Lex Hall: Let's take an individual look what sort of cash level you want at the moment? And what sort of sectors do you think will offset any trouble ahead?

Peter Warnes: Yeah, well, I'm still running cash, but I've reduced my cash from about 40 per cent to probably 20 per cent. And that money has gone into stocks that I think were beaten down and beaten down too much, and looking at – and with I think, you know, good business, relatively good business models or they've got tailwinds, or what have you. So, the things that I put my money into a Challenger, I've got some CIMIC. I've always had a reasonable exposure to energy. I'm looking at a few other situations. But I think that I'm still cautious. I still think there's a long way to go. We're not out of the woods yet. We've kind of got out of the woods, but the recession in the US is technically over, well tell the 7.7 million people that are still getting continued benefits. We've got 900,000 plus people unemployed, and about the same number who want more work. Well, tell them the recessions over. And the level of debt out there is palpable, and I don't know how long it will take to get it back to normality. I suspect decades, not years.

Hall: And that piece of paper in front of you, you've got a few ideas on companies that people may wish to consider for income for yield.

Warnes: Well, I think if you're getting nothing at the bank, and again, you've got to have something in the bank, because I'm saying, hang on a second, I don't care if I'm getting nothing on it. I've got the option to buy something that I really do think can turn, it can make me some – give me a return that I think is acceptable for the risk I'm taking. I'm not taking any risk with money in the bank, and I'm getting no reward. No risk, no reward, that's fair. Understand that's what you are getting. But you can't price optionality. You are getting optionality, which is an intangible. You can't spend it, but you ultimately can. If you haven't got it, you can't spend it.

So, I think that what you want to look at is if I can get 4 per cent on an investment that is sustainable and if it's sustainable, then the market will probably pay for that sustainability. So, let's add another couple of percent because I think, annual returns now are going to be – anything more than 6 per cent you should be jumping up and jumping for joy, because don't forget you're being pushed out the risk curve. And you don't want to be there. If you haven't got any time – if something happens, the branch snaps, you haven't got time to regroup your capital. Whereas a bloke at 30 has, but bloke at 70 hasn't, hasn't got the time to regroup.

So, if I'm looking at, let's say, 4 per cent then might be too high, and might even only be 3 per cent. But you know, and the one at 3 per cent probably got more growth potential than the one at 4 per cent, one might be much more mature and the other ones still in – but the one at 4 per cent it will be growing with GDP or what have you. So, they're the ones – and the ones that are sustainable or necessities or those things that 65 per cent of your GDP goes into. So, the companies like an Amcor, you don't go into a supermarket and come out with something that hasn't been packaged, no matter where you are in the world, maybe (indiscernible). So – and even ice blocks have to be packaged. So, the thing is that they're the stocks that you should be looking at. What do I need every day to make life comfortable? And what's the value? What value am I getting? What am I paying for? What am I paying for?

Hall: Well, we need banks every day, but you're less hot on banks.

Warnes: Well, the only reason I'm not warm on banks is because with the interest rates where they are the official rate will be probably 10 basis points on Tuesday afternoon. With the interest rates going down, it drags the net interest margin down, it drags it down. Because what happens is that despite the fact that they're paying you the depositor nothing, the competitive pressure is downward also on the rate they can charge.

Now, their tailwind is costs through digitisation, all that whole thing – they're basically in the infancy of that. But the headwind is the top line, the net interest income line, which is 80 per cent. It used to be about 70 per cent of the bank's total income. The other one was non-interest income where you usually are probably charged fees left, right and center, well buddy no banks charging fees anymore? And so, net interest income has become a bigger path or a bigger portion of banks' total income. That is going to be had, unless you all of a sudden get a big spike in credit growth, which has been doing nothing for three or four years, where they were actually growing portfolios, loan portfolios significantly, and that through volume rather than price and margin drives total income or net interest income. But I don't see that happening.

Yes, we're going to have an economic recovery. And yes, we want people to spend and we want people to invest and what have you. But I want to see those financial aggregates that come out every month from the Reserve Bank, they're the ones you should be watching. What is happening – rather than have a, it's going to be one month out of date. But you want to see them turn and when you see them turn if we don't see those turning by December, and certainly by March, and they probably will start drifting up, all that money that the Reserve Bank has set and the government's up against the wall. It hasn't done the job they wanted it to do. So, bankers, are bankers to the economy. If the economy is doing nothing, the banks can't participate.

Hall: Well, Peter, we'll leave it there. Thank you very much for sharing your insights today.