Oil butterfly effect hits plumbing, ghost resorts & the SpaceX hype train

0:00We know gold and silver continue to make headlines, but did you know GlobalX ETFs is Australia's largest commodity ETF provider? In fact, their flagship physical gold ETF, that's the ticker symbol G-O-L-D, was the first of its kind in the world. Whether you're looking for physical commodities or commodity miners, GlobalX has 12 options to choose from, including their newest silver miners ETF. Visit GlobalX ETFs.com.au to learn more. AFSL 466-778. Investing involves risk and returns are not guaranteed. Refer to the relevant PDS and TMD. As you know, Turn Plus recently came on as a platinum sponsor of Rasp Podcasts, and I invested a small amount myself $2,000 to be exact to get a feel for it. After all, I couldn't tell you to consider it if I hadn't at least considered it myself. And the result is it's a very, very good platform. It's potentially the

1:00simplest technology platform that I've come across in Australian finance. And what makes that extra special is you know behind the scenes something very sophisticated is actually happening. Turn Plus is investing your capital in a globally diversified and professionally constructed portfolio of private credit designed to produce attractive and reliable monthly income. Aside from providing passive income, what really attracted me to partnering with Turn Plus now is potentially falling interest rates. Because Turn Plus starts by targeting 3% returns above the RBA cash rate for a one year fixed term account, there's a buffer in place even as interest rates fall. Monthly income can also be paid directly into your bank account or reinvested for compound returns. I see Turn Plus as a really neatly packaged way for retirees or even accumulators like me to get exposure to professionally constructed global private credit portfolios. You can find out much more information

2:00and grab a hold of the pds and tmd at turnplus.com.au. If you want to just check out the website, you should also know that there's an instant chat function for questions, which is really important. I find really handy before I invest in anything. Don't forget to tell them where I sent you. And as always, consult a licensed and trusted financial planner who can take into account your financial goals, needs, and risk appetite before investing. Race increasing the cost of its pipes by 25 to 35%. And I think race is copying the public bashing for this. It's an ASX listed business. It's already on its knees a little bit, but it is the whole industry. The thing about oil people think it's drew going to the bowser to fill up his prado and it's being 400 bucks. It's not just the one thing. It's that butterfly effect. Do you increase the or strangle supply? That flow on effect in a macroeconomic standpoint is so hard to predict accurately and all of a sudden your price of bananas are more expensive. Hey there, here's a quick note. This podcast contains general financial advice only.

3:04That means it's not specific to you. You need goals, objectives. So don't act on the information until you've spoken with your financial advisor. You'll find our full disclosure, disclaimer, and link to our financial services guide in the show notes. SpaceX is due to create the world's biggest ever IPO. An initial public offering of SpaceX could potentially fetch over two trillion Australian dollars in valuation. We're going to talk about that in today's episode. The latest in kind of what's happening with oil prices and how it is actually affecting Australian companies like listed on the stock exchange. We're going to talk a little bit about why's tech. We've got a special snippet and a special guest appearance today to talk about. If drew was to create some crappy ETF, how would he actually do it? Mitch has done the work for us. And we are going to answer a few of your questions around a few different things, including maybe even we'll get to something about EVs, which is seem like we're on a bit of a musk to it today. But you'll get all of that in more in today's two cents episode with

4:04myself and Mitchell Snowden. Mitchell, Snowden, hey, don't my friend. I am good. I want how are you, mate? Pretty good. Pretty good. How was Vietnam? Good. Yeah, good. I did get a snippet of the footage from last week. I did actually listen to the episode that you included in my absence. Now, Drew is not here today because he is a noose. And guess what? Next week, Mitch is away in Bali, so look, it must be nice. This is what happens when you work in finance. You get to go on all the holidays. But no, it's good. And I did get a snippet of footage Manique, sorry, Nina, who in today's episode, she accidentally sent me a bit of raw footage from last week. Accidentally. Accidentally, which I listened to. And it actually had some off-air commentary from Mitch and Drew. And I don't know who it was, Mitchell Drew that said, a bit me. Said, I went over there just squatting on a milk crate. If you've been to Vietnam, and you've been on the streets there, they're all out there,

5:09their little cafes or bars and eateries and whatnot, and they've got all these little plastic stalls. And I just imagine you squatting on a plastic stall with a iced coffee, a Vietnamese coffee in a barn, me, and just yakking it up for the locals. I got a big fan to the show in Vietnam. Yeah, they are. Vietnam, I think it's actually funny, you say that, because when we look at the analytics for this podcast, Vietnam ranks in the top five. I do believe that, because Australia, knowing the analytics of this podcast is, I think, about 98.7% of our audience. New Zealand would be maybe 1%. And then there's three listeners in Vietnam. Yeah, it's actually just me pinging the podcast over there. But yeah, it's a great country, and we didn't do it so much that way. As you know, with a young child, you don't always get to the haunts and the alleyways and those types of things. We stayed in some pretty nice places,

6:14and yeah, we were pretty fortunate to go over there for a wedding as well. So it was kind of more buffet breakfast and that sort of stuff. And because they're really, what's really interesting where we went, which is the middle of Vietnam, they're really open to tourists from, I would say, China, but mostly from South Korea. I'd say in order of what I experienced was South Koreans first, Chinese second, Japanese, and then Australians, in that order of tourism that I could see. And that's like when you go to the buffet breakfast, there's like a whole South Korean end. There's a Chinese end. And one thing that was really obvious when I went to the buffet breakfast is I was like, oh, there's waffles here. I'll try those waffles and have my bacon and eggs or whatever. But all of the more Asian kind of people, they would be eating like salads and all these healthy breakfasts. And I was like, that explains it. That explains it. You've been fantastic. Yeah, that's it. But it was heaps of fun and it's a great country.

7:17Vietnam's the new Japan for those of you that are looking to travel in the new Japan. Okay. Yeah, everyone was traveling to Japan last year. That's so 2025. You're on the cutting edge. All right, let's talk about actually the market. So it's been a heap going on recently. So Trump V.I. ran, look, it's not even every morning that I wake up, I see new conflicting headlines. It's almost every hour. And this is causing a lot of uncertainty in the market. And the one thing that we know markets don't like is uncertainty. Yeah, there was there's been a few days this past week where up, down, up, down, I think for the most part, it will be up. But remember, there's been a bit of discussion, particularly on X and these other channels that people even more experienced investors seem to be really confused about why the stock markets up as this issue around inflation and oil prices and things rage is on. And it's important to

8:19understand that the market, the stock market and business in general is typically more forward looking. Then say the media, which is just trying to get your clicks for that hour or that day. And that's probably why when you wake up, you get different headlines depending on what time of the day it is. But for the most part, the business world goes, okay, we know high inflation's coming. It's a matter of how bad is the inflation. And last week, we didn't know if Trump and the US, in particular, was going to slow down. Like we didn't think we didn't know if it was an acceleration. And we still don't know. We still don't know. Because I saw a tweet, I presume you still call it a tweet on X, a post on X. And it was someone showing the, in one single speech in the space of about 10 minutes, it went from, this was a Trump speech just the other day. It went from him saying they're making progress in talks with Iran. And then two minutes later in the same speech, he went to obliterating Iran. And then back to make to talks and progress.

9:24And then back to more troops on the ground and obliterating them. It was the conversation swung that wildly. And you're not seeing swings in the market that wildly. You saw much bigger swings in the market with the Sasspocalypse. Yeah, yeah, definitely. The biggest issue right now for anyone, I was chatting to a client this week, actually, the biggest issue for anyone that's an investor right now is not what's happening in our process. Like that, that will affect retirees positively. If all prices go up retirees, like we see this in the clients that we work with, we'll make more money. Homeowner's like you and I with a mortgage rich, we're stuffed, but the people that have wealth will get wealthier. Can you explain that because I'm thinking these retirees are out there like, well, not like Drew, he's not a retiree, but he's got a big on Prado. He does, yeah. And imagine hook in the caravan up to that. Yeah, well, have a guess what everyone, look who's standing tall on the electric vehicle Everest right now. Yeah, numero uno over here.

10:28I ain't filling up my EVs and my thanks a lot Drew. So Prado's, obviously pretty poor choice of car, but in general, the reality is much that everyone's cost of living will go up. But as we know, interest rates respond to the cost of living. That's the only lever that we've left the RBA with in Australia. So when you have one tool and your tool is up or down, and the thing that you're trying to control depends on this. You're just going to go up until you are satisfied. The big problem and everyone knows this, but it's really hard to pinpoint any one in particular person in parliament. So we'll just blame Anthony Albanese in maybe Jim Charmers for now is that they keep spending a shed load of money on things that are also going to cause inflation. And the byproduct of that is that we won't know the real consequences of that for 12 to 24 months. While they're doing that while they're kind of helping inflation go higher in one sense, they're also looking to tax

11:34more. So as we know, market crashes and inflation create inequality. And I remember learning this when I was I think I was in high school that when you have a crisis and economic crisis in most countries, even in more communist style countries, rich people get richer. And the simplest reason for that is that people that have assets can diversify. People that don't have assets can't diversify. Shane Parrish talked about this in his book about this idea of competitive positioning. When you have assets, you only have good choices. When you have no assets, everything looks like a bad choice. Like if you're a single man with two kids and you've got one job that's shaky, nothing that you can do will turn you into Warren Buffett, right? Now you're focused on surviving. Yeah, exactly. And you're going to have to make compromises, pretty significant compromises in your life and in your children's life. But if you're a retiree with 2.5 million dollars in super,

12:37there's two of you. The kids are flown to the coop. You've got good choices. Is it is it roamed via Singapore? Now that you can't go via Dubai, you know, that's your choice. And so for you, it doesn't really matter what inflation does to be honest. You'll pay a little bit more at the Bowser. Yeah, you'll move on. Yeah, but you've got a lot of some of your assets in defensive assets, like term deposits interest rates going up fantastic. Yeah. You might have interest rate sensitive income products like sponsor with the show term plus. Yeah. That pays above the RBA cash rate. That's it. So if that goes up, your income goes up. I think everyone would have heard the ad for term plus by the time we're talking about this. But yeah, so term plus great example, right? They'll just they'll effectively they have a cushion above whatever the cash rate is from the RBA and the RBA says put the right up. So their income goes up. Your income goes up. Floating rate. So that is not a big issue. It's an issue, but it's not

13:38as big of a issue. The bigger issue, if we come back to it, is I think what happens with AR because effectively we're talking about it as a technology problem right now or technology opportunity. But what it's going to become is a human problem because it's going to fundamentally change white collar work. Or if you can see me today, maybe I've got a blue collar on, but it would normally be white. Mitch has got no collar on. I've got zero. But that's interesting because I was actually listening to the podcast animal spirits. Yeah. Reholtz, wealth management guys. Drew's infected you to listen to that one. Well, no, you to be fair, you're their biggest bloody fan. Oh, this is true. This is true. You're building a business the same as me. And so I was listening to a podcast and Michael Batnik, one of the hosts was on there. And this is not far from this was kind of in the depths of that sass apocalypse where everything that we thought

14:40was good quality IT, like think about your zeroes and things like that. We're getting absolutely smacked, right? Yep. And he's there and he's got his head in his hands. He was so depressed. Yeah. And he's like, this is changing work. Yeah. This is, you know, the, you know, the middle class, the white collar kind of office workers are going to work and they might be aspiring to have a holiday with their family and whatnot. And next minute, they're made redundant. These people who were never previously on the chopping block. Yeah, yeah. He's hilarious. My Batnik, but he's also a really data driven is really interesting to listen to. So when I was in Vietnam, we were at a nice hotel, not super expensive, but just a nice hotel. And four other hotels around us were abandoned. It's actually kind of crazy. It's like, we speak of like when you say abandoned, I mean, like imagine a hotel functioning and just, just no guests or closed. It's actually incredible. If anyone has been to different parts of Vietnam,

15:41in particular, the more tourist areas like Hoi An in the middle of the country. This is the lantern town, if you're familiar. So you remember, like maybe 10 years ago, we used to talk about other Chinese ghost cities where they built these gigantic cities and no one lived in them, because they were anticipating people from agricultural workers going into the cities, but no one had got there yet. This is very, very different in that you, someone has come along. They're mainly South Korean and Chinese investors have come along with huge amounts of money and then the COVID pandemic is here. And they've built these gigantic buildings. If you're familiar with Crown Casino in Melbourne, which is I think the biggest casino complex in Australia, there is one of these that has been built in Denang in Vietnam. And it would be similar size, completely built without the glass on the windows on the outside abandoned. It still has like the plastic around like the pillars at the front of the building. So there's the projects.

16:42Yeah, there would be, I think I drove past 150 of them and they're huge. Some of them would be a few kilometers long and they're just empty. That actually wasn't my point. It was just fascinating to see that in action. In a developed country that was a capitalist country, the first thing is you go, hey man, I've got a hundred bucks. I'll buy it from you and you'll go and do something with it. But in a communist country, it doesn't really work that way. And so like my point was going to be that actually when we're staying at these hotels, you would see a lot of workers and a lot of people outside. They still have in many parts of these countries. They have people that physically go around by hand and cut the grass or pick the weeds out by hand. Whereas in Australia and many more developed countries, someone would be walking around with a lawnmower. Or maybe if you're more advanced, you'll have a ride on lawnmower. Right. And the analogy that I'm thinking of when I think of what AI will do is it will repurpose

17:44the people that do those jobs in white collar industries. So the people that do the jobs that redundant in the sense that they are not kind of advancing what the technology can do. But they're harnessing the technology. Those are the people that will stay employed. The people that won't or the people that don't do that. And so like everyone knows you mentioned the way you talk and you're really charismatic and these types of things. I think that you'll be completely fine because those things are not going to be taken away by an AI. But say for something like data entry or more of those mundane tasks, that is already on its way. Like McCwory came out this week with a report, now in collar, read a report out in the ABC business report. And he said the McCwory research said if AI accelerates in banking alone, it will be up to 30% of the workers in the next couple of years. It was about 56,000 people. I've been wanting to sit down and use say,

18:44Claude to create some agents to do all the things that I'm bloody terrible at. Which are those kind of like repetitive tasks because my mind doesn't naturally go to doing them well. My mind goes to the next funny thing. What can I do with this chatbot? What kind of weird series can I come up with? Let's go. That's where my mind goes to. But I just don't have the time to sit down and do. I need a chatbot, an AI agent, to do that for me. To set up that AI agent for me because because I'm just I still keep procrastinating and not doing that. Life lock, how can I help? The IRS said I filed my return, but I haven't. One in four tax paying Americans has paid the price of identity fraud. What do I do? My refund though, I'm freaking out. Don't worry, I can fix this. Life lock fixes identity theft guaranteed and gets your money back with up to three million dollars in coverage. I'm so relieved. No problem. I'll be with you every step of the way.

19:45One in four was a fraud paying American, not anymore. Save up to 40% your first year. Visit lifelock.com slash podcast in terms of life. Anyway, let's get to a couple of bigger news, kind of topics here. He wanted to cover off the speaking of the oil issue, right? We wanted to cover off race increasing. It's the cost of its pipes by 25 to 35%. I had a quick look coming in today. I think Reese is copying the public bashing for this because it's an ASX listed business. It's already on its knees a little bit with its US expansion that's dragged on for a long time and not produced any results so far. But it is not a Reese isolated issue. It is that whole industry, that whole industry and the building industry in general, passing on these costs on and treaties and what not are wearing it plus increased fuel costs. Yeah. So this is what you guys spoke

20:47a little bit about last week, but also we've spoken a lot about in our weekend email that we do. The thing about oil, that's really interesting that people don't understand, is that people think it's drew going to the boughs that are fill up his Prado and it's being 400 bucks, right? That's what they think. Oil is. It's the flow on thing. That's why macroeconomics is so hard as well. I think we're going going with this. It's not just the one thing. It's that butterfly effect. Do you increase or cut off supply of one thing or strangle supply of one thing? That flow on effect in a macroeconomics standpoint is so hard to predict accurately and all of a sudden your price of bananas are more expensive. Yeah. And the thing is right, so we measure inflation at the consumer level. We measure it at the point where you get a basket of goods and people can debate this until the cows come home. Yeah, it's not great because the choices of things that they actually

21:47choose to measure inflation on a stupid, but that aside, the thing about oil as opposed to say iron oil as a commodity. They're both commodities. Iron oil is relatively muted in terms of its price action recently, by the way, but with iron oil, which goes into steel, this is one of the biggest commodities we produce as a country. You dig it out of the ground, you take it to a smelter and then someone shapes it into steel. Pretty bloody simple, right? It's like basically only two steps in that value chain. In investing, we call them value chains are in business because we say, okay, to get this iPhone to me here in Australia, it says, you can even say it says it somewhere on the phone, it says, designed in California made in China, right? So all of a sudden we know that there's two steps. There's designed in California, then there's something that happens in China that comes here. So obviously the design phase doesn't require oil, but effectively everything in China would, like what components go into that? There's critical minerals from around the world, which we know are a big deal and going to become a bigger deal. Things like cobalt, nickel, these types of minerals,

22:50we see that on the stock exchange, silver, gold, all these precious metals are going up massively, not necessarily for gold in the use case I just mentioned, but so that's one point, so to get all of those components to China, you need oil. Then to get the stuff from China to Australia, you need oil. Then once it's at the port, you have to go from the port to the Apple Store oil, and this is not even considering like the plastics and stuff that goes into that, which is what we're trying to reason just a minute, then you have to drive to the Apple Store, or you have to get it carried to you, which involves oil. So every component along that value chain is impacted by the rising price, and by the time the consumer gets it, it's not just you know, our oil's gone up 10%, it could be a significantly greater amount because of the impact it has throughout the whole supply chain. And what we could see is like people will have fruit and veg, you know, I made that case in the weekend email, it's like fruit and veg will go up because the farmers don't have oil or petrol right now. The plastics that goes around the

23:56regrettably, which people buy from oil worse in those plastic, you know, six apples in a plastic container, that involves oil. So all of these components at different points of the value chain are being impacted. In the case of Reese, Reese sent out, which is ASX listed ASX Ari Hage, they sent out a note to say from April 18, prices of our plastic pipe and fittings supplies will increase across the following categories, HDP pipe and fittings, up 36%, twin wall corrugated storm water pipes and fittings, up to 31%, PVC pipe and fittings, up to 28.5%, and they go on to say that even if you've ordered something for a particular price, if it's not delivered before that date, you'll still be paying more. So even people that are currently building that haven't even made the decision to build, you're going to be paying more. And there were some plumbers that chimed in on this X thread that I saw and it was basically talking about the cost of resin that goes into the PVC pipes and how even the supplies that Reese deals with limited in what they can buy, they're

25:02a good one is like China banned exports of oil, instantly basically, as soon as this conflict broke out. So they basically said, like China basically said, we're not giving anyone else oil because we need it. Australia hasn't done that by the way, but that's the impact of this mixture. I'm sorry for the rant, but it's pretty significant. I don't think people understand what this impact could be. Let's talk about something positive speaking of rants. You had a bit of a rant on the last weekend in your weekend email about SpaceX. Yes, this is a point of positivity for you, a new business SpaceX that's quite one of a kind, really, that'll be coming onto the market even as early as June. Yeah, yeah. So I know the reason why I wrote about SpaceX is we've got a message about it from a listener of the podcast called Cuddly Koala. So Cuddly Koala, if you don't subscribe to our newsletter, you should because you would have got the full take on this. But SpaceX is a company founded by Elon Musk in 2002. It's the world's biggest space company. Put it that way. It's

26:05probably it would be bigger than NASA, I'd imagine, and that's in a whole government agency. It makes its money primarily. It's two ways from selling starlink subscriptions to the internet service, which I have. And then it also launches rockets into space for governments and corporations. So why would these governments and corporations want to launch rockets in the space? Because if you're elbow or whoever's the other side of politics right now, I don't even know the name. If you're either one of those people and you're like, Australia needs GPS, right? Pretty good technology's been around for decades. Who do you go to? Literally no one. You have no capability. So you go to space X and you say, Hey, put this thing in space for us. And they go, okay, it'll be three billion dollars. How many rockets they launched? And like, I don't, I've lost the number of the top of my head. But last year, I think it was they launched, they, I know exactly how many they launched as a proportion, which was 52% of all orbital launches in the world. That one company accounted for all

27:07of them. The New Zealand founded company Rocket Lab launched 21 rockets last year. I put the number in the email company, sorry, if the top of my head, the exact number of how many better be in the hundreds now? Because they make money of two ways launching rockets for other people in satellites and space. And then they also make money from Starlink, which is the internet service, which now has over 10 million subscribers. It's interesting. They have 10 million, over 10 million subscribers, and they've got over 10,000 satellites in space. So they've gone from no satellites in space in 2019 to 10,300 satellites in space today. And they're low earth orbit, meaning that, so the further you are from space, from the service of the earth, the longer the messages would take. So in order to make an effective internet business, you have to be kind of in like the, the adolescent, the stratosphere, you need to kind of be up in low earth orbit so that you can ping messages down. The problem with

28:07that match, and to be geeky for a second, because I love this stuff, is that if you're in low earth orbit, what happens is you, your satellites degrade from the particles in space. So eventually, the satellites will have to come down. So they have a useful life. It's not like if you go out in the street and there's fiber optic cable that could last 50 years. These things won't last that long. And then eventually, they'll just crash into an ocean somewhere, and then another one will go up. But that's how SpaceX makes money. And the two things that are like the hype masters are getting behind this IPO are saying, well, they're going to put data centers in space, because you don't have a cooling problem in space. Over 50% of the AI cost, you know, open AI, like ChatGPT, and that's up. Over 50% of that cost is actually just in energy, and primarily to cool down the servers. So you don't have that problem in space. Secondly, is they want to create moon base alpha, which is a human colony on the moon. Right. NASA wants to do it themselves, but SpaceX will

29:13based on NASA using SpaceX to get anywhere would probably do it first. So for an investor, we look for something that we look for is natural monopolies. Yeah. This is as close to it as you could get in space. And it'll cost a competitor to get to this same point, a heck of a lot of money. And it would take a pretty unhinged person to try to do that as well. Like I mean, Elon Musk, he's not known for, you know, thinking relatively rationally. He kind of thinks, unlike almost anyone else, and he was willing to take the punt. Yeah, many moons ago to do it. So when he sold out a PayPal, because he was in the founder of PayPal, communist conception, he was the one who figured out how to send money across borders. Hence why he had the website called x.comers in FX. People don't know this. So FX. And until he bought Twitter, x.com, when you went to that website for 20 years, it just went why? It just said in the top left corner, you just go to x.com and be

30:15the little y in the top left corner as in like x y coordinates. So effectively, all these x's come from that original thing that he then pushed into the PayPal, where he joined the other PayPal Mafia members, which was like Peter Till and all those people. And when that was sold to ebay in 2002, Elon had roughly $180 million. He put $20 million into solar city, which is the solar business, solar panels on your roof that kind of look like shits. Tesla bought it. Yes, I believe so. Yeah, a few years ago now. And then he put the other 70 million into Tesla. He wasn't the founder of Tesla. He just put the money and became the big shareholder. And then all of the remaining money went into SpaceX, which he started. Look, some pretty good investments. Well, you know, if you get enough monkeys on a typewriter, eventually one writes Shakespeare, right? So there's, like, maybe there's some sort of like law of large numbers, survivorship bias here. But effectively, what he did was take what would be considered an absolute fortune at the time would have made him

31:20easily one of Australia's richest people if he wasn't Australian. And he said, you know what? I'm going to put it into the three riskiest ideas I can possibly do. Electric vehicles and driverless cars, renewable energy, which is dominated by coal, oil and gas at the time. And I'm going to go to space and create reusable rockets. And all of it, well, except for solar city, you could say, you could debate that. But the other two have been two of the world's greatest, most innovative companies, right? So the reality is much that we look for companies that are so far ahead of the competition that they have those near natural monopolies. Now the European Space Agency, the Indian Space Agency, China's starting to launch more than ever into space. These are all trying to play catcher. But I think like given that NASA has been around since the 1950s, there's a fair amount of intellectual property, technology, and the whole value chain of human

32:21capital in the US that have given us a real strategic advantage in this space, literally. So does that mean it's a goodbye? Probably not. It's going to, if it's IPOs at the price, we don't know. This is all kind of hearsay. This is rumors. But if it IPOs at anywhere near what they think it's going to IPO at, it would be at 95 times sales. So 95 times sales. We had Professor Alan Duffy on the show, not to long ago, from Swimburne University. And he talked about this potentially being a $1 trillion marketplace for space technology, which is huge. Huge, huge, huge. It's bigger than advertising, you'd probably say. So massive opportunity. It doesn't mean it's a goodbye. No. We'll just wait and see. Speaking of goodbyes. The other day, I actually, well, I mean, I had the request come down from the, you know, the heavies at GlobalX. I've heard about this ETF that you and Drew want to get off

33:25the ground, the falling knife ETF. And we, we got Mark in from GlobalX and I sat down with him. And we had a good old chinwag about what it's going to take to get Australia's next great ETF off the ground. Mark, firstly, I'm glad GlobalX are seeing this opportunity for what it is. And they're taking it seriously. They've flown the big guns down immediately. Actually, the week after to discuss the Australian investors falling knife ETF. We take all product requests very seriously Mitch. So don't worry, we'll be there. Well, how do we get this made? Well, there's a big process to go through when it comes to making an ETF. But the great thing about working for an innovative ETF business is you can get something from idea to actual execution, which I'm glad we can get to talk about. Great. So let's look at firstly Drew last week, came up with a few rules. He had multiple downgrades because there's barely one cockroach in the kitchen. So that's multiple market sensitive announcements that are going to send the stock down. And of course,

34:29he really looks for, he's attracted to steep single day declines. But before we get into the actual rules, what are the key moments in the inception of an ETF? I think it's a great question. I love the idea, by the way, always for keen innovative ideas. It's almost like you're birthing a child over here. You're trying to put in all the particular inputs to have an end product that is hopefully going to live a prosperous life. So when building an ETF, and I'm very fortunate to work for GlobalX, who is very big on product development and bringing new, whether it's exciting things, or filling gaps in people's portfolios, you really need to have the initial concept. And I guess why? Right. What is the why behind it? What problem is it solving? What exposures are getting to? So at GlobalX, we would go through a feasibility assessment with an idea. You would pitch the product and our CEO, Alex Likers, always very big on no ideas should be unnoticed. Anyone can pitch an idea. I'm glad for that. Which is why I'm here to hear more about this. But we would initially have a screening group, right? And what that screening group is, it's really to ask the tough questions,

35:33what's the universe? What's the application? How are you going to run it? And I've pitched a bunch of ideas to the business. I've pitched without other people pitched ideas. And you really want to try and ask some critical questions around what's the liquidity in the underlying components? Because if you're investing something that you can't actually trade, well, there's no point. So our portfolio management team will come in and ask, what's the tradeability like? Because you have to start with some parent universe, right? Whether it's the Australian universe, like the top 200 companies or developed markets, emerging markets. And then you go through the underlying methodology. And we're talking about indices over here, index ETFs, not active ETFs. And then you start applying these rules, Mitch, of right, how do we want to slice and dice this universe? Whether it's based on factors, based on size, based on yield. And from then, you go speak to the index providers. And there's a bunch of them out there, whether you're looking at S&P, FTSE, MSCI, selective, and even global X through MIRA, we've got our own index business overall. Because that's what all index is. It's just a bunch of rules. Think about the S&P 500, the largest 500 companies, the ASX 200, risky emerging markets. They all just rules to get this big universe into one. And from there,

36:38you speak to the index providers. They will help you at least do some analysis, talk about some factors, some tilts, look at things like turnover, look at things like sector positioning. And then once you're there and you get that approval from our internal group, you're off to the race as Mitch. Essentially, it's getting everything set up, the boring legal paperwork, setting up a company registration, setting up the constitution and compliance plan, all the boring stuff, working with the shared registries like computer share. And some of the most exciting bits is around picking things like a ticker code, deciding with exchange to list on and then go to market. So that's in essence my short way of saying you start with your product feasibility assessment because some ideas might be good in theory, but actually might not actually be able to construct a universe from it all the way to actually building it with the index providers. And we're very great to work with a lot of different index providers to actually going to market. And hopefully, if we do, because we have had some client requests for an ETF, we get an initial seed investment from that particular client. If you're going to champion the Australian Investors podcast,

37:42following our ETF, and you're taking the idea to the team, would you be looking to first put some meat around these rules or the thesis? How would you how would you establish that? So number one is when we bring a new ETF to market, we want it to be research backed. So what we would look at is, is there any empirical research or any evidence around this idea of a falling knife, right? And there is some in the bond market, you've got things like fallen angels over there where bonds that are downgraded tend to actually sometimes perform quite well. And there's also this IGN we were chatting offline about it around mean reversion that, you know, sometimes even though valuations don't mean revert all the time, prices can mean revert over a short medium or long term cycle. So when you're talking about this idea of how do we actually define falling knives, then we go into the meat of it. What does it actually mean? What are the underlying metrics you look at? And can they be monitored? And the other thing as well, Mitch, is you'd have to work out, well, how like octane do you want this to be? Do you want this to be rebalanced every day?

38:43Do you want the consistency to come out every month, every year? So we'd probably work with yourselves and the clients to work out, well, what exactly is this end purpose? Because you've got to remember, if this is a very high turnover fund, there's going to be a lot of transaction costs, a lot of capital gains, which could erode some of the underlying returns for investors, given there's so much turnover happening in the portfolio and lots of costs. So we'd probably want to have some strict rules and also liquidity is important. So because if we get an investment, the great thing about an ETF, it's open-ended. So if we get it $100 million from the Rask Invest community coming in, we need to go ahead and buy all these stocks. So if you're trading very small specky small cap stocks or micro cap stocks and we can't invest in an ETF, you're going to have some issues. So you have to put in some buffers, you have to put in some liquidity constraints. So beefing up those rules are incredibly important. Right. So we'd be starting with ASX 300, 200 even. Yeah, you'd probably be looking at a liquid enough universe when you're talking about the, because this is some wild moves that you can get in smaller micro cap stocks. So you'd probably

39:43want to limit it to probably the large or mid cap end of time. Yeah, I know Drew is really attracted to the larger cap falls. So, so we'd go that ASX 200, 300 felt liquidity. It's interesting you talk about the monitoring of the rules as well, because it's like for example, he's, how do you monitor the more than one cockroach in the kitchen? How do you monitor downgrades? Is that even something monitorable in the context of an ETF? It is and that's where you need to find data that is very easy to access and stuff that can be reported periodically. So when you're thinking about downgrades or these idea of notches being down weighted, you'd probably look at things like earnings revisions or earning estimates where they've been downgraded perhaps from, you know, there's a lot of smart analysts, sales side analysts here in Australia. How many of downgraded are from a overweight to a neutral or a neutral to an underweight? It could be relating to the underlying credit quality that's from one of the big rating agencies. So you need to find public available information or things that are privately owned but that can be accessed through a data

40:46source because that's where a lot of these rules come by. When you think about which companies are growing their earnings, there needs to be some sort of forward estimate. Where is that actually coming from? And the great thing is we work with a lot of data vendors that can actually do this and actually provide it for us in a transparent way because you do need the underlying data to drive to the decision making. Otherwise, it's going to be me and you deciding to pick that, pick that, pick that, and there's no robustness. There needs to be some sort of governance process and needs to be some sort of repeatability each time. Otherwise, you might as well just launch an active ETF. And speaking of saying that a main reversion one because there are falling knife is Drew's turn. There's a main reversion, deep value. There's a thing in the US called the dogs of the doubt. So this is not a new thing. What would have been in your main reversion one? So yeah, no, we talked offline about this. I had this idea of having a main reversion ETF because you always see the top 10 best performing stocks in the ASX but also look at who the worst performing stocks are as well. And sometimes you see this in ETF land. The worst performing ETFs

41:47of one year tend to be the best performing of the next year, which is really interesting. You say that and manage fun land as well with the persistence scorecard from S&P. Exactly, right? The bottom quarter this year will often become next year's top quarter or the next couple of years top quarter. Exactly. So my idea which I've pitched a couple of times is to have that, the tough thing is we don't know when main reversion is going to happen. We don't know if it's going to be a short term cycle that it pops back after a few months. We don't know if it's going to be a few years because you could own the dogs of the doubt for a long time and be underwater. And is that when we were talking, I was talking with Drew, we were talking about the holding period. Yeah. So with every ETF, you need to have something called a rebalancing frequency. And this is where this constituents will either be deleted and kicked out and said, no, you don't meet these rules or new constituents will come in. Most indices either rebalance quarterly semi annually or annually. And this one, what do you think you do? So my initial idea was to do this annually, to have this for a 12 month period. But then I also realized that sometimes they can have two

42:50back to back years of underperformance. So it's like, do we upweight it? And then I was also thinking rather than waiting it because you can also choose how you want to wait the underlying constituents. Not just the rules, but do I want to wait this falling knife ETF by the company that has the biggest weight is to have the one that has the biggest downgrade or the biggest fall or do I want to blend it and have both size and the actual the falling knife itself. And you do like a blended weight together. So or maybe you just want to equally wait and be like, look, I just want to own all of them in an equal basket, maybe top 50 stocks, only 2% in each of them. So you need to put in these controls in place because everything needs to have that portfolio applicability. And we actually in the US launched a something similar, but it's around factors you mentioned before. And it's a kind of a dynamic factor approach that invests in factors that are out of favor. The tough thing with that and they've actually had some success with things like momentum and value is sometimes these cycles can last quite long. So it's an innovative concept in theory. And then we put the rigour through it. Can it actually work from a back test perspective?

43:52Okay, so look, I don't know about you, but there is demand on the streets. People are stopping me. People are stopping me saying, when is this falling knife ETF going to happen? So it sounds like we've got a bit of work to do. What's my next step here to make this ETF a reality? So number one, your next step is to work out what that universe looks like, right? So and I'd also say to you and Drew is to have a look at some empirical research of this idea of mean reversion, right? Has it been studied? Is there some sort of evidence behind it, but really to identify those constraints, right? Because that's really going to form what this ETF or this index will eventually entail. So it'd be quite critical and quite specific about what are these key factors you need to look for? And can they be readable? Can they be accessed through some of these a particular data vendors themselves? So when you're talking about falling knife, are we looking at drawdowns? Are we looking at momentum signals around moving below a certain moving day average? Are we looking at earnings downgrades? Are we looking at companies that are seeing

44:56share individual companies selling the insiders selling of these underlying companies themselves? You'd probably want to build a bit of a robust rules behind it. And then you would pitch it to a particular index provider to be like, this is what I'm looking at creating. And the great thing about it index providers, they can create custom indices. And we do this all the time for some of our products. And if a product isn't there on the shelf, like an ETF isn't there, well, indices can be created by these really smart people that work at these index providers. So Mitch, I'd say to you and Drew, I really love the idea. To be honest, I think it's quite innovative and sometimes niche products could also charge quite decent management fees as well. So you could probably get a lot of money from this on the management fee side, but really to have those robust rules and just think about liquidity, think about the constraints around it, how many companies you're going to hold it, how you're going to wait it, and what are those underlying factors you're going to look at? Mark, this has been great. Well, back to the drawing board for me and Drew, we've got a lot of work to do, but we will come back to you with some of these rules. We look forward to having you at our next screening group. And yeah, for any listeners as well, please feel free to throw out any ideas you may have. It sounds like the brains trust here have

45:59come up with one, but we're always for new ideas. And that's a great thing about the ETF market. You can be innovative, you can launch new things, and it can be done so in a wrapper that's tax-efficient and simple, like an ETF. Perfect. Thanks, Mark. Thanks again, Mitch, for having me. So Mitch, basically, what Mark said is deep value ETF. Is that right? Yeah, essentially, it's a deep value ETF, but afterwards Mark and I had a chat, and he said, Mitch, what you've got to think about is who's going to buy this? Is there a market for it? Is someone going to essentially replace their deep value or their value-focused managed fund, active managed fund for this? He wasn't so hopeful, but I'm going to persevere. Okay, so it was a bit of a thought exercise more than anything. So basically, that's an interesting insight though. If you're saying to that too, sorry, Mark, this was on the record, off the record, but effectively saying that one of the ways that ETFs are successful then is by convincing people that the active managed fund version

47:02of whatever they're trying to do is not as good as the ETF version. Yeah, what problem are you trying to solve? Yeah, you know, and why does this deserve a position in a portfolio? And is someone, is it so compelling that someone's going to switch? Yeah, it makes sense. Okay, well thank you, Mark, from Global Exponsor of the show. I really appreciate you coming down. It's actually an episode coming out with Mark soon about five passive income ETFs. So stay tuned for that. Just before we get into the questions, a quick disclaimer. We do love your questions. You can send them in via the link in your podcast player or YouTube description or you can head to rask.com.au slash question. We don't know who needs God's objectives, so please don't tell us like that your son's name is Blah and your wife's name is this and you're that age. But if you do, we will try and anonymise your question or we will have to skip over it because we can't give you personalized financial advice on a podcast such as this. You need to speak to a financial planner for that. So we'll keep things general in nature. And if we do mention things like ETFs or super funds, be sure to refer to the PDS that's available on the provider's website. If you don't know what any of that stuff means, you can probably switch away from this podcast now and head to rask.com.au slash

48:07fsg that's financial services guide where it explains the difference between general and personal advice and the type of information you get on a podcast versus from a financial planner. Mitch, now we do have a few questions. We're going to do rapid fire here. Right. Yes. So I'm going to get into them because I think your best place to answer the majority of these. One is a business owner and two is an EV owner. Look, I don't even know how to pronounce this first one. Something equals fun finances. It's peri-potetic. Peri-potetic. Peri-potetic. We're going to sell my idiots here. Yeah, we are. Love your parties. When the super laws change in July, 2026 are contractors treated the same way as full-time employees in that super will be paid every time I place an invoice with my company. Well, so just for those of you that don't know, super laws are changing in July 2026. If you're on a business, this is fricking scary. You have to pay super at the same cadence that you pay your employees, which most people are already on monthly. So that's where it comes in. So it'll be monthly. In the case of this,

49:10I would assume, I don't know the exact answer to this, but I would assume that you would be wanting to pay your contractors every month at a minimum. The big super funds, I host plus a strong super will convince you every way to give them money more often. But the best point of call would be your accountant on this one to help you manage your cash flows and so on and so forth. Let's be honest, eventually we're going to be at same day super. So eventually inside your zero account, which you can do now, when you do your pay run, you click pay employees and there's a button right below it that says pay super. It will be one button in the future and you'll do both at the same time. So that's what you can expect. Right. Shoot him a Gavin asks, now that field prices are through the roof, through the roof in a couple of cups. I suddenly remembered back to Owen talking about all the reasons why he bought a Tesla, but I'm confused why he said he would use tax breaks and a novada lease, novada leasing on EVs, but not hybrids. Yeah, it's a good question. So there's a few people in the office now with electric vehicles, not just Tesla. So most people on VWDs, I think only Tesla owners, everyone hates me. But the the simple reason is you can't use a hybrid

50:16anymore under the really good tax breaks through the ATO. So quite a few years ago, the government came out and tried to push electric vehicles good for the environment. And as we're finding out now, Australia has a energy security problem. We produced a fair amount of oil and gas, but we still import most of it. So they wanted us to do clean energy and they wanted us to do clean vehicles. Never mind that we still shovel all of our coal gas and fuel over to India and then they sell it back to us. But that's a whole other thing for another time. With this, you can't do hybrids. So they're out to the VWD shark and those types of things are out of the picture. But if you're buying an electric vehicle, a fully electric vehicle under the luxury car tax limit, which is roughly $90,000, you can drive that vehicle without fringe benefits tax. So if you're a business owner and you buy one and you drive it or you give it to your partner and he or she drives it, even though it's owned by the business, no FBT, which is like the tax makeup. If you're a

51:19trading and you go fully EV, you can forget the log book method because there's none of that. There are rules and T's and C's about what you can and can't claim. It's on the HIO website, but it's as we're finding out now, it's easily and it's easily the biggest way to save money. If you're either a sold trader, if you're willing to, if you have a good salary and you drive a lot for work or even just non-work related reasons, really, really, really solid saving strategy. But it just doesn't apply to hybrids. Novated leasing is a way to do it where you pay the interest cost to the Novated leasing company, but you don't have to go out of pocket. Last one here. Panicking parents asks, my parents have roughly a million dollars combined in super and a planning on retiring as they turn 65 at the end of the year. They have friends who have retired and withdrawn all their super and moved it to an individual financial advisor. My parents are planning on doing the same. What research should we do prior and how do I convince them to leave it in

52:20super? I think there's two things that are happening here. We deal with this a lot because we do manage a lot of retirees money. I think there's a misunderstanding about what's actually happening with the money from the person that asked the question. Panicking parents, it's important to understand what is actually happening with the money and the second thing is how do you pick a financial advisor? The first thing real quick is it's very common that when you see a financial advisor, you do not end up in an industry super fund. You might have Australian super, rest, uni super, something like this, like one of the big ones. Then you go to see a financial advisor and they say, hey, you can still do that or you can invest in this other portfolio that we manage with you or for you. Yeah, which will typically be on a platform. They're called on quote platform, net wealth hub, BT, Panorama, etc. They're very common, they're massive as well. It's important to understand. There are pros and cons to both approaches. What you'll find is if you've got a bigger balance and this is what a lot of people miss because most

53:23people read the barefoot book and they don't think about the people that have 500,000 dollars in super or two million in super or a million in this case. Once you get above a certain amount, the costs of using one of those platforms is kind of the same or can sometimes be better or sometimes a little bit worse, depending on what you're trying to do. Ultimately, it gives you or your financial advisor more control over what you invest in. There is a growing concern amongst the Australian finance population, not to beat up the big super funds, but there's a growing concern that over the next couple of decades that the big super funds will have trouble meeting all their obligations. And so having more control is probably not a terrible thing for some people. Now, our default industry super fund is art, Australian retirement trust, the biggest one in the country. I think it's a great super fund. We don't have those issues, but we also can manage money for people. Secondly, how do you pick a financial advisor? It's test driving a few. We always said it, you know, go and speak to three, get a good handle on their fees upfront.

54:27And if you really do want to convince them to leave it in super, I think it's an education thing. It's about sitting down with them and not getting a motive about it. It's about just saying to them, hey, these are the pros and cons. If you're unsure, you can just go to one of the race courses or something like that. Or just chucking into chat, GBT and say, hey, like what are the pros and cons of each? Maybe go to a meeting with the advisors. Yeah, go with them. Go with them. I've got a really quick question as well on for you. Scoe me. Scoe me. Yes. Your mate has been in the news again. Your mate. Richard White. Okay. Found her. Yeah, we hang out regularly. Well, he's been on the show. You've had a good yarn with him. Yeah. And historically when his issues first hit the news, these personal issues, I do remember that weekend email. You defended him a bit by saying, hey, these are personal issues and we've got a bit of tall poppy syndrome, et cetera, et cetera here in Australia. I think it was an email or maybe even the two cents episode. I can't remember. But essentially that was a line that you took.

55:30Yep. I've questioned though. And this is just for any CEO. When those first issues hit the news, Wystech shares were at $120 to $130. They are now, what are they now below 30? 39, 40 bucks. Yeah. Yeah, mid 30s, right? Yeah. Is that now that we've had more issues come out related to his dealings with former staff members or contractors, et cetera. Are the board and shareholders as forgiving as when the shares were at $120, $130 bucks? I feel like they were much more forgiving when you were sitting there facing a man who's made you a lot of money. Yeah, yes, true. Yeah. And yeah, because there's now a cohort of shareholders that have gone from 130 down to whatever. And they're probably going to be less forgiving. Yeah, they're the ones that are a bit angry, right? That said, they probably bought in, they should have bought in under the understanding that was this cloud of suspicion. Like me, I bought in 80 bucks. And I bought a couple of times now. I bought recently as well. The issues are still the original issues. So that's important to understand.

56:33What's changed now is that this week, there's been by Fairfax again, by Fairfax reporters. There has been a conversation released to the media between Mr. White, who was not a CEO at the time. And they talk about this. And one of the people, I believe, that may have worked for the White Stack. So when I see these things, I try to understand what is happening in terms of the business. And Richard's still a major shareholder of White Stack. And the company has suffered recently, as we know, however, the business has now got a new CEO. And I think he's doing a pretty good job of listening to their most recent earnings call. If we would have pulled this apart, like if we were to pull apart the share price fall, say it's a $70 share price fall. How much of that is to do with what's going on with Richard and their governance more broadly,

57:36like more of the border directors, they've all been rolled by the way. So they're out. So that's good from a corporate governance. That's what you want to say. You want to see the border directors out if something like this happens. That's just their responsibility. And they get paid big dollars. That's the risk that they take. Yeah, a lot of people will say that the board's job is to hire and fight the CEO. Yeah. And if they shareholders feel like they're not doing their job, they should go. And they did. So that's kind of clean that. The other thing, there's a new CEO. The other thing to keep in mind is there's a big acquisition. So if we take the $70 of the downfall, that's called a $70 downfall, say 30 of it or 40 of it, 30, let's say 30 is to do with governance. And that's a whole thing. 10 of it's probably E2 open, the acquisition that they did. And the last bit, maybe even you could debate, this is more of it, is the AI impact. So pulling it apart, you've got probably the majority of the fall is actually not to do with these shenanigans. It's actually to do with what's happening in the market price. Many people remember just recently, why's Tecla go a huge

58:38amount of its workforce? And if you ask me, Mitch, like the CEO is very candid on that call and we read the media release out here on the podcast a few weeks back, like what I'm saying happening in AI right now and the tools that even I'm using is why people don't really see them because they're kind of in this quasi-developer software engineering dark web version. And then six months later, everyone's like, holy heck, that's actually a thing. And the developers have moved on to something else. What I'm seeing in the tools that people are making right now are going to blow the minds of people in 12 months. And that is the bigger issue here. And every day when I see these tools come out, I'm like, how does this affect Prometheus? How does this affect Wystech both of which I own? And so I'm not worried necessarily about what the media and the tabloid media are saying. I'm more worried about what's the business case here. Wystech is re-signed 95% of its customers to its new pricing model, which will be more insulated from AI impact. So that's kind of my

59:41take on it. Obviously, I have no take on what's going on with the personal side of things. I'll leave that up there. Everyone else's perusal. Yeah, so that's me. And hopefully Drew will be back next week. Mitch will be sucking down a Mahito in the funny underbitantangs. The bentangs in Bali get my singlet on. Yeah, I'm not a singlet where I, you know, I don't know if you can tell that just by looking at me, but I'm not a not a singlet guy. It's a shame I'm singing and it might be like a bit of a tan line underneath that shirt of yours. But it'd be pretty some couple of hairy shoulders poking out. But you can send in your questions via the link in the podcast play. You can get in contact with us. There was a question that was sent through. It was more of a statement about the stock market game from who was it sent from? It was too long. It was too long. I didn't read it. And the negative bull sent in a question, Mitch. And I don't know if you read because you didn't read the whole thing, but the negative bull sent in a question saying that they're part of the stock genius game. Stockgenius.com.au, which is

1:00:42the game we're running this year. And interestingly, they said they submitted two portfolios. One was ultra negative and one was ultra positive. And they both came out the same amount in the top 30 of the thousands of people that are in the game. So they've done a fantastic job by having two totally different strategies. And they were amazed by that. But what's interesting is at the end of their question, this is what it says, would you like me to make this version slightly more polished and witty professional for colleagues or keep it full-sit-com energy like it's straight from Sheldon's playbook? So this person has put this question into AI and then pasted it into our website, forgetting to remove the next section of the AI. I read the first sentence and I knew it was AI. Just a quick update on the game as well. I'm sitting at 1,884. We found out last week how well you're doing and good to see you still holding everyone else up. Someone's got to do it. Someone else's right. All right. The interests of our producers are I can rewrap this up. Yes indeed. Well, Mitch has been heaps of fun. I'm looking forward to having a chat with you when

1:01:44you come back in a few weeks. Cheers, Matt. President Barack Obama. Virginia, we are counting on you. Republicans want to steal enough seats in Congress to raid the next election and wield unchecked power for two more years. But you can stop them by voting yes by April 21st. Help put our elections back on a level playing field and let voters decide not politicians. Vote yes by April 21st. Paid for by Virginians for fair elections.