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Chapter 1: What recent market trends are impacting inflation?
Hello, I'm Alan Colder, editor-at-large of Intelligent Investor and a finance presenter and columnist and podcaster for the ABC.
And I'm James Thompson, senior Chanticleer columnist at the Australian Financial Review.
And we are The Money Cafe. G'day, James. How are you, Alan? I'm very well. I had a long weekend, so it's a good thing the Australian market was closed yesterday because it clocked down on Friday in Wall Street, didn't it?
It did, yeah. A sudden reversal. Well, two things happened. The US jobs data came in very hot, surprisingly hot, which had everybody rushing to redo their calculations for US interest rates. It was the old good news is bad news gag. Exactly, exactly. And now, would you believe we've gone from expecting no... No cuts. Sorry, we've gone from expecting a couple of cuts at the start of the year.
We're now pricing in a hike for US interest rates before the end of the year, 0.25% because the economy is just running so hot.
Which is interesting because they've got a new chairman of the Fed now and he's about to have his first meeting, Kevin Walsh. And, you know, the assumption has always been that he's Donald Trump's man. He'll do whatever Donald Trump says and Donald Trump wants rate cuts. But the market is saying he's going to hike. That's interesting.
Yeah, yeah. And I mean, what's really interesting, Alan, is that he might not want to hike himself, but he might be outvoted. He might really have no choice because you've got this, you know, look, there's no doubt that Donald Trump's running the economy hot. You've got the combination of Tax cuts, deregulation, and still pretty steady fiscal spending.
And then this is being juiced by big, massive household equity wealth, which according to Bank of America, I think has gone up about $16 trillion in the last 18 months. No wonder people in America are feeling rich and continuing to spend. And then, of course, you've got the energy shock with gasoline prices over there up around $4.50 a gallon.
That hasn't slowed the economy yet, but it's going to at some stage or it's certainly going to put upwards pressure on oil. And, you know, the other thing is all this borrowing, all this spending on AI, how does that go in a high interest rate environment? And we did see on Friday night, as you say, tech stocks and AI chip stocks specifically sold off.
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Chapter 2: How are SpaceX, OpenAI, and Anthropic competing in the IPO race?
We were supposed to reach that moment in March and then April and then May and, you know, now I see some more predictions this morning that it's going to be, we're going to hit this sort of, you know, moment of reality in June. Well, you know, who knows? Everyone's still flying to Europe from what I can see. So it's got to get tight at some time, doesn't it?
Yeah, and in the meantime, it's terribly complicated in Iran and Middle East. Trump clearly has to swallow some humiliation at some point because Iran simply isn't, giving in, isn't agreeing to, I mean, it's continuing to demand, you know, cash. It wants its frozen assets back. Yeah.
You know, it wants to keep control of the Strait of Hormuz, all these things that basically Trump, you know, doesn't want to concede, but he might have to. And the other complication that's current at the moment is what Israel does, both in Lebanon and in Iran. So, you know, and Trump says he controls what he calls the shots about Israel, but I'm not sure that's true.
Yeah, I mean, you know. The Iranians are no one's friends. It's a murderous regime. It's oppressed its people forever. But they're sort of outplayed Trump at his own game. I mean, Mr. Art of the Deal has been, you know, he's failed to see the leverage that Iran's built up and used pretty cleverly.
You just go back to the very start of this and you sort of think, what did Trump expect was going to happen? Surely, you know, I know he's not a great one for listening to people, but surely there were some people inside the military White House establishment saying, oh, are you sure this isn't going to work in three days like in Venezuela?
Yeah.
But anyway, here we are three months later.
Before we go to questions, can you give us a quick summary of the KPMG story? What's going on?
So KPMG is obviously one of the big four accounting, consulting, professional services firms in this country. They're in the middle of a scandal. It's already claimed their CEO after inside their audit team,
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Chapter 3: What challenges is KPMG facing amid recent scandals?
Yep. But, you know, Peter makes the point that, that SpaceX is going to be basically a very big bet on AI more than space. And there seems to be no effort to read how Grok is an AI basket case. Grok is part of the SpaceX family. And... Just to sum up, Peter's basically saying that the SpaceX float is going to be a disaster and well done to Stephen for pointing it out.
I think Grok's market share of the AI space is 1.4% versus OpenAI and Anthropix shares of above 30% each. So it's well and truly in the rear. Yeah, yeah. Okay, Ben says, I have a question about cash deposits and the financial claim scheme, which guarantees deposits up to $250,000 per account holder per institution.
As I understand it, small institutions like credit funds offer higher interest rates and savings than the big banks because they don't have the same ability to obtain low-cost finance themselves. Probably also a higher risk to depositors. If the FCS guarantees the deposits, why just not go for the highest rate on offer and throw caution to the wind? Well, it's your money, Ben.
If you want to throw caution to the wind, go ahead. that's the good thing about this sort of thing. There's choice, isn't there?
Yeah, that's right. I mean, I'm not sure how much, how high the deposits, the deposit rates on offer at small institutions are. I haven't seen any stonkingly higher than larger institutions, but maybe Ben's seen something that he thinks he can take advantage of, which is fair enough. Yep.
Paul says, no one begrudges Australia's lowest paid workers receiving a 4.75% pay increase, but the Australian Council of Commerce and Industry estimates the economy-wide wage bill impact at more than $11.7 billion.
Even if only half of that is passed on to consumers, more than 30% of the cost flows straight back to government through additional tax income, GST, payroll tax and workers' compensation premium. So here's the question. If the aim is to lift real wages, why does government get such a big cut? Business pays, consumers fund it, workers keep only part of it, and government quietly clips the ticket.
Wouldn't a cleaner policy be to pair minimum wage increases with targeted tax relief for low-paid workers so more of the rise actually lands in workers' pockets?
Well, the tax paid on the minimum wage, which is $52,254.80, is 14%, if you take into account the tax-free threshold and the 16% rate. So the So, yeah, the government gets 14% of that $11.7 billion, which is $1.6 billion. I mean, I think the targeted tax relief for low-paid workers already exists, doesn't it, with the tax-free threshold?
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Chapter 4: How is AI influencing the housing market and childcare costs?
Yeah, okay, fine. Let's start with 10% GST. Yeah, yeah. I mean… And again, what are we taxing? Well, tokens are clearly a thing, right? Yeah. The AI tokens are created and then sold to consumers.
But a usage tax would be different to that again, wouldn't it? I mean, the GST would sort of be the best way of doing it. Absolutely. It's a sales tax rather than a usage tax. It's slightly different. I mean, this is the – Oh, I see. Yeah. Well, so usage, I don't know. I mean – This is the complication.
I mean, I think we're sort of rebuilding the – AI sort of asks you to rebuild the entire economy in a way that – You know, we can't even change the capital gains tax rules without starting.
Yeah, but James, if the SpaceX prospectus is correct, then GST on what they're doing would be enough to fund the entire government. You know, you wouldn't need any other tax. Yeah, possibly.
Because, you know, I mean, look, obviously the SpaceX prospectus is a fantasy and it isn't going to be like that, but there's no doubt that there's a lot of money now going on AI and it's going to increase a lot.
But I'm just thinking this through as we speak, Alan. Say you whack a GST on AI tokens, right? Yeah. That means you're paying the GST. Sure. Is that designed to discourage you from using AI tokens or is an AI tax more designed to redistribute the wealth created by AI?
Oh, look, I don't know. I mean, I'm paying GST on my hamburgers and it's not entirely discouraging from eating hamburgers.
No, but do you know what I mean? If what we're concerned about is taxing AI in some way to rebalance the economy, then taxing the users of AI, is that what we want to do or do we want to tax the people making profits from AI?
Well, yeah. Or both. Profits are supposed to be taxed, right? Yeah. They are taxed. Yeah. Unless they kind of base themselves in the Cook Islands or somewhere and that's a whole other topic. But, yeah, I mean profits are supposed to be taxed and then the consumption of the product that they make is also supposed to be taxed 10% GST.
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Chapter 5: What are the implications of rising interest rates on the economy?
Yeah. Peter Tonner, who's the chairman of Nine Entertainment, which publishes The Fin, he's also the executive chairman of a Woolworths-owned business called Quantium. It's a big data and AI consultancy. He says what he gets told from the big AI firms is Australia's… second in the world for adoption and then 10th in the world for actual deployment.
So I think we're going fairly slowly here, not too much AI psychosis. But what I would say is that my sense is that nobody thinks they can afford to dally on this because they are scared that their competitor or one of their competitors will come out, whether that competitor is in Australia or around the world, will come out with a sort of
holistic AI solution that rewires their business and allows them to compete and bring prices down in a way that the Australian business won't be able to compete with.
So I think that fear factor, that sort of natural law of competition is very much working in the favor of the AI companies because they just want to, you know, nobody is willing to take the risk that this isn't something real, if that makes sense.
Well, it's definitely something real. I mean, how can anyone conclude that it isn't? Are we saying that people – did you find that people at the AI Summit are saying, oh, maybe this is just a fad or it's passing?
No, I don't think – not that, Alan, but what they are seeing is that, you know, in the last six months or so, we've moved to this agentic AI where AI is being asked to solve very complex problems. Guess what? That chews a lot of tokens up. You know, I think Alan's explained on this podcast before that, you know, 75 tokens is 100 words, right?
Agentic AI, the average is that as an AI agent starts to… before it even answers the question, just starts to understand it, it'll lead up 96,000 tokens. It's the same as the amount of text in the Great Gatsby. That's just to start thinking about a query. So that increased token usage means much higher costs.
So I think there is a little bit at the moment in Australia and around the world of people saying... Hang on, just run that by me again. It's costing this much and what am I getting out the other end?
Oh, yeah, no, you're right. I mean, companies are getting very lumpy invoices, aren't they? I mean, you're right, they're all going, crikey, what's going on here? This is much more expensive than we thought.
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