Talk Investing Podcast
The Talk Investing Podcast & Blog discusses investment advice from our previous podcasts and radio shows by Remo Greco & Marco Mellado. Learn all things around retirement and investing.
Talk Investing Podcast
Rate Cuts And Your Money
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A rate cut can feel like a simple story: cheaper mortgages, happy households, end of problem. But if you’re trying to live off savings, build an income portfolio, or decide whether shares are “too expensive”, the real story is messier and far more useful. We’re joined by share market specialist Remo Greco to unpack what a likely Reserve Bank of Australia cash rate cut actually means, and why the market often moves long before the RBA does.
We start with the macro signals the RBA watches, including inflation back around the 2–3% target band, sticky living costs like insurance and rent, and employment data that’s harder to read in a world of shifting migration. From there we look at how rate cuts can affect the Australian dollar, why the impact differs depending on what’s happening in the US and Europe, and what that means if you’re travelling or investing globally.
Then we get practical for everyday investors. We talk about the flood of “income” products that show up when term deposit rates slide, and the one question that cuts through the marketing: what is the underlying asset? We break down term deposits and reinvestment risk, compare government bonds with riskier credit, and explain residential mortgage-backed securities (RMBS) and how RMBS ETFs make this corner of fixed income more accessible. We also tackle the nerves around investing when markets are at all time highs, the difference between a correction and a crash, and what retirees can do to protect purchasing power when inflation returns.
If you want clearer thinking on Australian interest rates, fixed income, term deposits, ETFs, RMBS and retirement investing, hit subscribe, share this with a mate who’s chasing yield, and leave us a review so more people can find the show.
DISCLAIMER: This podcast contains general financial information only. That means the information does not take into account your objectives, financial situation, or needs. Because of that, you should consider if the information is appropriate to you and your needs, before acting on it. If you’re confused about what that means or what your needs are, you should always consult a licensed and trusted financial planner. Unfortunately, we cannot guarantee the accuracy of the information in this podcast, including any financial, taxation, and/or legal information. Remember, past performance is not a reliable indicator of future performance. The Rask Group is NOT a qualified tax accountant, financial (tax) adviser, or financial adviser. Access The Rask Group's Financial Services Guide (FSG): https://www.rask.com.au/fsg
Welcome And The Big Question
SPEAKER_00The Talk Investing Podcast and blog discusses investment advice from our previous podcasts and radio shows by Remo Greco and Marco Melado. Learn all things around retirement and investing.
SPEAKER_01On the money.
Rate Cut Odds And The Size
SPEAKER_05Interest rates go down, down, down. Is this really going to happen and what does it mean for you? Share market specialist Remo Greco joins you. Good morning, Remo.
SPEAKER_02Good morning, Lisa.
SPEAKER_05And we will take your calls. 1-300-272-774-0437-774-774. Anything we share here is general in nature. Remo, what is the likelihood of a rate cut?
SPEAKER_02So at the moment, uh the statistics show there's a 98 percent chance of a rate cut on Tuesday. So it just means that all of the economists are high. That's a gimme. Most of the economists that they survey, there's probably 20 or 30 economists for their views. That's how they come up with the 98 percent. So um that's prob- well, okay.
SPEAKER_05So highly probable. And then how much is the rate cut, potentially?
SPEAKER_02Our our Reserve Bank tends to be fairly conservative, and it's a quarter of a percent, so 0.25 is what's expected. And that would see uh the cash rate go down to 3.6. So it's 3.85 at the moment, it will drop to 3.6. And we're above four for most of last year. So this is good for borrowers, but the context of our conversation today is as an investor and what you do with your surplus funds and how this impacts the way you save. And I suppose what we're a little bit concerned about is you know our markets are very you know, our markets are a selling market. They want to sell you things, right? And I've just noticed in the last couple of weeks an avalanche of products that have come to the market to capture investors' views or capture v investors' funds because they can see interest rates slowly drip drifting away. Trevor Burrus, Jr.
SPEAKER_05And before we look at some of those and actually maybe get under the hood of them for people just to um guess ask the right questions when it comes to these products. I'd just love to go a bit macro.
Why The Reserve Bank Cuts
SPEAKER_05So when we talk about a rate cut, what are the conditions around a rate cut?
SPEAKER_02So the Reserve Bank will look generally at a couple of things. Their mandate is to make sure that they have an orderly market or an orderly economy relating to employment and prices, which is the CPI. And what we've seen in the last three or four months is that the inflation rate has now drifted lower, right smack bang in the in the range that the Reserve Bank says they would like to see prices. So the inflation rate is around two and a half percent, and their range is between two and three percent.
SPEAKER_05So it's a fairly generally positive that we don't want inflation to be going rampant.
SPEAKER_02Correct. So remember inflation when it was very, very high back in 22, coming out of COVID, interest rates were, you know, they moved up from zero to four and a half percent and even higher elsewhere. So that was really to stymie the economy and slow the economy down a bit. The biggest sort of price rises we've seen over the last sort of six to twelve months has been insurance and rent. And I think anyone out there is probably nodding their head going, I get that. Yeah. Both of those, the rate of increases change. It's sort of funny. CPI is about the rate of change, not absolute prices. Prices are still going higher, is that they're not going up at the same rate. So we're still a bit, you know, miffed about this. Your insurance premium is likely to go higher again next year, but not as much as it was last year. Is that cold comfort? Probably not. But at the end of the day, inflation, you need a bit of inflation in the economy. Having falling prices is not generally a good sign for the economy. So you need modest rises and wages need to accommodate that as well. The employment numbers have been rising very, very slowly. It's hard with employment. Globally, employment is difficult to measure at the moment because of immigration. Immigration is changing rapidly, immigration is falling here, immigration, the U.S. is going out the door, not coming in. So employment numbers are a little bit difficult, but generally the Reserve Bank is saying employment is rising a little bit, inflation is now behaving itself. Therefore, if the economy is just growing slowly, is it right to remain high with interest rates? And I think the answer by the market is probably not. You need to stimulate um the economy a little bit by cutting rates.
SPEAKER_05How is consumer spending?
SPEAKER_02Consumer spending remains patchy. Um if you look at the high-end retailers, they're really doing very, very well. You know, the the economy is very well. Very well. The economy is spending.
SPEAKER_05Who's got the money?
SPEAKER_02Who's spending this money? Yeah, Top of Town is is spending big money. So we're seeing very, very good growth in those sorts of exclusive type products. But down the bottom, we're seeing uh lower income people shifting down. So perhaps they're spending on uh smaller amounts and sacrificing a little bit of quality to do
What A Cut Does To FX
SPEAKER_02that.
SPEAKER_05Patrick's got a great question. So Patrick asks Remo, what does an interest rate cut do to the Aussie dollar? Because Patrick's traveling soon.
SPEAKER_02Okay. So generally the theory is that a lower rate will mean that the uh Australian dollar should come back a bit, should fall a bit. Not always like that. Um remember exchange rates are not just one rate, it's a rate against something else. So we're seeing the US dollar weak, uh, and so it's hard to have the Australian dollar and the US dollar going lower. If you're traveling to Europe, bad luck. Uh the euro is going up and up and up against the Australian dollar, and that's not good if you're traveling to Europe. If you're traveling to the US or say Japan, it's a little bit better.
SPEAKER_05Okay. Um So, Remo, let's get to the second part then.
The Product Avalanche Warning
SPEAKER_05Um we're going to look at how do we really take advantage of a rate cut or what is our strategy? Um Remo Greco is with you. He's a share market specialist. You're listening to Lisa Leong on 774 ABC Radio Melbourne and Victoria. Our numbers to call with any questions, 1-300-272-774 or 0437-774-774. And Danny
Black Market And Cashless Push
SPEAKER_05is here as well and has a question for you, Remo. Hello, Danny.
SPEAKER_07Hi, and Remo. Well, it's a little bit left field because it is actually a question I'd love to find out the answer to. We hear about all this black market stuff, uh, sale of illegal tobacco and things like that. It's obviously rampant. How does it affect you and me and the average person?
SPEAKER_05That is really random. Danny, Remo?
SPEAKER_02I suppose it its most basic form is the black market is designed to do a couple of things. One, avoid maybe taxes, uh, whether they're state or federal taxes, and the other thing, and and also taxes on your own personal income. And then secondly, um, to obviously uh uh uh take advantage or perhaps avoid other st other duties like on cigarettes and those sorts of things. It just perhaps means that the pie shrinks a bit for the average person who's doing the right thing. In other words, the amount of income that the government may collect. Um that's probably about it. But I'm not sure how rampant I'm not sure if rampant is the word. It might be a bit high profile, but today the the way that the financial system works and the data that's collected uh by the tax office on your wages, they know everything about that, and including your savings and then your spending habits, all that data is just uh really, really accessible now to the authorities, and you're just playing really uh very, very you know you have to be pretty careful if you want to you know stay out of the system, so to speak. I would think that uh perhaps another reason for governments and the Reserve Bank to say they want to phase out hard currency and have everything on your credit card and debit cards is again to sort of close that loophole.
SPEAKER_05Thank you, Danny. Uh let's continue this conversation. 1-300-372-774-0437-774-774. We will get all of your questions through to Remo after this. It's National Science Week.
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Stop Buying The Headline Rate
SPEAKER_01On the money.
SPEAKER_05How do we take advantage of a rate cut? That's the question for Remo Greco, our share market specialist. You're with Lisa Leong. Our numbers again, 1-300-322-774-0437-774-774. Remo.
SPEAKER_02So I think the thing that we are a little bit concerned about is that generally investors will look at the headline rate that they're going to earn on a particular investment or security, and that's the measurement. Okay. They perhaps don't peel the 7% goodie. 7% goody. Let's not peel the onion anymore because we probably don't want to see any more, right? And I think that's probably the issue. And that's really how our market and how our industry sells things. They put the headline rate and then you forget to look at the the fine print. So I think that's probably something that's fairly uh something that's fairly readily uh accessible for people is that is do a little bit more digging. Secondly, I think the issue at the moment is that people go, oh, well, maybe I should lock in rates now before they go lower. Uh this sort of let's try to get ahead of the pack. I think it is instructive that perhaps people that aren't in the market a lot should understand that professional interest rates, this is not the cash rate that is set by the Reserve Bank, but professional rates started falling last Christmas, a full three months before the Reserve Bank cut its rates in the middle of the year. So we're too late. Correct. So so you're not going to try to jump ahead and get anything better. The markets are well ahead of you. So the rates offered in the market today reflect what the market thinks will be happening in six to twelve months, not what you think today. Remember, you've got to drive the car looking out the front, not through the rear vision mirror. So there's no freebies now. The game has well and truly been you're in the third quarter, we're not in the first quarter. And so therefore be careful because if you are panicking or you feel under stress that you need to lock in, there's no there's no panic or need to need to stress here, guys. You should have stressed last year when rates rates were high and you needed to lock it in there. It's too late. And we're not trying to be flippant here, but we just want to make sure that people understand the context of where rates are relative to your investments. So I think the issue then is to be really careful about the quality of the fixed interest or the income stream that you're buying, because that's really at the end of the day what causes your stress.
SPEAKER_05And how do we figure that out?
SPEAKER_02So I think when you look at a product or a security that's been offered to you or advertised to you, the real issue is what is the underlying asset? What are they buying? What are you actually going to hold that's going to give you the income? And that can be wrapped up in really complex terms, so you need to sort of be very careful to understand that or ask those questions. What in fact am I really owning? Am I owning an Australian government bond where pretty much my capital is preserved and safe? Or am I buying a bond or an investment in a company who perhaps has had a check at history and where the chance of me getting my money back could be at risk? And you might be prepared to take that risk. The issue is, is the return you are going to earn sufficient for that risk? And that's like an equation that takes a little bit of time and it can do your head in. So you need to be pretty careful about that.
SPEAKER_05Rosa has got a good question for you.
What You Really Own Matters
SPEAKER_05When the Reserve Bank cuts interest rates, can banks reduce the interest rate on term deposits straight away, or do they have to wait until the end of your term?
SPEAKER_02Banks have cut term deposit rates six months ago. This is my point.
SPEAKER_05She is saying if I have got a term deposit and I have locked in. It's locked in, isn't it, Remo? So they won't change my interest rate on my deal.
SPEAKER_02That's correct. So if you walk into the bank today and want a new new term deposit, that's a new rate. But if you had it last week, then that rate remains the same. So just with term deposits, what you need to remember is when that term deposit matures, Rosa, you're going to be exposed to the lower rates then. So that's why term deposits have what we call a reinvestment risk. It's that is you lock in today, but then when you come out the other side, you have to take whatever the rate is. So that's a little bit of risk.
SPEAKER_05Now apparently there are some new income products which you had alluded to.
Term Deposits And Reinvestment Risk
SPEAKER_05One is called residential mortgage backed securities, RMBS. How do these work, Remo?
SPEAKER_02So RMBS, Residential Mortgage Backed Securities, is the ability to buy mortgages that have been initiated by a bank or uh another financier. It could be Liberty Financial, could be La Trobe Financial, all of these groups, when
RMBS Explained And The Big Short
SPEAKER_02you go and get your home loan, you might get the home loan from a a a major bank or it might be from another intermediary. Now, the banks often don't hold all those home loans uh for the next 30 years, waiting for Lisa and I to pay off our home loan. They might say, well, we're going to package up uh the top 100 home loans that we have, and we're going to sell that off now so that we get our capital back and let someone else enjoy that sort of return. And those securities, those RMBS securities, have been traded in the market for yonks. It's an old security that's been around for a long time, just like government bonds. And the big end of town, so whether it's industry super funds, insurance companies, your pension fund will often have investments in RMBS because what you're buying is you're buying what is regarded as a fairly safe, secured home loan that's been vetted by a bank, so it might only have 50 or 65 percent LVR loan-to-value ratio, and that homes in Australia are obviously the best thing since SliSbridge and have been for 30 or 40 years. You can't go wrong. Well, I'm being a bit flippant here.
SPEAKER_05So you're saying that the change is that it's now available to us.
SPEAKER_02We talk a lot about ETFs. Yes. And it means that you can now buy an ETF listed on the ASX, and in that bucket are a whole stack of home loans.
SPEAKER_05Now, Remo, this reminds me of something.
SPEAKER_07The whole housing market is propped up on these bad loans. They will fail. The housing market is rock solid.
SPEAKER_02It's a timeline.
SPEAKER_05The big short. Come on, what is going on? Did you miss the big short?
SPEAKER_02That's right. So this so look, it So the Big Short is a reference to a movie that depicts what happened to the United States home loan market or the home market back in 2007, which caused the general the great financial crisis. Okay. So that was really where people were borrowing money to buy a home, and that loan was given to you by a financial institution who basically said, uh, Lisa, you're unemployed, you've got a really bad track record financially, but you know what? We'll give you a lot of home loans. And what happens is so I take the loan off Lisa and then I put it into an ETF and I sell it off. And I it's basically passing the parcel to somebody else until it blew up. And that's really how that happened or collapse. So in Australia, the underlying premise here is that the home loan market is pretty rock solid, that we haven't had a recession for 20 or 30 years, unemployment has been low, therefore people and the other thing I think, which is a bit different overseas, is in Australia, if you can't pay your home loan, then the bank will take your home. In the United States, if you can't pay your home loan, you just walk up to the bank, give them the front door keys, and walk away, and you do not go bankrupt. So this is why the big short was such a a big issue in the US and unlikely here. So the parameters, the details of how our market work is good. Uh however, in the past, in order to access these sorts of home loans in a bucket, you had to be a big end of town, right? You need five or ten million dollars to do to play that game. Mums and dads couldn't do it, retail couldn't do it, and of course, given our industry is always looking for the next good thing, it decided, well, let's put this in. Now the returns you're going to get for these sorts of home loans are around five percent. The average home loan rate is between five and a half and six percent. So uh if you went out and did your own home loan, you would earn five and a half or six percent, but for buying this product you're gonna earn around five percent. So you can see where the the they're squeezing the lemon here to make their fees.
SPEAKER_05Okay, so we were talking about the residential mortgage-backed securities RMBS, just in case you missed that. Speaking to Remo Greco, who's our share market specialist on 774 ABC Radio Melbourne and Victoria.
Starting With ETFs Near Market Highs
SPEAKER_05You're with Lisa Leong, taking your calls, and Bill has called in on 1 300 27274. Hello, Bill.
SPEAKER_04Good day, guys. Uh I have a question. I've got a question. Um with the cash rate falling. I'm looking at um joining a like a site to do some share trading, either ETFs or shares, ASX shares. Now I've looked at um certain platforms like superhero or moo. Um just want to get an idea of what what do you think in terms of where to start research? Because I find the ETFs a bit high at the moment. So I'm trying to get you know better value um entering the market.
SPEAKER_02Yeah, good question. So I think uh clearly those sorts of platforms that you're talking about are driven or they're here really to help you introduce into the market there's quite a lot of depth of knowledge available there that you need to absorb. When you talk about ETFs being high at the moment, the market is high. We're trading at an all-time high. Most markets around the world are at all-time highs or or cycle highs, as we call it. The issue is it's relative. So at the moment you could go and buy an ETF called VHY. That is the the the top yielding stocks in the Australian market, packaged up into a bucket called an exchange traded fund, and the average yield on that is around four and a half percent or a little bit lower than that. So you can buy one security uh with about fifty or sixty companies in there, perhaps actually a few more than that, and that way there you can earn start to earn a reasonable return and you get a bit of franking credits as well. So ETFs generally are a good way to start because you only have to worry about one or two securities. Whatever's on the wrap up pretty much tells you what you own, and you can begin your journey that way before you start to say, I want to buy individual stocks, okay, and then you have to learn individual uh idiosyncrasies about that stock. So that's probably one way to do it. So it's it's not expensive or cheap, it's all relative to where we are. If interest rates keep going down, share prices tend to go up. No, I'll backtrack that. If interest rates are going down, share prices have already gone up. That's why Telstra has gone from $4 to $5 over the last 12 months. It already anticipated that the cash rate is coming down. So this is the issue you need to think about. It's what's the future going to look like, not what the past. It's a difficult subject to think about, but that's that's the key.
SPEAKER_05Thank you, Bill, for your call. Taking your calls on 1-300-372-774-0437-774-774. Anything we share here is general in nature and doesn't take into account your personal circumstances, financial situations, or needs. Mark is here from Port Melbourne. G'day, Mark.
Corrections, Crashes And Time Horizons
SPEAKER_02It's a good question. So um i share markets tend to have a correction, which is a fall of maybe 20 percent or more, once every three or four years, perhaps even uh a bit more than that now and again. Um that's not a crash. A crash is a GFC type crash where you lose 50 percent of your money in a short period of time, which is what happened in 2008-2009. That doesn't happen very often. Uh today, reserve banks and governments are very attuned to what happens to investment markets if the economy uh goes into free fall. But and COVID was an exact example of that. If there's a risk to the markets, the Reserve Bank and the and the governments will move in and try to help that. That doesn't always happen. So the issue you need to think about is what are you buying and for how long are you going to hold it? So if you're going to be an investor for the next 20 years, it's it's probably not a big issue. I don't want to be trite about this, but it's not a big issue to worry about a crash. Um because in 20 years' time what happened in between there will almost sort of become insignificant in a way. Um I see what you're saying. You're saying is is it risky to buy when the markets are at an all-time high? The statistics actually show that the best time to buy shares is when the market is at an all-time high, because that suggests markets will continue to go up. Intuitively, I find it very difficult to believe that, but in fact, that's exactly what happens. So you buy it when it's the most expensive, and that does your head in. I get that, but that's because the markets are seeing the future as being they're seeing the future right now, and the future can change in their view, but they're seeing the next twelve months to be better than the past twelve months.
SPEAKER_05Thanks so much, Mark. We've got a quick text here, Remo, that I want to deal
Retirees, Inflation And Moving Rates
SPEAKER_05with. If you want to preserve your cash, are you doing okay if the interest rate exceeds the inflation rate?
SPEAKER_02It's a good point. So uh for retirees mainly, this is the big issue that we have got now, and that is that inflation has sort of misbehaved itself over the last four or five years, and COVID and those sorts of things are primarily the reason behind that. But if you are now moving into an area where you're no longer working and your income is almost fixed, inflation can really hurt. And I think that's probably the biggest issue underlying our discussion today about when you buy fixed interest, and that is you can buy securities like a government bond that will pay you 4 per cent for the next 10 years, an Australian government bond. That 4 percent doesn't change. And a lot of people think that's a great idea. And that's because over the last 20 years it was a great idea, because inflation didn't exist. The question we need to sort of work out is is the next 20 years going to be like that or not? And I suspect it may not be. What does that mean? That means if you lock in your rate now for the next 10 years and inflation goes up, then you've got this problem. So how do we solve for that? Our view is that for most investors, it is better for them to buy securities where the interest rate they get moves up and down with professional market rates. So if the Reserve Bank lifts rates up, you get the benefit of that. If it if the Reserve Bank cuts rates, then unfortunately you you don't get the benefit of it. The question is why are rates going down? Because inflation is going down. But if inflation starts to go up, then rates will go up, and you want to be there so at least you can preserve your purchasing power. Okay, so this is a bit of a concept to get your head around, but it's really important, I think, for retirees.
Final Thoughts And Thanks
SPEAKER_05Remo, great discussion. Thank you so much. Great to see you again.
SPEAKER_02Great questions.
SPEAKER_05Yeah, great questions. Thanks everyone. And that was Remo Greco, a share market specialist, and who will be back with you again. Uh a Sunday coming up um in due course, shall we say.
