers to that. The
first one's name is Donald Trump. The second one's name
is China. So what investors are looking for at the
moment is there looking around the world for domestically focused
stories that are sort of hidden from the impact of tariffs. Now,
CBA perfect example. It's basically a bet on the domestic
(10:31):
Australian economy. It's a huge company, it's very liquid, so
you can get in and out nice and easily. BHP's
got a lot of those characteristics, Anthony, but it's still
so exposed to China. And if you're in the middle
of a trade war between the US and China that
seems to sort of be on a roller coaster every
second day between war and peace, then you're better to
(10:53):
lessen your exposure to those big China stories, aren't you.
Speaker 3 (10:56):
Yeah, I agree with you on that one, James. The
other thing i'd say about CBA well, it's a big stock.
It's not that liquid like it's got retail shareholders own
just over half the company, and they're very sticky. You know.
They've been selling a little bit as the shap bross
goes up, but not a lot. They don't want to
crystallize these big capital gains for tax purposes. So you've
got a lot of long term shareholders there, whether they're institutional, retail, whatever,
(11:18):
can't afford to sell because of the tax it will crystallize.
So I'd argue the free float is actually about half
the company or so not not the full size. I'm
like BHP, where you've got a lot more trading in
and out every day.
Speaker 2 (11:29):
Yeah, half of CBA is still a pretty big company
there right now. A good point. All right, let's have
our second question.
Speaker 5 (11:36):
Okay, guys, Danny from Victoria. He'd like to know if
you two think CSL is a good long term stock.
Speaker 3 (11:43):
One hundred percent. I do, Danny. I'm not making any
buyholder sell call on this, and it's not my place
to give advice and by no means of my own
institutional investor, but if you're asking me if it's a
bloody excellent company still CSL. Then the answer from me
is yes, I mean hasn't lost it shineing in recent
years from a shap price perspective. Absolutely, But I think
(12:05):
what you've got to understand about CSL is three things
a sort of crunched in the past five years, Danny.
So first of all, the industry structure deteriorated, so the
cost of gathering plasma, which is core to their products,
went up for various reasons, started happening in COVID and
its crunch margins. The second thing is that it's just
been poor from a capital allocation perspective. So if you
CSL was one of the shrewdest spenders and investors in
(12:27):
its own business, it went out there paid way too
much money for a big business called V four, which
was US twelve billion dollars and arguably it's big R
and D spend has been spent in the wrong places
in recent years. And the third thing is tariff's Danny,
I mean that's overhanging this company. CSL's on the front
foot saying don't worry too much about the tariffs, but
(12:47):
there is concern that big farmer the farmer industries on
the nose and it's going to get crunched hard. So
those three concerns have really weighed on the share price
quite amazingly in the past four or five years, Danny,
to the point where CSL's gone from one of our best,
shiniest blue chip companies trading at forty times forward earnings
(13:08):
to trading at about half that. Like it's quite an
astounding fall, and instead a lot of that money's gone
to CBA. Now, I would say those three things. CSL's
trying to fix the three of them. The industry structure
is still good, it's working on the capital allocation piece,
and it's trying to prove that the tariffs one going
to be a long term problem.
Speaker 2 (13:26):
Yeah yeah, well said up. One of my favorite sayings
in markets is from a guy called James Aitken who
says everyone wants to be Warren Buffett until they have
to be like Warren Buffett, and Warren Buffett always likes
to invest for the long term. Right. Well, there's no
company I reckon in Australia that thinks about the long
term as well as CSL does. That they are constantly
(13:47):
looking ten, fifteen, twenty years out because that's how long
it takes to develop these drugs. They never take the
foot off R and D, and look, I think that's
why over the long term, this is a good stock
to be in. All right, let's hear from our next question.
Speaker 4 (14:03):
This is from Sue. She asks, what is the payout
rate of private insurers? Does this explain why the share
prices of IAG and Medibank have done so well in
the past year.
Speaker 2 (14:14):
Yeah, this has been a hot topic, Sue in the
last little while with Healthscope going under. Are the health
insurers keeping too much of the pie?
Speaker 3 (14:22):
So?
Speaker 2 (14:24):
Morgan Stanley analyst Andre Stadnik, he's done the numbers for US.
So private health insurers collected twenty nine point four billion
dollars worth of premiums in the twenty twenty four financial
year and they paid out eighty four point two percent
of that, So that's not too far off long term averages. Actually,
so the claims they're holding too much back, well, I
(14:46):
guess pre COVID that the numbers were around eighty seven percent,
So yes, they've increased their profit hold a little bit,
but not too much. Interestingly, Anthony Home and Motor Insurance,
they pay seventy one of their premiums collected back, so
that's a fair bit of profit, isn't it It is?
Speaker 3 (15:05):
It is, Yeah, so very important to separate these to
their James like obviously Medy been private private health insurance,
IAG completely different. It's general insurance. So yeah, homes car's
commercial insurance. I mean, why it's done well basically the
nine claims environment. Like I know we've had floods up
in Tare recently, we had the big Lismore ones a
few years ago. But James has been pretty lucky in
terms of the big disasters in the areas where it
(15:27):
has really high exposure Brisbane, Sydney, Melbourne basically the biggest areas.
If you get a giant hailstorm that hits some car
yards in Sydney, Melbourne or Brisbane, you have a really
bad year for IAG. I mean that's that's how it goes.
It's it's actually offloading a lot more risk as well,
and they've kind of discovered some of the magic of reinsurance.
Speaker 2 (15:48):
Yeah, absolutely absolutely. Let's hear from our next question.
Speaker 5 (15:52):
All right, Tony from Queensland, and he wants to know
how high do you think Sigma shares will go and
perhaps you could tell us what Sigma does and how
it makes its money.
Speaker 3 (16:03):
Sigema's a big wholesale supply into chemists and also owned
a few chemist chains of its own. Now it was
a reasonly small Australian company James until it bought Chemist
Warehouse in a deal that concluded last year. And as
for how much further their shares can run, look, I
don't know, and I think it would be remiss of
me to speculate. But what I will tell you, though, Tony,
is that the more we hear about Chemist's Warehouse, the
more the market gets to learn about them, since they've
(16:25):
listed via Sigma Healthcare. And the more that we learn
about how Chemist wa House thinks about the basics right,
just the real basics of retail price, product promotion place,
the more I think that we understand this is a
really impressive story. There's plenty of growth in this thing
if it doesn't get too big to manage, and they
can keep it all together. This thing's got growth in
Australia in each of its states. It's got growth off
(16:49):
sure that I mean they're pushing into a bunch of
markets off Sure James only in small ways, but often
with JV partners and stuff like New Zealand, Island, China Jubai.
And that's interesting to me because it comes as where
seeing this real retreat from offshore by a bunch of
Australian businesses. Only this week we saw Quantas, for example,
shut down or say it's about to shut down. It's
Jetstar International business that's run out of Singapore. Now, James,
(17:12):
I think this Chemist Warehouse, which we kind of think
of Sigma as chemists warehouse now because that's ninety percent
of the business. Basically, it's making more money than we
expected when it got put into Sigma. Sigma was the
wholesale supplier. It turns out putting a wholesale supplier into
the actual retail operations that's churning out more profit too.
(17:33):
Who would have thought, James vertical integrations a great business
move for them? So I think this in terms of
the share price, it's hideously expensive. Sigma shares are three
dollars plus. You could buy them for less than a
dollar for most of the past twenty years. It's trading
more than fifty times forward profits. It's very expensive. But
I mean this Chemist Warehouse is just an absolute machine. Yeah.
Speaker 2 (17:55):
Look, I mean it's it's up one hundred and eighty
percent in the last in the last year, so that's
how much further can it run? I think I think
it's a legitimate question, actually, Tony's asking. I reckon there's
two factors that I'd want to watch. I want to
be certain that Mario Verocki, the CEO of the Chemists
Warehouse business, and the Gants brothers who co founded that
(18:18):
with him. I want to be certain they're sticking around.
Those guys are the key that they are the magicians.
They've got the secret source in bottles out the back
of the Chemist's Warehouse and I want them. I want
them there to smother across this business for many years
to come. And I guess I want the U. Yeah
to your point about Australian businesses going offshore, I'd want
(18:39):
a bit more evidence that this model works in other places.
You know, it sounds pretty logical, right, everyone likes cheap medicines,
aging populations everywhere. This will work everywhere. But there's something
quite uniquely Australian about Chemist's Warehouse too. You know, it's
not on an episode of Bluey for nothing. It's a
(19:01):
very Australian beast. And I just want to I want
to learn a bit more about how that overseas expansions going.
Let's have the next question.
Speaker 4 (19:09):
Guy, what wants to know have real estate investment trusts
had their run or with interest rates dropping, is their
border come.
Speaker 2 (19:16):
I think interest rates are really important here, guy, they're
coming back. That'll help the real estate investment trusts. But
I reckon the bigger thing that real estate investment trusts
have in their favor is the three maybe four great
property shortages of Australia. We all know about the housing one,
but Anthony, we're not building many new office towers at
(19:38):
the moment, and maybe that's maybe that's a good thing,
but we're certainly not building them in the prime locations
in Sydney and Melbourne at the rate we were. We're
not building many more supermarkets. There's hardly any new retail space,
not many new greenfield shopping centers, so not many brand
new shopping centers. There are extensions to existing shopping centers,
(19:58):
but not many new shopping centers. And we're not building
a whole lot more commercial property either. So there's a
chance that if the economy can continue to grow even
at the sort of relatively poor pace that it's been
growing at, in recent years, we get to this point
where we've got a shortage of good retail property, and
(20:20):
if you can find those real estate investment trusts that
have got the right properties in the right places, I
think those existing properties become even more valuable commodities, don't they.
Speaker 3 (20:31):
Yeah, I agree, James. I mean the past five years
we've seen an absolute rebasing higher in terms of what
it costs to build a property. So anything that you've
already got in the ground is much more valuable than
it was in the past, just because the cost to
rebuild it's so expensive. And Guy, I can tell you
there's a bunch of institutional investors find managers who are
trying to pick the bottom in terms of the price
(20:52):
of the rates. I mean, they're still interested in them.
You've got to be careful. We all know what happens
to people that pick bottoms, James. But there's a lot
of sectors watching trading. A discount still five percent plus
across the ASEX three hundred reit sector. That's more than
it is normally, so they reckon that. There's fire. Managers
are telling us they're still value in Australian real estate.
They're just trying to pick the right moment.
Speaker 1 (21:13):
Yeah, that's right.
Speaker 2 (21:15):
Yes, I'm still getting over your picking bottoms comment. Sorry, Anthony,
but let's move on to the next question while we can.
Speaker 5 (21:22):
All right, we're into the back half. Patrick from Beautiful
Victoria asks Trump's election caused a slump in green energy stocks,
following the principle that you buy stocks that are out
of favor against longer term themes. Is the sector not
a massive bargain at present?
Speaker 1 (21:40):
That's a great question, it is.
Speaker 3 (21:42):
I do love a contrarian. Yesh, me too, And yeah,
absolutely it can be a great time to invest. But you
have to ask, is a slump cyclical of structural Has
Trump throwing the renewable tracks so far off path the
industry will not exist the extent we thought it would.
I'd say probably not to that, James. Sure, it's not
happening as quickly as maybe was expected a couple of
(22:04):
years ago. You know, the energy transition is slower as
we talked about all the time this pod. They are
a stack of renewables though in the grid, James, is
a stack plan for the grid. We're not in the
business of turning down energy at the moment. The world
is energy hungry, and it's going to get more energy
hungry as the AI and electrification of everything takes place.
But the problem though, Patrick, and if you're thinking about Australia,
(22:26):
there's not many green energy stocks. I mean, the biggest
renewables developers here ag on Origin Energy, and I'm not
sure you'd call them green energy stocks. They're huge polluters.
You know, they own the big coal fired power plants.
And I really like Origin. I like the way it
goes about it. I like I think there's got some
very valuable assets and I'm pleased to see it's still
listed on the AX. But I wouldn't consider it a
(22:47):
green energy exposure though. I mean, we used to have
a few wind energy developers Infigen and Tilt. They both
got snapped up. There was a hydro developer, gen X,
got pretty crappy. It was bought last year. There's not
a lot out there for you, Patrick, unless look offshore.
Speaker 2 (23:01):
Well, and I think that goes to the story here,
isn't it. It doesn't think you need lots of patient capital,
which the public markets sometimes aren't great at, and so
a lot of these assets have ended up in private hands.
But look, I'm with you, you know you think about Victoria.
At the moment, Anthony, our big coal generator is sort
of on the blink at the moment. We've used in
(23:21):
a couple of days thirteen percent of our budgeted gas
for the whole year just to keep our houses warm
and the lights on. So you know, I think that
says that we need to get this renewable and we
probably need more gas, but we need the renewable energy
to really come in and help bridge that gap. So
I like your approach here, Patrick. I guess it's a
(23:42):
bit like that question about the real estate investment trusts
picking the bottom. Here is the tough bit, because I
mean I was reading this week. I think Trump's new
energy secretary is saying quite openly we're favoring fossil fuels
over renewables, and that sort of that sentiment can hang
over a sector for a long time. So let's just
(24:02):
see how Let's see where that gets to. Let's take
the next question.
Speaker 4 (24:06):
Well, sticking with the American scen Francis from New South
Wales asks why isn't the US choosing Australia's rare earths.
Speaker 2 (24:13):
Well, that's a good question, Francis. The issue is that
even Australia's rare earth's at the moment largely need to
get processed in China. China is the home to the
vast majority of processing capacity in the world for rare earths,
and so even if America I wanted to grab our
critical minerals, which they clearly do, and we've got plenty
(24:35):
of rare earths and critical minerals to offer, we still
need to figure out the way to process them. We're
trying to work through that is it economic or cost
effective to do it in Australia. But most of our
listed rare earths players listed on the Stock Exchange is
still pretty junior in size and scope, and they're still
trying to figure this processing question out themselves. So, Anthony,
(24:59):
I think where we're part of the solution for the
US rare earth's question, but we're not quite there yet, right.
Speaker 3 (25:06):
Yeah, it's tricky one because there's so many different types
of rare earths and the processing required. Like you said, James,
it's not a scale industry for us, so it's really
hard for us to build up a big rare earth's
industry like we've done with iron ore and coal, which
are these big bull commodities. Everything happens in big tarnages
and we build the big infrastructure and we get this
great sort of motor around it. So yeah, unfortunately we're
(25:31):
just not there yet and I'm not sure we'll ever
get there either.
Speaker 5 (25:35):
Okay, Andrew for Melbourne has an AI focused question and
he asks, in an AI era, what do business operating
models look like?
Speaker 3 (25:44):
Yeah, tough one, A big, good question. Let's think about
this two ways, James. I'm not sure if Andrew wants
us to think about the AI businesses themselves or how
businesses use AI and what businesses look like. So let's
just go with the AI businesses themselves to start with
the ones that are we built to capitalize on AI.
I mean, in Australia, that's going to be the uses
of AI. It's the software, you know, it's the rostering
(26:07):
systems or paperwork for age care providers. It's the automating
cement deliveries for borrel. I mean, that stuff's happening. So
it's these applications of AI that's where Australia is playing
in this big AI world. We're not big enough, we're
not rich enough to be building the actual infrastructure. I
mean that's coming out of the US. The big tech companies,
so our startups and everything are looking at building software
(26:32):
that uses AI. And that's okay, that's where Australia's found
its placed in the world. We've done that B to
B B two C software quite well. I mean it's
a sector that's kind of risen from the ground in
the past fifteen or twenty years with your Elastian's, your Canvas,
your wives Tech and heaps of other unicorns now behind them.
We're not building the large language models to knock off
(26:52):
Google's geminile open ais chat Jbitt James. I think that's
that's just the reality. Now the other side, if you
think about what an ordinary business's business model will look
like in the AI era, I mean, this is where
we get into the hollowing out of the workforce James.
I mean we've already seen with the generative AI. We're
seeing some of the hollowing out of the content sort
(27:13):
of jobs. Now, for example, advertising agencies off shore have
been slashing jobs. All the content production stuff is really
been cut. It's been sped up by the AI that's
able to do what people could do. You know, you
can debate either way, whether it's as good and if
you're looking also at a lot of the professional services firms,
(27:34):
I hear about this all the time, where you can
do five days work in five hours now with AI,
so tax advice on a complicated transaction. You used to
spend a whole week on it in the past to
think about similar situations. Now they feed it through the AI.
AI will tell them which presints to look at and
it gets much quicker. So I guess that what that means, James,
is smaller sort of back office functions in businesses themselves elves.
(28:01):
The way everyone's thinking about is you're kind of going
to have the bosses that run the business is still
you're going to have the people that serve the people
at the bottom and in between. A lot of stuff
is going to be done by AI. Whether that works
or not, I'm not sure, James, because I still look
at the people that are telling us about this stuff.
They're the AI vendors themselves, and all of this has
(28:23):
been dealt out in the physical world. So the way
they get their message through to Matt Common or Vicky
Brady or whoever, is to fly them over to the
US and tell them face to face about how the
AI works, So I'm still waiting to see that that
flick over into the virtual world as well.
Speaker 2 (28:37):
Yeah, good point. No, I think you're right. I think
lots of we'll still need management, We'll still need salespeople
will still need customer service. It's that back office that's
going to really change. And I think companies will have
their own AI customized to their business, so it's the
most effective use of your own data and away we go.
I think we've got another AI related question too.
Speaker 1 (28:57):
Though, Yeah, we have.
Speaker 4 (28:59):
From Melanie sit asks Australia's AI discourse often focuses on
job losses and automation risk, but how can we frame
the national conversation to address how AI will change jobs,
reshape career paths, and elevate the importance of distinctly human
capabilities like contextual judgment, empathy, storytelling and ethics. What role
(29:19):
should education and policy play in preparing our workforce for
this era of human plus machine collaboration and are we
at risk of underinvesting in those very capabilities that will
unlock AI's full productivity potential.
Speaker 2 (29:34):
Well, in honor of Q and A, which has now
been axed by the ABC, we could almost take that
as a comment, Melanie. I think it's a really good point.
What role should education and policy play? I would say
some role. At the moment, it's playing zero role. I mean,
I think we talked last week about, you know, is
there education from what I can see, is very worried
(29:58):
about the use of AI plagiary Are kids really learning
with it? Maybe we need to flip that on its
head and start saying, right, we need to prepare kids
to be able to get the most out of these
AI tools and be AI ninja's in the classroom. I'm
not seeing that shift at the moment, and I'm not
seeing a hell of a lot of policy coming out
(30:18):
of state, local, and the federal government about how to
prepare the workforce, how to prepare the community. I really
hope this is just around the corner. You know, Anthony
Albanezi is now having a productivity round table, the idea
of which you know, I love that phrase, Anthony. This
is a meeting that should have been an email. I
(30:39):
don't know what that. I don't know what a roundtable,
how a round table fits into that. But we've got
to get something out of this, and I think it's
got to include how is business government coming together to
figure out the sort of path forward through AI.
Speaker 3 (30:55):
I think we'll get there, James. We always do. It
just takes time. And as a matter of how much
times like the energy transition, right, go back to the
summits we had five years ago, seven years ago, as
energy transitions is never going to happen, and then a
year or two ago it's sort of clicks. It's like,
all right, well, capitals coming to the sector. It is happening.
It is happening. But you know, we do get around it.
It's just we always take a while to make the change.
Speaker 2 (31:17):
Yeah, I think that's right. I mean we should. We
should always remain pretty bullish about the world's ability to
muddle through stuff. We're good muddlers in the end. My
only concern is this is coming so quickly. We might not.
We don't have that much time to muddle so anyway,
let's hope we need to get onto it now.
Speaker 5 (31:36):
Okay, we've come to the end of our Q and
a experiment. Question ten of ten is from Guy Pinder,
and he asks, I've been investing in equity for about
eight years, and one constant I've noticed is the surprisingly
resilient optimism and bullish sentiment that pervades the market. Do
you think as individual investors, our natural risk tolerance and
(31:57):
bullishness generally fall short of the market's brought out resilience,
and that perhaps we need to become a bit more
comfortable with discomfort if we want to achieve decent long
term returns.
Speaker 2 (32:08):
I'm feeling personally attacked here, Anthony.
Speaker 3 (32:10):
Yeah, Look, James, I think guys worked out something in
eight years that's equally been staring me in the face,
and this tonguement taken me longer to get my head around.
It's the market, James. Over low long run, it goes up. Now,
your average investment over long run increases in value, which
means you do better and make more money by being
bullish than bever ish. Now, James, the past eight years, guy,
(32:31):
they've been they've been exceptional. Okay, So the AX is
averaged ten point six percent a year returns. So if
you add the capital plus the dividends ten point six
percent a year over the past eight years. The guy's
talking about the S and P five hundred. Now, that's
the big market in the US, the one that sends
the sentiment for markets globally that's been even stronger fourteen
(32:51):
percent a year over the past eight years. Now that
that's phenomenal, But even if you look at the thirty numbers, James,
there still very strong. ASEX does about ten percent a
year over thirty years, and in the US it's ten
point six percent a year, so they're very very strong numbers. Now,
what this is a reminder of, James, is despite all
the uncertainty, and every year starts with more uncertainy than
(33:15):
the last. You can be guaranteed in January and February
every year people are going to be telling us, so
it's never been more uncertain. They're so much to worry
about economy, rates, inflation, GDP, jobs, market, geo politics, China,
energy transition, Iran today AI, whatever we're talking about. There's
lots of uncertainty, and yet the market investors, they have
(33:36):
to look through it. Why James is to get that
ten percent. History shows that, on average the market goes up,
and I think once you do appreciate that, it takes
a bit of a mind shift and you come to
realize that it pays to look for the good in things, James.
The good in a company's announcement, the good in the
earnings result, the good in the bits of its new
(33:57):
business strategy, not just the bad. Now as journalists, James,
this is a quantum leap, and I'm not sure we're
ever going to be able to make it. And that's
why I say be careful asking us for stock tips,
because we see the bard in things. And that's just
inherently because we sit here every day of the week
reading these companies announcements and they are shoving junk down
our throats, telling us that everything is good when it
(34:19):
isn't necessarily right. So it makes us cynical, and it's
our sort of role in this whole theater of the
markets to be cynical and try and think about, you know,
the things that could go wrong and the risks. But
to come back to guys question, I agree, you do
need to get comfortable with the discomfort to achieve decent
long term returns in equity markets. That's the whole game.
Speaker 2 (34:44):
I would say, guy, you're absolutely right. You know, the
resilience of the market and thebility for investors want things
to go up right, That's why they're in markets. That's
why they take risks. They want things to go up.
And for the last thirty years, as Anthony said, they
generally have now I would say, to be mister beer
as usual, the last thirty years have been pretty bloody
(35:04):
good for the world, globalization, low interest rates. We've had
a few big moments of panic, but you know, we've
the pandemics GFC. But you know we haven't had a
we haven't had a world war. It hasn't been the
nineteen thirties and forties if you think of a period
of tumult like that. So you know, I guess I
would say, guy, remember a balanced diet. You need the
(35:27):
balls and the bears. You need your vegetables and you
need your desserts. So as long as you're keeping both
cases in mind, and you'll get both cases here on
the chant Clear podcast, you'll be totally fine. But what
a great question to finish with, Anthony. We'll better take
a break now, we'll come back and look at what's
out next week. There's a very important piece of Australian
economic data that the RBA will be looking closely.
Speaker 1 (35:49):
Back in a second.
Speaker 2 (36:05):
Welcome back if you want to know more about what
we're talking about today, and a whole lot more AFI
Subscribers can sign up to the Chanticleer newsletter at join
dot afi dot com forward slash chant Clear. Every Saturday morning,
the newsletter pulls together the best Shanta Clear columns from
the week and delivers them straight to your inbox. All right, Anthony,
we're back climbing the summit again. On Tuesday, the ESG
(36:28):
summit in Sydney. Now we had a good question about
green energy. Is there are going to be a lot
of green energy on the menu on Tuesday?
Speaker 3 (36:34):
There will be, but hopefully not too much changed. And
he always need to remember that ESG is about much
more than just decarbonization, and I think the agenda this
year reflects that. So looking forward to hearing a lot
more about governance, sustainability, sort of more broadly than just
the E in ESG.
Speaker 2 (36:51):
Yeah, the good stories are always in the G, I
Reckon On Thursday, we get a really important read on
the Australian economy employment data. The RBA will be watching
this really closely. As we've said, a little they like
a little bit of weakening of the labor market. I
think just a little bit would seal the deal for
more rate cuts. But Anthony, the case for July rate
(37:11):
cuts seems to be getting stronger, doesn't.
Speaker 3 (37:13):
It It does, James, all right.
Speaker 2 (37:15):
And then Friday morning, our time, speaking of rate cuts,
the Federal Reserve in the US will make its latest
interest rate decision. I think the consensus here, Anthony is
no cut, still too early with all the tariff stuff,
but the September cut is looking more and more likely
after a good inflation print this week or a soft
inflation print.
Speaker 3 (37:35):
Yeah, hearing lots about September coming out of the US, James.
That seems to be where the whole crowd is crowding around.
Speaker 2 (37:42):
Absolutely all right, Well, thank you so much for all
the great questions that you've sent in. If you've got
a question that you'd want to get to us, please
email us at chanticleer at afi dot com. You can
send a question in audio form by recording a voice
memo on your phone, including a naming where you're from,
and emailing it to us at that address, And of course,
the widget on chanticleer Articles at afar dot com is
(38:05):
another place that you can register your questions. We've had
great fun going through all the questions today, some really
good tough questions for us. I thought, Anthony really our
listeners are all over it, aren't they.
Speaker 3 (38:15):
Yeah, I just want to reiterate that thanks to everyone
that's sending questions. We really ramped up the call for
questions on our columns a month or two ago now,
James and we haven't covered off as many of them
as we could have, but don't worry, James and I've
been reading them all and it's great to hear what
people are interested in and the thoughts that they have
after our columns. It definitely gives us something to work towards.
Speaker 2 (38:37):
Yeah.
Speaker 3 (38:38):
Absolutely so we'll be back to regular programming next week,
but keep those questions streaming.
Speaker 1 (38:42):
In Fantastic or on Anthony.
Speaker 2 (38:44):
Another big week looms, Enjoy the ESG summit and we'll
be back looking at another week of drama and no
doubt next week.
Speaker 3 (38:51):
Yeah, thank you, James, have a good weekend, terrific.
Speaker 2 (38:54):
See you then, Thanks everybody, Talk to you soon. If
you like the podcast and you want to hear more,
consider sharing or giving the podcast a review, as it
helps other listeners find us, and don't forget to follow
wherever you get your podcasts. At the Financial Review, we
investigate the big stories about markets, business and power. For more,
(39:14):
go to afi dot com and you can subscribe to
the Financial Review. The Daily Habit of Successful People at
AFAR dot com slash subscribe trantically was hosted by me
James Thompson and Anthony McDonald and it was produced by
Alex Gou with assistance from Mandy Cohen. A Theme is
by Alex Gou. Head of Premium content is Fiona Buffini
Speaker 1 (39:42):
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Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.