Paul Moore: US housing stock, Toll Brothers, for example, one of the big homebuilders over there. The US housing stock was only at best halfway through its upturn and yet, everyone is acting as though interest rates are going to cause it to be the end of the cycle. And it's selling on seven times earnings, which is pretty reasonable. Orders are growing at 20 per cent year-on-year. So, we think there's another two or three or four or five years left in the US housing cycle. So, at seven times, it's pretty interesting.

Another stock that people would be familiar with and it's a very simple business is Bank of America. A great deposit franchise. It's paying back 100 per cent of its earnings in buybacks and dividends because the Fed has said you've got enough capital now. 10 P/E which is very, very attractive.

KKR is the other one. A lot of investors might know it because it was pretty famous historically with a lot of the big takeovers on Wall Street and it's a classic in terms of – these are really sharp management, sharpest on Wall Street, I would argue, amongst that industry, the alternative asset managers, private equity, credit. So, KKR is among that mix. They have companies that were found a long time ago, they have been in business 50-odd years. So, they are seen as specialist in their business. And the interesting thing is that a couple of years ago, traditional managers have been selling at 15 P/E. These alternatives like KKR are selling at single-digit P/Es.

One that might be interesting that I would argue you might want to avoid, because I think their sector is going to have a few troubles at some point in the next couple of years and it's represented by Ronald McDonald, McDonald's. So, the interesting thing about McDonald's is, it's been a prime beneficiary of lower rates.

Because if you think about McDonald's, it's actually a property business. You go back five, six, seven years, they haven't grown their underlying earnings. Stock price is going up because of re-rating with lower interest rates, a perception that's defensive. They have also been selling all their company-owned restaurants. And the reason being is they get royalty streams in return and Wall Street weighs royalties much higher than ordinary revenues. They take the capital, buy back stock, play the engineering game to its fullest extent. So, they are now pretty fully valued. It's selling it off to their franchisees, the company-owned restaurants, who are borrowing from the bank to buy. And one of the issues with the franchisees, they are now facing potentially margin pressure because they now are fully responsible for labor, rent, food costs, interest costs and they have all inflected. And to help them out, they are selling off the underlying property to a passive property investor, he is probably borrowing from the bank to buy the property. So, the whole system has become leveraged right at the point of an inflection in interest rates.

Glenn Freeman: That's another comparison there with the Australian banks, I guess, in that they are so reliant on another asset class, in our case, housing and in that case, it's commercial property?

Moore: Yeah. And if something goes wrong, who has to step in to protect the franchisees? It's McDonald's and I don't think the market is allowing for that in the valuation.